Optimistic planning bias strikes again?

The headlines are there for all to see: “High speed rail scheme cost to double to £80bn, economists warn”. The government in reply said “The budget will not be exceeded”.

I am often left puzzled by headlines like this. I wonder whether there is a level of dishonesty among politicians (and senior civil servants) with the public over the real costs of capital projects.

According to politicians, there will be a big boost to the economy in the building of the railway. But, as we often see, the actual costs exceed the estimated costs. Is it optimistic planning bias? Is it politicians not being truthful?

I think it is both.  The estimates are prepared in a way that makes them palatable to ministers and the public. The reality is however that the estimates are nothing more than guesstimates and the politicians have no real idea how much the schemes will run to – see our previous blog. But, there is economic benefit in capital projects so, support them they do!

Maybe a cynical view, maybe a truthful view. What’s your thinking on this issue?

Image courtesy of potowizard, www.freedigitalphotos.net image ID: 100142301

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4 Responses to Optimistic planning bias strikes again?

  1. Pingback: Optimistic planning bias strikes again? | #PMChat

  2. Dave Gordon says:

    Much of the London Underground infrastructure is nearing the end of it’s operational life. Should the entire system be closed permanently, because it’s too expensive to renovate it for the 21st century? What would be the impact of that decision? Should the (disastrous) Public-Private Partnership model be re-visited, based on lessons learned?

    Cost / benefit analyses are rarely correct because it’s hard to anticipate all of the costs, even harder to anticipate all of the benefits, and still more difficult to assess alternative solutions. And then you have to quantify them, without knowing who will actually bear many of the costs or receive the benefits. Infrastructure projects are the worst of all, because most of the business case is based on benefits that will accrue to future endeavors. So the initial budget is made palatable enough to get the project started, and then additional funding is approved, over everyone’s objections, because you can’t just leave a mess. Blame the politicians and optimistic planning bias if you want, but we inherit the decisions of our ancestors, and we bequeath them to our descendents.

    • Ron Rosenhead says:

      Dave, thanks for your time and comments. Much appreciated.

      I am listening to the radio while typing this. A woman is saying we are short of capacity, we need more trains and HS2 is the way forward.

      The problems are mainly political – if there was political leadership over such projects then maybe…maybe…estimates and budgets would be more realistic? I have been present where a speaker has said that had they presented the real figures the project would have sunk! I go back to the main point in the article; are we being honest? Or, are we simply being naive?

      Thanks Dave, appreciate the comments.

      Ron

  3. Ron,

    The root casue(s) Nunn-McCurdy breaches here in the US DoD (> 25% over target baseline) always land on the political aspects of the project. Many of the commentators blame the estimators, but they work for people who are the “root cause.” And even then that’s not the real “root cause.” The expectation of the public is “low price wins,” and if they heard the actual cost many of the project would not get approved. James Web Telescope, Joint Strike Fighter, DD-1000 destroyer, are perfect examples.

    So in the end “honesty” is a vague term when politics is involved. Naive maybe, but really “ill informed” as citizens is one of the root causes. We simply don’t know what we need to know to assign a value to the project, so we judge it’s “worth” by its “cost.”

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