Governing Large Projects : a Three-stage Process to Get It Right

Private and public mega projects — whether new plant facilities, IT systems, railways, or the Olympics — frequently entail dramatic cost and schedule overruns. Root causes are behavioral biases, such as optimism and deliberate deception, accompanied by principal–agent issues and a lack of project-related skills. Through a three-stage process — forecasting, organizing, and executing (“FOX”) — we organize and offer solutions to mitigate the cognitive biases and agency issues planners and policy-makers face in large projects. Following the FOX process and building on behavioral decision theory, we review evidence for the accuracy of “reference-class forecasting,” which considers comparable past projects to forecast a current, planned project. We provide evidence for reference class forecasting performance and recent methodological extensions, such as similarity based forecasting. Then, considering the relevant literature, we offer organizational solutions to reduce unfounded optimism and deception, including debiasing techniques and specific measures to curb principal–agent issues. Finally, we suggest combining a project modular design with speedy implementation for faster, better, cheaper, and lower-risk execution. Overall, we offer an original, holistic theoretical view that addresses both behavioral and strategic elements of how to debias large projects, along with direct practical implications and advice for those who manage megaprojects with increasingly high stakes and risks