Morten Welde

Cost escalations in the front-end of projects – empirical evidence from Norwegian road projects

ABSTRACT This paper investigates an issue largely ignored in the transport literature on cost overruns, namely, cost increases in the early project phase, long before the decision to build is made. This is the phase of project planning that is referred to as the front-end phase in the literature. The rationale of the study is that unless cost estimates during the front-end phase are relatively accurate, the wrong projects may be selected for further development. We first argue for why it is important to address cost escalation during the front-end phase of project planning. We then use Norwegian data to demonstrate the magnitude of cost escalations during the front-end phase of projects and in comparison to the implementation phase. We find that even in a sample of projects with relatively small cost overruns as in the case of Norway, there are substantial cost increases before the formal decision to build was made. This raises the issue of whether decisions and priorities taken at the early stages of project development are based on false information and whether this may lead to the wrong project concepts being selected.

Are Smart Card Ticketing Systems Profitable? Evidence from the City of Trondheim

Electronic ticketing in public transportation based on smart cards is gaining momentum worldwide. It is widely recognized that a smart card system can deliver benefits to both passengers and operators, but due to its complexity, implementation can come at a considerable cost. Therefore, it is likely that a commercial appraisal from the perspective of the public transportation operator alone would reveal that costs are higher than benefits and, hence, economic non-viability. This paper presents the experiences of the Norwegian city of Trondheim, which recently implemented a fully-interoperable electronic smart card system. A social cost-benefit analysis of the scheme is presented, focusing on net overall benefits for the passengers, the bus company, the local transportation authority, and the rest of society. The main conclusion of the paper is that the smart card ticketing system in Trondheim delivers a positive net present value. The paper demonstrates that economic evaluation of smart card ticketing schemes using the principles of social cost-benefit analysis is desirable and possible. Because commercial non-viability may represent constraints to the implementation of such schemes, the findings presented in this paper provide valuable information to those currently working on smart card ticketing strategies.

Low estimates – high stakes: underestimation of costs at the front-end of projects

Purpose – The purpose of this paper is to adopt an in-depth perspective on cost estimation, from the development of the initial idea until the budget is agreed, to obtain new insights into issues of underestimation at the front-end. Design/methodology/approach – The study uses a small sample of projects with exceptional increases in cost estimates during the front-end phase. The authors analyzed the magnitude of cost increases and possible reasons for them. Findings – The paper concludes that underestimation in the front-end phase was significant in the sample and poses a serious problem in that suboptimal projects are approved. The causes of underestimation include underestimating risk, overestimating opportunities, inadequate estimation methods and skills, reliance on weak information, and strategic/deliberate scope creep and division of projects. Research limitations/implications – The study builds on a small sample, and hence further studies should be undertaken to verify whether the findings are generalizable. Practical implications – The sample shows that the projects with the most unrealistic early estimates have disputable relevance. The paper suggests a number of recommendations that might help to counter the problem of unrealistic early cost estimates, which in turn, might allow suboptimal projects to be funded. Originality/value – The underestimation of costs at the front-end is grossly neglected in the literature compared with whether costs comply with the budget. While cost overruns are an indication of failure in terms of the project’s tactical performance, the contention is that the up-front underestimation of costs might result in an inferior project being selected and thus affect the strategic performance of the project.

An Empirical Bayes before-after evaluation of road safety effects of a new motorway in Norway

This paper presents an Empirical Bayes before-after evaluation of the road safety effects of a new motorway (freeway) in Østfold county, Norway. The before-period was 1996-2002. The after-period was 2009-2015. The road was rebuilt from an undivided two-lane road into a divided four-lane road. The number of killed or seriously injured road users was reduced by 75 percent, controlling for (downward) long-term trends and regression-to-the-mean (statistically significant at the 5 percent level; recorded numbers 71 before, 11 after). There were small changes in the number of injury accidents (185 before, 123 after; net effect -3%) and the number of slightly injured road users (403 before 279 after; net effect +5%). Motorways appear to mainly reduce injury severity, not the number of accidents. The paper discusses challenges in implementing the Empirical Bayes design when less than ideal data are available.