How common and how large are cost overruns in transport infrastructure projects?
Mette K. Skamris holm and
Søren L. Buhl
Transport Reviews, 2003, vol. 23, issue 1, 71-88
Despite the hundreds of billions of dollars being spent on infrastructure development -- from roads, rail and airports to energy extraction and power networks to the Internet -- surprisingly little reliable knowledge exists about the performance of these investments in terms of actual costs, benefits and risks. This paper presents results from the first statistically significant study of cost performance in transport infrastructure projects. The sample used is the largest of its kind, covering 258 projects in 20 nations worth approximately US$90 billion (constant 1995 prices). The paper shows with overwhelming statistical significance that in terms of costs transport infrastructure projects do not perform as promised. The conclusion is tested for different project types, different geographical regions and different historical periods. Substantial cost escalation is the rule rather than the exception. For rail, average cost escalation is 45% (SD=38), for fixed links (tunnels and bridges) it is 34% (62) and for roads 20% (30). Cost escalation appears a global phenomenon, existing across 20 nations on five continents. Cost estimates have not improved and cost escalation not decreased over the past 70 years. Cost estimates used in decision-making for transport infrastructure development are highly, systematically and significantly misleading. Large cost escalations combined with large standard deviations translate into large financial risks. However, such risks are typically ignored or underplayed in decision-making, to the detriment of social and economic welfare.
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Persistent link: https://EconPapers.repec.org/RePEc:taf:transr:v:23:y:2003:i:1:p:71-88
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