Working Paper Series,
Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance

Abstract: The first part of the article presents a new framework for analyzing cost overruns. It has a descriptive part in two dimensions: when during the process that the cost overrun arose and what part of the cost function was responsible (change in the product, change in quantities of the inputs and change in price of inputs. The explanatory part is a development of Flyvbjerg´s theories and identifies four possible explanations: political/strategic aspects, psychological aspects, competence related and bad luck. It is argued that Flyvbjerg´s technological explanation belongs to the descriptive part. The empirical part of the paper uses this framework to analyze cost overruns in infrastructure projects in Sweden, primarily based on a questionnaire to experienced project managers. The results is that most of the cost overruns occur in the planning stages up to the final design and are related to design changes and to increases in the amount of inputs needed because of technical and administrative problems. Of the explanatory factors there is most support for lack of competence and optimism bias.

Keywords: cost overrun; theoretical framework; infrastructure; Sweden

JEL-codes: L21; L24; L32

40 pages, March 21, 2014

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