Explaining cost overruns in infrastructure projects: a new framework with applications to Sweden

Abstract

The aim is to both develop a new theory-based framework for analysing cost overruns, and to use this for an empirical study of cost overruns in infrastructure projects in Sweden. The conceptual part is based on a literature review and the empirical part is primarily based on a questionnaire to project managers. The framework has a descriptive part comprising two dimensions: when, during the process, the cost overrun arose and what part of the cost function was responsible: change in the product, change in quantities of the inputs and change in price of inputs. The explanatory part is a development of Flyvbjerg’s theories and identifies four possible explanations: political/strategic aspects, psychological aspects, competence-related aspects and bad luck. The result from the empirical study is that most cost overruns occur in the initiation and planning stages up to the final design and are related to design changes and increases in the amount of inputs needed because of technical and administrative problems. Of the explanatory factors, there is most support for lack of competence and optimism bias.

Keywords:

• Construction costs
• infrastructure
• Sweden
• cost overruns

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. There is an interesting current example of this in Stockholm, where one large subcontractor in a tunnel project recently went bankrupt and the comment from the Swedish Traffic Authority was that this will probably lead to cost overruns.

2. A recent Swedish example is the new arena in Stockholm (Tele2 Arena), where the contractor made large losses because of a number of cost increases partly related to the bankruptcy of a subcontractor. The cost overruns were, however, limited from the perspective of the client.

3. Hypothesis testing at a 95% confidence level showed the population’s opinion difference between the sum of answers ‘often’ and ‘sometimes’ and the answer ‘rarely’.

4. Hypothesis testing at a 95% confidence level showed that the population of project managers regard design and changes in the input quantity as sources for cost overrun, but do not regard price as a source for cost overrun.