Optimism and risk
Megaprojects are big business, and their budgets match the ambition of their supporters. Oxford University research works with business and governments to reveal optimism bias and to offset its potentially negative consequences: projects that run over budget and over time.
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It is human nature to be optimistic. If asked, we will almost all claim to be good drivers; statistics indicate that the truth is otherwise. This curious insight into human nature is known as optimism bias. Research by Professor Bent Flyvbjerg at the Saïd Business School has analysed optimism bias to achieve a better understanding of ambition and risk in megaprojects.
Megaprojects have become a significant part of the commercial world. Defined as major infrastructure investment projects, megaprojects include the construction of the £4.7 billion Channel Tunnel between the United Kingdom and France, the building of Denver International Airport at $5 billion and the rerouting of Interstate 93 (the main highway through Boston) into a 3.5 mile tunnel ($15 billion). Outsize cost is not always the chief feature of a megaproject; a £500 million project in a medium-sized town may also be classified as a megaproject, given its effect on the local community.
Megaprojects entail a vast amount of planning and management. Risk goes with the territory. Cost overruns of 50% are common; overruns of 100% are not unknown. Similarly, substantial benefit shortfalls trouble many megaprojects, while regional development effects and environmental impacts often turn out to be very different from what was originally envisaged.
We now understand that optimism bias and strategic misrepresentation are significantly better explanations of megaproject outcomes than previous explanations
- Bent Flyvbjerg, BT Professor and Chair of Major Programme Development
It is here that Professor Flyvbjerg’s work is having a tangible impact. As the first BT Professor and founding Chair of Major Programme Management at Oxford, Professor Flyvbjerg has become the leading international expert in the field of programme management and planning. His research is widely considered essential reading for project managers, sponsors and all those involved in megaprojects. It examines what Professor Flyvbjerg calls the megaprojects paradox. This term refers to the fact that ever bigger megaprojects are being planned despite their poor performance record in terms of costs and benefits. A failed megaproject can cost a business its reputation, even its ability to stay afloat. Companies that bring on board lessons from Flyvbjerg and his team are more likely to deliver a megaproject on time and within budget: enhancing their reputation as well as delivering success for their clients or customers.
Professor Flyvbjerg provides solutions to counter optimism bias in megaprojects, leaving them better managed and more likely to come in on time and to budget. Professor Flyvbjerg has developed the research methodology called ‘phronetic social science’. This methodology employs practical judgement to analyse data sets: common sense social science, if you will. This way of working tries to curb misinformation, improve accountability and more accurately predict outcomes.
In the UK, for example, Professor Flyvbjerg has advised the government on High Speed 2, the planned high speed railway between London, the Midlands and the North West. He has also advised on the high-speed railway currently under construction to link Hong Kong with the Chinese mainland.