Cost overruns of infrastructure projects – distributions, causes and remedies

This paper analyzes the accuracy of cost estimates for Swedish transport infrastructure projects 2004-2022, discusses causes of cost overruns, and suggests remedies. Cost estimates for all projects in the national investment plans 2010-2022 are tracked from early planning to completion. Final costs for all projects finished 2004-2022 are compared to decision-stage cost estimates. Results show that cost estimates increase considerably during the planning stages, on average, while cost estimates at the final decision stage are close to final costs, on average. Cost escalations during the planning stage are not uniform, however: the distribution of cost changes is highly skewed with a long right tail. The reason that final costs tend to exceed early cost estimates is that project decisions are effectively locked in before projects’ costs and benefits have been thoroughly assessed. Lock-in of premature decisions does not only cause cost overruns; even worse, it distorts project selection and design, reduces incentives to search for more cost-efficient designs, and increases opportunities and incentives for project beneficiaries to underestimate costs and overestimate benefits. Several ways to tackle these problems are suggested.