Optimism Bias Evaluation and Decision-Making Risk Forecast on Bridge Project Cost Based on Reference Class Forecasting: Evidence from China

Huimin Liu, Canhui Jiang, Yan Liu, Marcel Hertogh and Xue Lyu
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Huimin Liu: School of Engineering and Management, Nanjing University, Nanjing 210005, China
Canhui Jiang: School of Engineering and Management, Nanjing University, Nanjing 210005, China
Yan Liu: Faculty of Civil Engineering and Geosciences, Delft University of Technology, Stevinweg 1, 2628CN Delft, The Netherlands
Marcel Hertogh: Faculty of Civil Engineering and Geosciences, Delft University of Technology, Stevinweg 1, 2628CN Delft, The Netherlands
Xue Lyu: School of Engineering and Management, Nanjing University, Nanjing 210005, China

Sustainability, 2018, vol. 10, issue 11, 1-29

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.

Keywords: optimism bias; cost overrun; project risk; reference class forecasting; Monte Carlo simulation; decision making (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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