From Nobel Prize to Project Management: Getting Risks Right

Flyvbjerg, Bent (2014) From Nobel Prize to Project Management: Getting Risks Right. In: Flyvbjerg, Bent, (ed.) Megaproject Planning and Management: Essential Readings, vol. 1. Edward Elgar, Cheltenham, UK and Northampton, MA, pp. 457-467.

Abstract

A major source of risk in project management is inaccurate forecasts of project costs, demand, and other impacts. The paper presents a promising new approach to mitigating such risk, based on theories of decision making under uncertainty which won the 2002 Nobel prize in economics. First, the paper documents inaccuracy and risk in project management. Second, it explains inaccuracy in terms of optimism bias and strategic misrepresentation. Third, the theoretical basis is presented for a promising new method called "reference class forecasting," which achieves accuracy by basing forecasts on actual performance in a reference class of comparable projects and thereby bypassing both optimism bias and strategic misrepresentation. Fourth, the paper presents the first instance of practical reference class forecasting, which concerns cost forecasts for large transportation infrastructure projects. Finally, potentials for and barriers to reference class forecasting are assessed.

Item Type: Book Section
Keywords: project management, megaproject management
Subject(s): Project management
Centre: BT Centre for Major Programme Management
Date Deposited: 21 Jul 2014 09:26
Last Modified: 23 Oct 2015 14:08
Funders: Not applicable
URI: http://eureka.sbs.ox.ac.uk/id/eprint/5131

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