Abstract
The high uncertainty of megaproject results in increasing complexity in the decision-making and ultimately leads to different degrees of cost overrun and project delays. One of the critical reasons for cost overrun and delay is the optimism bias of decision makers. Although the previous literature has analyzed the cost overrun distribution of bridges, roads and other infrastructure projects, there is still a lack of research on how to make more reasonable decisions according to the cost overrun risk and cost-benefit theory by considering the expectation of cost overrun. Therefore, this paper firstly measures optimism bias by conducting the field research and interviews regarding over 30 long bridges in China. On the basis of the optimism bias measure, a decision-making risk model of bridge projects with the expectation of cost overrun has been built. Then the paper takes Hangzhou Bay Bridge as an example to discuss the influence of cost overrun predication, implicit benefits and the project’s operation time on NPV results. Moreover, the probability of project unbuildability risk under different degrees of cost optimism bias has also been discussed. Finally, suggestions for risk forecast are provided for decision-makers to make more objective and comprehensive judgments.
Highlights
In recent years, allowing for the total number and the scale of public megaprojects, China has ranked the first worldwide
Flyvbjerg [5] analyzed the cost overrun distributions of bridges, roads and other infrastructure projects and provided suggestions on the degrees and risks of possible construction cost overrun in general situations. He did not consider how to make more reasonable decisions according to the risk of cost overrun and cost-benefit theory, when decision-makers realize optimism bias and predict that a cost overrun is possible in a project
When the acceptable cost overrun risk of the bridge project reaches 60%, which means that the project cost overrun risk must be within 60%, the decision-makers should select a budget improvement rate of 2%
Summary
In recent years, allowing for the total number and the scale of public megaprojects, China has ranked the first worldwide. According to the statistical data released by the IMF and UNESCO in 2013, the total number of mega-infrastructure projects that have been built and were under construction between 1945 and 2012 in China is 7932, which is classified as “numerous” [1] This has led to much international research on megaproject management theories. Overestimated profit and underestimated cost in the preliminary planning period is referred to as optimism bias It is an essential source of generating prediction errors. Flyvbjerg [5] analyzed the cost overrun distributions of bridges, roads and other infrastructure projects and provided suggestions on the degrees and risks of possible construction cost overrun in general situations He did not consider how to make more reasonable decisions according to the risk of cost overrun and cost-benefit theory, when decision-makers realize optimism bias and predict that a cost overrun is possible in a project. To solve the above problems, based on the measurement of optimization bias in long bridges in China, this paper builds a decision distribution model by using the cost-benefit theory in combination with the explicit economic benefits and implicit social benefits of the project
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