O.M. Magnussen, N.O.E. Olsson / International Journal of Project Management 24 (2006) 281–288 285Table 1The sampleType of project Number of projects Per centTransportation infrastructure 12 39Building 9 29Defence procurement 8 26Information technology 2 6Total 31 100ject reserves in major public projects is a fundamentallynew approach in Norway [9].Table 2 describes the size of the project reserves recommendedby the external consultant with respect <strong>to</strong> projecttype (upper part of the table) and size (lower part of thetable). Since the reserves are not expected <strong>to</strong> be used, theyare here presented as a mark-up above the 50% probabilitybudget.The fundamental information provided by Table 2 isthat the size of the typical project reserve lies in the areabetween 8% and 11%. The average reserve in this sampleis a 9% mark-up. An analysis based on a categorisationwith respect <strong>to</strong> project type (transportation infrastructure,building, defence procurement, and IT) shows that the subcategorymean values deviate little from the overall mean.Table 2 also shows that there is no obvious connectionbetween the project size and the size of the reserveexpressed in per cent. The three sub-categories includingprojects from NOK 300–750 million, NOK 750–1500 millionand projects larger than NOK 1500 million all showmean values close <strong>to</strong> the overall mean value. One mightexpect that it would be more difficult <strong>to</strong> predict all aspectsthat could have an impact on costs in large projects. Theintention with the allocated reserve is <strong>to</strong> mitigate projectrisks that can not be fully predicted [14]. Seen in relation<strong>to</strong> the literature referred <strong>to</strong> above, where it was stated thatmajor projects often suffer from cost overrun, one mightexpect that large projects would call for larger reserves.This is contradicted by the unsubstantiated notion that inTable 2Size of the recommended reserves (after project type and size)Type of projectNumberof projectsMean reservepercentage(sub-category)Transportation 12 8 3infrastructureBuilding 9 11 6Defence8 7 4procurementInformationtechnology2 11 5Total 31 9 4Size of project(million NOK)300–750 13 8 4750–1500 12 9 41500– 6 10 6Total 31 9 4Standard deviationpercentage(sub-category)major projects there exist more alternative courses ofaction, i.e., there are more opportunities <strong>to</strong> influence costs.The results here are nevertheless not surprising. The recommendedreserves basically reflect the uncertainty in theperformed calculations. As described above, the size ofthe reserve in most cases is the difference between the50% and the 85% subjective probability, which roughlyequals one standard deviation. The robustness of the resultfrom the uncertainty analysis depends on the ability <strong>to</strong> predictpossible fac<strong>to</strong>rs and their influence on project cost.Table 2 indicates that there is a rather typical reserve percentage,independent of project size or type. Building andinformation technology projects display a somewhat highermean reserve and standard deviation than transportationinfrastructure and defence procurement projects, but theexisting material does not allow us <strong>to</strong> draw sharp conclusionswhether there is a pattern here. The results from analyzingprojects categorized by size, show even smallerdifferences between the sub-categories.One of the major concerns has been the possibility thatactual costs will be higher with the new approach, wherereserves are allocated, compared <strong>to</strong> the old procedure.The point here is that it is questionable <strong>to</strong> assume anythingabout actual costs as long as the projects have not beencompleted yet, and adequate measures <strong>to</strong> obtain more realisticbudgets have been established. Many authors emphasizethe importance of better planning in the early stages oflarge projects <strong>to</strong> increase the potential for project successand reduce the occurrence of cost overrun.6.2. The difference between the proposed estimate from theproject organisation and the recommendation from theexternal consultantThe main issue here is related <strong>to</strong> the significance of qualityassurance on the cost estimation process. This is thebackground for the attention paid <strong>to</strong> the comparisonbetween the initial estimate and the revised estimate.When comparing the estimates, fixed prices are used,and the numbers describe the ‘‘same project’’, which meansthat it has been controlled whether fundamental elementsof the project have been changed between the proposedestimate and the recommended estimate (cf. the discussionabove concerning that a project could be subject <strong>to</strong> modificationsover time). This is an important prerequisite,because when the cost focus and control aspect is dominating,one must not only consider the different answers, i.e.,the numbers from the uncertainty analyses. One must alsoask whether they are answers <strong>to</strong> the same question.To present an aggregate view of the data, the differenceshave been calculated in percent and divided in<strong>to</strong> categoriesbased on the size of the difference.Table 3 shows that the recommendation from the externalconsultant is lower or equal <strong>to</strong> the projectsÕ proposal in8 out of 31 projects (26%). For the majority of the projects(74%), the external consultants recommend higher budgetlimits, in some cases up <strong>to</strong> 15% or more. On average the
286 O.M. Magnussen, N.O.E. Olsson / International Journal of Project Management 24 (2006) 281–288Table 3External consultantÕs revised estimate compared <strong>to</strong> the project organisationÕsinitial estimateRevised estimate is (compared <strong>to</strong>proposed estimate)Number ofprojectsPer centLower 5–10% lower 3 9.7 265% lower than or equal <strong>to</strong> 5 16.1Higher Up <strong>to</strong> 5% higher 7 22.6 745–10% higher 8 25.810–15% higher 5 16.1More than 15% higher 3 9.7Total 31 100.0external consultants recommended 5% higher budgets.Some might argue that the observed differences are rathersmall. Why should we deal with differences that in an analyticalsense equal the uncertainty in the results? First of all,even a 5% difference in projects of this scale could,expressed in money, be substantial. Secondly, it must bekept in mind that studies of initial estimates and actualcosts that show deviations up <strong>to</strong> several hundred percentcould include large dis<strong>to</strong>rtions for instance with respect<strong>to</strong> inflationary backgrounds. This study is different, obviouslybecause initial estimates from two different ac<strong>to</strong>rsrather than initial estimates and actual costs are compared,but also because price escalations, project changes andother fac<strong>to</strong>rs are not an issue or have been accountedfor. The compared figures are indeed ‘‘answers <strong>to</strong> the samequestion from two different ac<strong>to</strong>rs’’. With this in mind, onequestion immediately arises: What could explain theobserved result? An exact explanation must be left openat this stage, but a closer look in<strong>to</strong> the sources can be abasis for discussion. It could be that the external consultantsapply a broader view and include more elementsassumed <strong>to</strong> have an impact on the cost of the project.The project organisationÕs major concern is the implementationof the project according <strong>to</strong> specific requirements.The external consultants must also consider the potentialimpact of fac<strong>to</strong>rs that <strong>to</strong> the project organisation mayappear <strong>to</strong> be of a more unpredictable and unmanageablecharacter. These could be fac<strong>to</strong>rs connected <strong>to</strong> the market,financing, and changes imposed by the government.It must also be recognized that the prevailing methods<strong>to</strong> calculate the estimates rely on subjective assessments.As described by Olsson et al. [9], in some cases differentestimates have been a source of discussion between the projec<strong>to</strong>rganisation and the external consultant. In caseswhere there are fundamentally different subjective viewsconcerning central uncertainty elements, this will clearlybe manifested in the results. Still, this does not explainwhy the external consultants present a higher estimate inso many cases.Some may claim that this indicates an exaggeration ofthe estimates from the external consultants. Since they donot have any responsibility for the actual budget complianceand it is claimed that nobody wants the label that theyunderestimate costs, this could lead <strong>to</strong> a situation whereextra costs are included just <strong>to</strong> be sure. It would be hard<strong>to</strong> establish data that could describe this issue, because thisfundamentally is an assumption about the intentions ofac<strong>to</strong>rs. 6 It must otherwise not be forgotten that the foundationfor the external consultantsÕ recommendations areexplained in the reports from the quality assurance exercises.In this way the underlying premises for the recommendedestimate can be verified.The major question in this paper is the Quality-at-entryRegimeÕs influence on the initial decisions connected <strong>to</strong> theprojects. Does it lead <strong>to</strong> different practices and other methods?In this perspective an analysis that maintains the timedimension is presented.The difference between the proposal from the project andthe revised estimate is calculated in percent. A plot of thedifferences for all the projects in the sample against themonth of presented report and the result is shown in Fig. 2.Visual inspection indicates that the largest differencesoccurred when the quality assurance scheme was new,and interestingly, no revised estimate substantially lowerthan the initial estimate is observed before late 2002.Another indication from Fig. 2 is the clear decrease inthe differences from the first quarter of 2002.What explanations are there? A number of possible fac<strong>to</strong>rsspring <strong>to</strong> mind. One possibility might be that the focuson more realistic cost frames launched by the Regime hasled <strong>to</strong> an increase in the use of relevant methods by the projec<strong>to</strong>rganisations <strong>to</strong> identify the uncertainties in the earlystages of the projects. Observations made during the collectionof the data suggest that more equal estimates coincidedwith a more consistent use of the most commonlyused terms. At the same time, the Ministry of Transportand Communications, which accounts for a large numberof the projects in the sample (cf. Table 1), specified howthe results from the quality assurance of projects in theirarea of responsibility should be employed. This indicatesthat a change in practice and learning has taken place.The literature referred <strong>to</strong> above suggest that so-called‘‘strategic budgeting’’ could be a cause of underestimationin public projects. This is based on the assumption thatprojects that appear <strong>to</strong> be inexpensive have a greaterchance of being prioritized. It is easy <strong>to</strong> predict that theQuality-at-entry Regime could have a rather direct impac<strong>to</strong>n strategic budgeting; assuming that such practice actuallyhas taken place. It is, however, impossible <strong>to</strong> answerthis question on the basis of this study. The differencesobserved here could just as much be explained by overestimationfrom the external consultant as underestimationfrom the project organisation, and a possible interpretationof the development <strong>to</strong>wards more equal estimates couldalso be that an adjustment <strong>to</strong> the demands of governmentalinstitutions has taken place, either by external consultants,project organisations, or both.6 Flyvbjerg et al. [6, p. 289], face the same problem when trying <strong>to</strong>answer the question whether project forecasts are intentionally biased.
- Page 1 and 2:
ISBN 82-471-8121-5 (printed ver.)IS
- Page 3:
Preface and AcknowledgementsThe wor
- Page 7 and 8:
Table of ContentsPreface and Acknow
- Page 9 and 10:
Paper OverviewThe following papers
- Page 11 and 12:
AbstractTraditionally, projects ten
- Page 13 and 14:
alternative use. There are indicati
- Page 15 and 16:
1. Introduction1. IntroductionThis
- Page 17 and 18:
1. IntroductionFlexible projects ar
- Page 19 and 20:
1. IntroductionA literature review
- Page 21 and 22:
2. Study design2. Study designThe r
- Page 23 and 24:
2. Study designInformation Content
- Page 25 and 26:
3. Flexibility in different project
- Page 27 and 28:
3. Flexibility in different project
- Page 29 and 30:
3. Flexibility in different project
- Page 31 and 32:
4. Project stakeholders4. Project s
- Page 33 and 34: 4. Project stakeholdersmandatory qu
- Page 35 and 36: 4. Project stakeholdersBased on res
- Page 37 and 38: 5. Effectiveness and efficiency5. E
- Page 39 and 40: 5. Effectiveness and efficiencyconf
- Page 41 and 42: 5. Effectiveness and efficiencyDegr
- Page 43 and 44: 6. Project flexibility categorisati
- Page 45 and 46: 6. Project flexibility categorisati
- Page 47 and 48: 6. Project flexibility categorisati
- Page 49 and 50: 7. Conclusions7. ConclusionsThis th
- Page 51 and 52: 7. ConclusionsProject phasesFlexibi
- Page 53 and 54: 7. ConclusionsEnablersThis thesis r
- Page 55 and 56: 7. Conclusions16, Figure 17, and Fi
- Page 57 and 58: 7. Conclusions4. AbsorptionAbsorpti
- Page 59 and 60: 7. ConclusionsThere appears to be a
- Page 61 and 62: ReferencesAbbot, A. & Banerji, K. 2
- Page 63 and 64: Gareis, R. 2004. Maturity of the Pr
- Page 65 and 66: Miller, R. & Lessard, D. 2000. The
- Page 67 and 68: Part 2.
- Page 69 and 70: Paper 1.Olsson, N.O.E. 2006. Manage
- Page 71 and 72: N.O.E. Olsson / International Journ
- Page 73 and 74: N.O.E. Olsson / International Journ
- Page 75 and 76: N.O.E. Olsson / International Journ
- Page 77 and 78: N.O.E. Olsson / International Journ
- Page 79 and 80: Paper 2.Magnussen, O.M. & Olsson, N
- Page 81 and 82: 282 O.M. Magnussen, N.O.E. Olsson /
- Page 83: 284 O.M. Magnussen, N.O.E. Olsson /
- Page 87 and 88: 288 O.M. Magnussen, N.O.E. Olsson /
- Page 89 and 90: Projects trapped in their freedom:
- Page 91 and 92: 1. IntroductionThe purpose of this
- Page 93 and 94: project phases: preparation, freezi
- Page 95 and 96: establish realistic cost and time f
- Page 97 and 98: 4. ResultsIn the following, the emp
- Page 99 and 100: lowered the quality but the volume
- Page 101 and 102: Percent ofproject onSize of remaini
- Page 103 and 104: flexibility is introduced by the us
- Page 105 and 106: 100 %First official estimateApprova
- Page 107 and 108: ReferencesAndersen, B., Fagerhaug,
- Page 109 and 110: Paper 4.Olsson, N.O.E. 2004. ‘Fle
- Page 111 and 112: The concept of project flexibilityF
- Page 113 and 114: 3. CONCLUSIONSWhat seems to be impl
- Page 115 and 116: Paper 5.Olsson, N.O.E. 2006. ‘Imp
- Page 117 and 118: 558 N. O. E. Olsson et al.ex-post s
- Page 119 and 120: 560 N. O. E. Olsson et al.Table 1.O
- Page 121 and 122: 562 N. O. E. Olsson et al.and actua
- Page 123 and 124: 564 N. O. E. Olsson et al.Table 3.
- Page 125 and 126: 566 N. O. E. Olsson et al.Table 7.S
- Page 127 and 128: 568 N. O. E. Olsson et al.with a wi
- Page 129 and 130: Paper 6.Henriksen, B., Olsson, N. &
- Page 131 and 132: In this paper we use the process an
- Page 133 and 134: PROCESS ANALYSIS IN THE PLANNING OF
- Page 135 and 136:
final framework for expected patien
- Page 137 and 138:
User involvement also generated exp
- Page 139:
Paper 7.Olsson, N.O.E. & Samset, K.
- Page 155 and 156:
Project flexibility and front-end m
- Page 157 and 158:
uncertainty. External flexibility c
- Page 159 and 160:
5.2. Flexibility in decision proces
- Page 161 and 162:
Degree of redundancySlackPrecisionC