From Nobel Prize to project management: Getting risks right

Flyvbjerg, Bent (2006) From Nobel Prize to project management: Getting risks right. Project Management Journal, 37 (3). pp. 5-15.


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: Article
Keywords: Risk management; project forecasting; forecast models
Subject(s): Project management
Centre: BT Centre for Major Programme Management
Date Deposited: 07 Apr 2011 15:45
Last Modified: 23 Oct 2015 14:05

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