Before You Start Managing that Major Project, What You Should Know about Cost Overruns and Benefit Shortfalls¹

Worldwide, major projects are sought after yet they fall short with depressing regularity, as they endure a double ‘whammy' of cost overruns and benefit shortfalls at completion. However, the question of what explains cost overruns and benefit shortfalls and what can be done about it remains a longstanding puzzle fraught with academic, practitioner, and even legal controversies. This chapter briefly sheds light on the causes and solutions to the conundrum and focuses on two important questions for practitioners: Causes: Do major projects fall short because of bias (e.g., the tendency to over-promise and under-deliver) which often creeps into their initiation, or do they succumb to error (e.g., mistakes made due to scope changes, complexity, and uncertainty), which often plagues their execution, or both? Solutions: Should policymakers turn to ‘debiasing', or attempting to fix the initial cost estimates of projects under consideration (e.g., statistics drawn from the results of past and similar projects) or should they instead apply ‘best practices' (e.g., risk analysis, cost estimation, and project implementation), or both? This chapter suggests that error and bias combine to exact a toll on major projects and offers theoretical insights and outlines practical recommendations for project managers.