REFERENCE CLASS FORECASTING IN ICELANDIC TRANSPORT INFRASTRUCTURE PROJECTS

Abstract

Previous studies have indicated that the majority of infrastructure projects have cost overruns. The root causes are traced to political, technical and psychological reasons at the initial stage of the project. The consequence is either unintentional overoptimistic forecasting of perceived results or calculated interpretation of facts in favour of personal and political interests. These phenomena are called planning fallacies and strategic misrepresentation, respectively. A step-wise procedure to avoid planning fallacies and strategic misrepresentation is called the outside view. The outside view bypasses human biases by using past experience and empirical data from past projects. It has evolved into a professional practice through a method called reference class forecasting which has been shown to provide improved cost forecasting accuracy in the initial stage of a project. The study reported in this paper examined reference class forecasting as a means of improving cost forecasting in the planning stage of the project lifecycle. Data from the Icelandic Road Administration (ICERA) were assembled in a cost forecasting model to determine if it might be possible to improve forecasting accuracy. The results proved inconclusive; however, a comparison with findings from similar projects in the UK showed that although cost overruns followed a similar curve, the chance of occurrence is significantly lower at the planning stage after the decision to proceed has been taken.

Keywords

• optimism bias
• planning fallacies
• cost forecasting
• reference class forecasting
• transportation projects