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Index

Published online by Cambridge University Press:  22 November 2017

Esbjörn Segelod
Esbjörn Segelod
Affiliation:
Mälardalens Högskola, Sweden

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Chapter
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Project Cost Overrun
Causes, Consequences, and Investment Decisions
 , pp. 258 - 262
Publisher: Cambridge University Press
Print publication year: 2017

Index

ABB
Combustion Engineering, 48, 50
Acceptance versus quality, 104–105
Accountability, 109–111
Administrative Behavior, 91
Advance in new technical knowledge, 71, 74, 139, 176–178
Agile programming, 176
Allan, J. M., 165
Alstom
Combustion Engineering, 48
Ambiguity, 28, 190–191
American Planning Organization, The, 114
Anchoring
definition of, 191
Anchoring bias, 90, 185, 191–192
Anglo American’s Minas-Rio mine, 1
Arrow, Kenneth, 195
Arthur, W. Brian, 199
Asset tradability, 45, 134–135
ASSI group, 15, 17, 50, 68–69
Association for the Advancement of Cost Engineering, The, 114
Balancing entrepreneurial and controlling forces, 66–68, 178
Bankruptcy, 49
Northland Resources, 49
Uddeholm, 46–47, 49
Barsebäck nuclear power plant, 18–21, 26, 37
Becker, Ernest, 129–131, 132
Becker, Gary, 199
Behavioural explanations, 59, 201–202
Big Mac Index, 33
Billerud, 47, 56
BillerudKorsnäs group, 15, 42
Boehm, Barry W., 159
Border between the logics of politics and economics, the, 92–96, 133
Bounded rationality, 124, 184, 201–202
Bower, Joseph L., 64
Buchanan, Harry R., 161
Budget
anchoring bias, 90
approving a generous budget, 44, 46
approving a tight budget, 12, 36, 196
estimates, 37
politicized, 30
savings, 35
Budget overrun
definition of, 5
Bureau of Reclamation, 112–114
Bush, President George W., 29
Carson, Rachel, 108
Channel Tunnel, 2
Cognitive biases, 88–90, 124, 184–185
anchoring, 90, 191–192
optimistic bias, 88–89, 185
self-serving bias, 89–90, 188–191
Collective emotions, 92, 96
Combustion Engineering, 48
Commitment
early commitment, 162, 163
self-serving bias, 189
Computer software projects, 159, 175–176
Conrad, Josef, 109
Consafe Offshore, 66–68
Consequences of cost overrun, 35–58, 148–149
Construction index, 76
Construction projects, 153
Consumer price index, 32, 76
Contingencies, 12, 35
Control system, 63–69
imbalance, 66–68
in major corporations, 64–65
market-based control, 64
pre-approval control, 64–65, 68–69, 105–107
social control, 64
Corps of Engineers, 112–114
Cost decrease
definition of, 5
Cost de-escalation
definition of, 5
Cost escalation
definition of, 5
Cost estimation
accuracy, 161–162
cost of, 161–162
early estimates, 160
precondition for, 115–118
rational model, 59–60, 73–75
Cost growth
advance in new knowledge, 176–178
consequences of, 35–58
covariance between deviations, 70, 172–173
definition of, 5
early estimates, 69, 160
French nuclear power plants, 77–78
intergenerational, 157
intragenerational, 157
nuclear power plants, 77–78
organizational context, 72–73
positive skewness, 70, 166–168, 174
project complexity, 71–72, 173–176
project size, 70
projects new to the estimator, 72, 166–168
projects new to the world, 71, 176–178
static uncertainty, 76–82
time between estimates, 70, 169–171
trade-offs between cost, risk and return, 82–85, 140, 141
US nuclear power plants, 77–78
weapon systems, 79–80
Cost increase
definition of, 5
Cost of being a pioneer, 75
Cost overrun
advance in new knowledge, 71, 74, 176–178
computer software projects, 159
consequences of, 35–58
construction projects, 153
covariance between deviations, 70, 172–173
definition of, 5
early estimates, 69, 160
measurement problems, 31–34, 136–138
negative consequences, 46–51, 57
non-learning organizations, 182
organizational context, 72–73, 183
positive effects, 54–58
positive skewness, 70, 166–168, 174
product development projects, 153–158
project complexity, 71–72, 74, 173–176
project size, 70, 163–166
projects new to the estimator, 72, 74, 166–168
projects new to the world, 71, 74, 176–178
savings, 16, 17, 24, 35
size of, 3, 150
small versus large projects, 163–166
static uncertainty, 74–75, 76–82
system innovation, 75
time between estimates, 70, 169–171
today versus in the past, 178–179
weapon systems, 79–80
Cost plus contract, 194–195
Cost underrun
definition of, 5
Cost–benefit analysis, 94, 106, 133
Covariance between deviations, 70, 172–173
Cyert, Richard, 198
Darwin, Charles, 88
Decouple and isolate the issue, 123
Decouple problematic issues, 105
Denial of Death, The, 129–131, 132
Descartes, René, 86
Design instability, 172
Development projects, 74, 139, 153–158, 159
Dynamic uncertainty, 74, 138
E.ON AG, 18
Economic man, 59, 86
Economic-technical explanations, 59
Economic-technical uncertainty, 28
Economies of scale
definition of, 39
Economies of scope
definition of, 39
Entrepreneurial error and economic growth, 51–52
Entrepreneurship
ignorance, 187
new firm survival rate, 187
optimistic bias, 186
Ericsson, Jan Christer, 67
Escalating commitment, 188, 198
Estimates
cognitive biases, 88–90
emotions, 87–88
Exchange rate, 33
F22 Raptor aircraft, 2
F35 Lightning II aircraft, 2
Firm-specific resources, 199
Forced investment, 79, 99, 111, 167
Freedom of information, 107–109
Freeman, Christopher, 51–52
Freud, Sigmund, 130
Frövifors Bruk, 14
Frövifors paperboard plant, 14–18, 30, 31, 32, 36, 39–42, 60–63, 68–69, 85, 108, 194, 196
Funding instability, 172
Galbraith, Craig, 190
General Accounting Office, US. See Government Accountability Office, US
Gerin, Jacques, 112–114
Giguet, Raymond, 174, 193, 194
Gitman, Stephen, 186
Glennen, Jr, Thomas K., 174
Goal re-negotiability, 46, 134–135
Gothenburg drive-through station, 200–201
Government Accountability Office, US, 83–84
Hardin, Garret, 132
Hidden motives, 128–131
Hiding Hand, the, 52
Hirschman, Albert O., 51–52, 183, 200
Hufschmidt, Maynard, 112–114
Hugh, George, 160
IBM, 53
Ideology
definition of, 92
Impaired financial capacity, firm’s, 50
Impartial spectator, Adam Smith’s, 86–87
Implementation projects, 74, 139, 159
Increase
anticipated, 32
unanticipated, 32
increase in price
definition of, 32
increase in scope
definition of, 32
Inflation, 32–34, 76
Information asymmetry, 108, 185, 192–197
cost plus contract, 194–195
need to match the seller, 195
trust, 196
underbidding, 193–195
Inquiry into The Nature and Causes of the Wealth of Nations, An, 88, 132
Instincts, human, 86–87, 124
Interest costs during construction, 31
Intergenerational cost growth, 157
International Fisher theorem, 33
Intragenerational cost growth, 157
Investment
additional investment, 163–165
budget overrun, 58
cost overrun reallocate, 54–58
criteria, 101
forced investment, 79, 99, 111, 167
increase in total investment, 58
irreversibility, 134–135
new investment, 163–165
operative investments, 120
outsourced to be leased back, 35
postponed, 35
renovation, 167
replacement investment, 163–165
shift in the composition of, 135–136
strategic investment, 120, 121
Investment projects in companies versus the public sector
acceptance versus quality, 104–105
accountability, 109–111
goals, 101–104
pre-approval control, 105–107
precondition for cost estimation, 115–118
preconditions for learning, 112–115
project abandonment, 111–112
transparency, 107–109
type of projects, 99–101
Invisible hand, the, 132
Jaakko Pöyry Group, 46, 68, 114
Jacobsson, Bengt, 105
Kahneman, Daniel, 91
Karlshamn Power Station, 36, 37
Kennedy, President John F., 102
Kharbanda, Om Prakash, 161, 162
Kierkegaard, Søren, 130
Klein, Burton H., 71, 177–178
Korsnäs, 42
Kvarnsveden paper mill, 43–45, 50
Lasswell, Harold D., 93
Learning
emotions, 60
negative feedback, 60, 63–69
pre-approval control, 64–65, 68–69
rational model, 59–60, 73–75
Lockheed TriStar airliner, 47, 50
Logic of economics, 92, 133, 141–145
Logic of politics, 92, 133, 141–145
Long-term investment plan, 179–182
Long-term relative price changes, 76–82, 140
Loosely coupled systems, 174, 175–176
Lundberg, Erik, 37
Maier, Norman, 104–105, 119
Mansfield, Edwin, 156
March, James, 198
Marschak, Thomas, 178
Marshall, Andrew W., 155, 157
Measurement problems, 31–34, 136–138
Meckling, William H., 155, 157
Mediatization, 96–98
Memories of cost overruns, 50
Merewitz, Leonard, 166, 168
Merrill, Gregory, 190
Military R&D, 79–80
Miller, Edward, 186
Mining projects, 2
Morlat, G., 174, 193, 194
Morris, Peter, 160
Negative consequences of cost overrun, 46–51
Negative consequences of cost overun, 57
Negative salvage value, 22
Newcomb, Harry Turner, 199
Non-learning organization, 182
Norris, K. P., 165
Northland Resources iron ore mine, 1, 31, 49
Nuclear power plants, 18–21, 77–78, 134–135
Nuclear Waste Fund, the, 27
Nuclear waste programme
Finnish, 28–29
Swedish, 29, 96, 122
US, 22, 28–29
Nuclear waste repository
Olkiluoto, 28
Yucca Mountain, 29
Obama, President Barack, 29
Olkiluoto nuclear waste repository, 28
Olympic Games, 2, 131
Optimistic bias, 60, 88–89, 184, 185
definition of, 185
entrepreneurship, 186
ignorance, 187
managers compensate for, 186
Ove Arup and Partners, 150
Packard Commission, the, 195
Parallel development, 174, 175–176
Parkinson’s Second Law, 36
Passions, Adam Smith’s, 86, 87, 89, 124, 127
Path dependence, 112, 185, 201–202
basic investment, 200
escalating commitment, 198
firm-specific resources, 199
old ideas, 200
promises and expectations, 202
sunk cost, 198, 200
Peck, Merton J., 156
Polanyi, Karl, 93
Political uncertainty, 28, 118
Politicized environment, 29, 30, 150, 179–182
Politics – Who Gets What, When, How, 93
Politics, the practice of
definition of, 92
Positive effects of cost overrun, 54–58
Positive skewness, 70, 166–168, 174
Pre-approval control, 105–107
Preconditions for learning, 112–115
Press section example, the, 13, 30, 137
Price changes, 32–34
Price clauses, 16, 18
Price volatility, 32–34
Production capacity at normal production, 31
Project abandonment, 111–112
Project complexity, 71–72, 74, 139, 140, 173–176
definition of, 174
Project divisibility, 45, 134–135
Project goals, 101–104
Project newness, 166–168
Project profitability and cost overrun, 148–149
Project size, 70, 163–166
Projects new to the estimator, 72, 74, 139, 140, 166–168
Projects new to the world, 71, 74, 139, 176–178
Pruitt, Lawrence, 186
Public sector
long-term investment plan, 179–182
Purchasing parity theorem, 33
Quality versus acceptance, 104–105
RAND Corporation, 155, 157
Rank, Otto, 130
Reagan, President Ronald, 106, 195
Real estate bubble, 58, 66–68
Reasons versus emotions, 85–88
Redesign during implementation, 74–75, 140, 169–171
Reference class forecasting, 115
Relative price changes, 76
Remer, Donald S., 161
Repair and renovation projects, 84
Replacement investments, 84
Request additional funding, 35
Rolls-Royce RB211 engine, 47, 48, 50
Roosevelt, President Franklin D., 193
Sävenäs waste incineration plant, 55–56, 108
Sawyer, John E., 51–52
Scanraff refinery, 31
Scherer, Fredric M., 156
Schonberger, Richard J., 173
Scope for savings, 35
Scope to absorb cost, 36
Secret Agent, the, 109
Self-serving bias, 89–90, 185, 188–191
ambiguity, 108, 190–191
commitment, 189
definition of, 188
sunk cost, 188
Sell and lease back, 16
Sequential attention to goals, 198
Silent Spring, 108
Simon, Herbert A., 91
SKB, 22
SKBF, 22
Skutskär pulp mill, 44
Smith, Adam, 86–87, 88, 89, 124, 126, 129, 132
South Swedish Power Company. See Sydkraft
Stallworthy, Ernest A., 161, 162
Standard costing, 114
Standish Group’s CHAOS Report, 158
Static uncertainty, 74, 76–82, 138
Stepwise construction
definition of, 39
Stockholm bypass project, 172
Stora group, 43–45, 50
Summers, Robert, 155
Swedish State Power Board. See Vattenfall
Sydgas gas pipeline network, 42–43
Sydkraft
Barsebäck nuclear power plant, 18–21
Karlshamn Power Station, 36
Sydgas gas pipeline network, 42–43
Sydney Opera House, 2, 150
System innovation, 75, 140
Tennessee Valley Authority, 112–114, 182
Terror management theory, 129–131, 132
Theory of Moral Sentiments, The, 86, 87, 89, 127, 129
Tiger, Lionel, 187
Time between estimates, 70, 169–171
Time overrun
definition of, 5
Time underrun
definition of, 5
Toda, Masanao, 87
Trade-offs between cost, risk and return, 82–85
Tragedy of the commons, the, 132
Trans-Alaska Pipeline System, 37, 38, 83–84
Transparency, 107–109
Uddeholm group, 46–47, 48
Uddeholm paperboard machine, 46–47
Unanticipated increase in scope, 32
Unanticipated teething problems, 41
Uncertainty
dynamic, 74, 138
economic-technical, 28
political, 28, 118, 141–145
political versus economic-technical, 91
static, 74, 76–82, 138
Uncertainty resolution
logic of economics, 59–60, 73–75
logic of politics, 141–145
political versus economic-technical, 91
type of project, 73–75
Underbidding, 193–195
Underestimate cost
deliberately, 60–61, 195
unintentionally, 60, 61–63, 184–185
Unintended consequences of purposeful action, 132–133
Utzon, Jørn, 150
Vattenfall
hydroelectric power stations, 74–75, 169–171
power lines, 163, 165
transformers, 163, 165
Volvo 343 model, 38
von Leibniz, Gottfried Wilhelm, 86
Wittfogel, August, 127
Yucca Mountain nuclear waste repository, 29

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  • Index
  • Esbjörn Segelod, Mälardalens Högskola, Sweden
  • Book: Project Cost Overrun
  • Online publication: 22 November 2017
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  • Esbjörn Segelod, Mälardalens Högskola, Sweden
  • Book: Project Cost Overrun
  • Online publication: 22 November 2017
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  • Index
  • Esbjörn Segelod, Mälardalens Högskola, Sweden
  • Book: Project Cost Overrun
  • Online publication: 22 November 2017
Available formats
×