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Planning numbers - don't take them at face value
das - 26 April, 2009 | Projects | Bangalore | Analysis
The true costs of a project (economic, environmental, whatever) are never evident till the project is done. There is a beautiful (and very well known) study on the issue. Some excerpts from it :
"Based on a sample of 258 transportation infrastructure projects worth US$90 billion and representing different project types,
geographical regions, and historical periods, it is found with overwhelming statistical significance that the cost estimates used to decide whether such projects should be built are highly and systematically misleading. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying. The policy implications are clear: legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust cost estimates and cost-benefit analyses produced by project promoters and their analysts."
"....cost estimates used in public debates, media coverage, and decision making for transportation infrastructure development are highly, systematically, and significantly deceptive. So are the cost benefit analyses into which cost estimates are routinely fed to calculate the viability and ranking of projects. The misrepresentation of costs is likely to lead to the misallocation of scarce resources, which, in turn, will produce losers among those financing and using infrastructure, be they taxpayers or private investors."
"Costs are underestimated in almost 9 out of 10 projects. For a randomly selected project, the likelihood of actual costs being larger than estimated costs is 86%. The likelihood of actual costs being lower than or equal to estimated costs is 14%.
• Actual costs are on average 28% higher than estimated costs"
The full report. Lovely (and horrifying) reading . http://flyvbjerg.plan.aau.dk/JAPAASPUBLISHED.pdf
Very true of Bangalore too.
COMMENTS
Under-Estimation of Project Costs - A Fine Report
Naveen - 26 April, 2009 - 12:45
Das,
Many thanks - this is a wonderfully referenced report & throws light about why these happen more often than not.
One thing is comforting though - the phenomenon is worldwide, if not universal !
A research paper from Sebastian Moris, IIM Ahmedabad!
kbsyed61 - 26 April, 2009 - 13:21
Naveen,
In Indian context this is much more in quantity and quantum. Every public utility project is testimony to this fact.
As back as in 1987, Mr. Sebastian Morris of IIM, Ahmadabad, has written a research paper with eye opening facts about costing in public utility projects, published in 1987.
http://bangalore.praja.in/blog/kbsyed61/2009/02/01/cost-and-time-overuns-public-utility-projects
What should concern is its enormous impact on national economy in terms of inflation and ultimately increased cost of products.
Lying, not error
das - 27 April, 2009 - 05:26
"...supposedly higher levels of professional expertise by financial planners, even they have limitations & cannot possibly forecast accurate cost estimations due to the vagaries that might be involved, such as escalation of cost/s for raw materials, labor costs, unavoidable & unforeseen delays, etc."
Flyvberg's research however says "Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying."
Bengaluru METRO - a classic case of cost and time overruns
Vasanthkumar Mysoremath - 26 April, 2009 - 13:50
What started with an estimated cost of Rs.3000 crores for implementing Bengaluru Metro Rail system a few years ago, with a warning coming from the Managing Director of BMRCL - every day's delay will increase the cost of Metro by Rs.50 lakhs - was it to scare the people and submit themselves to the whims and fancies of a government company whose track record was Nil in executing such projects?
Today Metro cost stands at Rs.9000 crores plus - people must keep adding Rs.50 lakhs every day to this figure and by the time a rattling metro runs on MG Road, my estimate would be Rs.30000 crores.
The bane of our society is blatant absence of respect for citizens voices by service providers, government officials who are immune to transparency and accountability and always go about with arrogance and a syndrome of 'what is in it for me' about all projects/programmes that is proposed to be provided with some service to the public. Add to this the necessary evils - the temporary politicians who assume that the country belongs to them and they are the holy cows and policy makers who have a right to fiddle with everything under the sun as if they own them.
What are we waiting for Citizens - "Kurigalu Saar, naavu Kurigalu"
Also read post "SUCCESS STORY OF STREET COMMITTEE IN MYSORE" and consider it as a prelude to futuristic project preparations, budgeting etc.
- Vasanthkumar Mysoremath
Public Spends - Cost Overruns
Naveen - 26 April, 2009 - 16:43
Syed - Report by Sebastian Morris noted, thanks.
I think cost overruns, in many cases are unavoidable to some extent - like when we think of putting up a building or a house, we invariably tend to overshoot our estimates, in most cases.
Though public spends are done under supposedly higher levels of professional expertise by financial planners, even they have limitations & cannot possibly forecast accurate cost estimations due to the vagaries that might be involved, such as escalation of cost/s for raw materials, labor costs, unavoidable & unforeseen delays, etc., though some allowances are usually included for these.
These generalizations apart, as citizens, we must of course push for more accurate cost estimations all the time & compare with actual spends on completion since it is public money & therefore belongs to all of us.
VKM - I dont think Metro will run to 30K crores, not for the 1st phase of 42km atleast. If you include future phases, it might well run beyond 50K crores (!) since they are talking about nearly 160km of tracks in all.
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