Enhancing Cost Forecasting in Major Capital Projects: Key Findings and Recommendations
This study analyses cost forecasting in major capital projects, identifying causes of cost underestimation and proposing measures to improve accuracy. Key findings highlight optimism bias, strategic misrepresentation, and the importance of data quality for accurate forecasts. Recommendations include using a mix of forecasting methodologies and learning from past projects to enhance future cost estimation in major capital projects.
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Spending Review 2023 An Analysis of Cost Forecasting in Major Capital Projects & Programmes James Connolly & Frank Newman Department of Public Expenditure, NDP Delivery & Reform 13-December-2023
An Analysis of Cost Forecasting in Major Capital Projects & Programmes Overview, Aims & Objectives Overview This paper assesses the causes of the cost overruns/underestimations in major capital projects from international research and examines measures that can be taken to more accurately account for risk in cost estimations Aims and Objectives Identify the main causes of cost underestimation in major capital projects Highlight the impact cost underestimation has on project delivery Identify measures/best practices that can be used to improve accuracy in cost forecasts and reduce the likelihood of cost overruns in major capital projects Provide recommendations to improve Irish cost forecasting guidance and Irish capital appraisal guidelines 2 Rialtas na h ireann | Government of Ireland
An Analysis of Cost Forecasting in Major Capital Projects & Programmes Key Findings Key Policy Relevant Findings The primary causes of cost underestimation from International Research were: Optimism bias Strategic Misrepresentation Project development failures j Accurate cost forecasting can play a crucial part in reducing cost overruns in major capital projects by enhancing options/economic/financial appraisals Good quality/well maintained data from outturn, comparable projects is essential for producing accurate cost forecasts for major capital projects Government measures can be introduced to help combat optimism bias and strategic misrepresentation in cost forecasts, as seen in international examples 3 Rialtas na h ireann | Government of Ireland
An Analysis of Cost Forecasting in Major Capital Projects & Programmes Key Findings Key Policy Relevant Findings - Continued A mix of different cost forecasting methodologies should be used throughout the lifecycle of a major capital project/programme depending on the availability of data from comparable projects, project/programme maturity and suitability Modern methods of construction can improve the accuracy of cost forecasts and reduce risk for major capital projects/programmes in the future Examining the lessons learned from past projects provides the opportunity to learn from past successes/mistakes The findings within this research paper were supported by international research in cost forecasting and key stakeholder engagement and communications with members of DPENDR, other Government departments and MPAG 4 Rialtas na h ireann | Government of Ireland
