Why do big infrastructure projects always cost more than we think?

Nine of 10 transportation infrastructure projects are more expensive than first estimated. Why isn't it ever the other way around?
Written by Tyler Falk, Contributor

Do a quick search for news on "project cost overrun" and you'll get a long list: an airport terminal in Dallas; a transit center in San Francisco; a nuclear plant in Minnesota. And those are just recent examples, in the United States.

Why do the actual costs for major infrastructure projects, more often than not, far exceed the estimated costs? Eric Jaffe at The Atlantic Cities offers up two possible explanations. The first theory is "strategic misrepresentation" -- strategic lying, in other words -- by public official and the people running the project. The other theory is simply that the people involved with the project are more optimistic than realistic, and there's a psychological explanation:

Writing in the late 1970s, the psychologists (and would-be Nobel Laureates) Daniel Kahneman and Amos Tversky called this problem the "planning fallacy" [PDF]. At its root is a tendency for people to see their plans from the inside rather than evaluating them as an external referee might. Whereas an outside observer might consider a project and recognize its "distributional" risks — the combined possibility of a delivery delay or a worker strike or plain bad weather, for instance — the person directly involved might be blind to these possibilities

No matter which theory you buy, the fact is that nine of 10 transportation projects are more expensive than originally estimated.

The solution could be what Jaffe calls a "reference class" that would compare infrastructure project costs with similar projects that have already been completed. The only problem: would those new projects get done if the true cost is known upfront?

Read more: The Atlantic Cities

Photo: Flickr/Боби Димитров

This post was originally published on Smartplanet.com

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