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underestimation of project costsLarge projects almost always exceed their budgets. Estimating cost is difficult and estimated costs are usually too low. Three different reasons are suggested: bad luck, overoptimism, and deliberate underestimation. Project management can usually point to project difficulty and complexity, technical uncertainty, stakeholder conflicts, scope changes, unforeseen events, and other not really unpredictable bad luck. Project planning is usually over-optimistic, so the likelihood and impact of bad luck is systematically underestimated. Project plans reflect optimism and hope for success in a supposedly unique new effort rather than rational expectations based on historical data. Past project problems are claimed to be irrelevant because "This time it's different." Some bad luck is inevitable and reasonable optimism is understandable, but deliberate deception must be condemned. In a competitive environment, project planners and advocates often deliberately underestimate costs to help gain project approval and funding. Project benefits, cost savings, and probability of success are exaggerated and key risks ignored. Project advocates have incentives to distort information and conceal difficulties from project approvers. One naively suggested cure is more openness, honesty, and group adherence to shared overall goals. A more realistic alternative is threatening overrun projects with cancellation. Neither approach seems to solve the problem. A better method to avoid the delusions of over-optimism and the deceptions of biased advocacy is to base the project cost estimate on the actual costs of a large group of similar projects. Over optimism and deception can continue beyond the planning phase and into project execution. Hard milestones based on verified tests and demonstrations can provide a reality check.
Document ID
20160001191
Document Type
Conference Paper
Authors
Jones, Harry W.
(NASA Ames Research Center Moffett Field, CA United States)
Date Acquired
January 27, 2016
Publication Date
July 12, 2015
Subject Category
Administration and Management
Report/Patent Number
ARC-E-DAA-TN24215
ICES-2015-046
Meeting Information
International Conference on Environmental Systems (ICES 2015)(Bellevue, WA)
Funding Number(s)
WBS: WBS 387873.04.99.99.99.99.21
Distribution Limits
Public
Copyright
Work of the US Gov. Public Use Permitted.
Keywords
Cost estimation
cost underestimation
project costs

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