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author, there apparently are no studies that track the cost development through all the stages ofplanning and execution, as only comparisons between budgeted and actual costs have been made.In previous studies terms such as “cost inaccuracy” or “cost overrun” (or underrun) arefrequently used to designate differences. In this paper, the term deviation, the amount by which anestimate, budget or actual cost differs from another, is used to denote differences betweenestimates or differences between budgeted costs and actual costs. This interpretation has beenchosen principally because it seems inappropriate to denote a difference between early estimatesas overrun (or underrun) or even inaccuracy, simply because a baseline for measuringoverrun/underrun or inaccuracy is established at the time of decision to build. Anotheradvantage may be that while an actual cost different from budgeted cost would traditionally bedescribed as a cost overrun (or underrun), in this paper, the term deviation circumvents the needto define one set of terms to describe differences between estimates and another set of terms todescribe differences between budgeted and actual costs. The parameters then are 7 :• All costs are construction costs.• Estimated costs are any forecasted construction costs presented earlier than the budgeted costsappropriated at the time of decision to build.• Budgeted costs are the construction costs determined at the decision to build. Budgetedcosts consist of a budget (primary baseline for project execution) and a total capital cost (thebudget including an additional allowance for contingencies). The total capital cost minusthe budget is termed reserve or contingency allowance. 8• Actual costs are construction costs presented at the time of project completion. 9• Differences between estimated costs, budgeted costs and actual costs are labelled costdeviation.• When cost data are compared, they are always brought to the same price level, i.e. fixedprices are used.In the literature, there are arguments against the estimates, as in Flyvbjerg et al. (2002). As theseauthors have proposed, if these estimates cannot be used as the point of departure for assessingcost development, it would be nearly impossible to make meaningful comparison of costsbecause no common standard of comparison would be available. The study presented in thispaper might also be criticised in that early estimates are brought into the picture, as they areinaccurate (as mentioned above, the early analyses produce estimate accuracies of ±40%). Thiswill be discussed later in greater detail later, but at the moment it may be said that thiscomparison is justified by the commonplace occurence that regardless of the inaccuracy of earlyestimates are (and we assume decision-makers are informed about the involved risks), in practicethey are used directly to prioritize between projects and even to finalise agreements on theallocation of actual costs between financing parties. As long as the early estimates are used fordecision-making and for risk allocation, there is justification for investigating the extent to whichearly estimates deviate from subsequent estimates and, finally, actual outcomes.The data for this study came from 28 projects under the NPRA subjected to QA2. The totalworth of the projects is NOK 30 billion (€ 3.7 billion). 10 The sample consists of motorways,trunk roads, bridges, and tunnels, with costs ranging from NOK 450 to 4000 million (€ 56 to 500million).7 The definitions here are based on what Flyvbjerg et al (2002:281) calls “international convention” for measuringinaccuracy of cost estimates.8 The decision to finance and build is made by the Parliament, and there is always a cost estimate available for thedecision-makers at this point in time.9 The point in time at which the construction work is completed and the project is ready to be opened for traffic.10 Based on budgeted costs.6
Empirical resultsAs stated above, the principal purpose of this paper is to examine the results from a study that inaddition to comparing budgeted costs with actual costs, brings in early estimates and hencepermits tracing the cost development from the earliest stages of definition to actual outcome.Intuitively, it’s tempting to present the data chronologically, starting with the estimates presentedat the earliest stages. However, the chief characteristic of the projects analyzed in this paper isthat they have been subjected to a common framework for project approval prior to the decisionto build. First, the estimates presented by the NPRA at the detailed planning level as scrutinizedaccording to QA2 were considered.The deviations between the estimate prepared by the agency responsible for the execution of theproject (the NPRA) and the budget recommended by the independent quality assurers in 28projects were expressed in percent and compared, as shown in Figure 1. 11 For each project, twopoints are plotted, the expected cost (the P50 estimate) and the total budget (the P85 estimate).The points are in ordinal sequence along the horizontal axis, by the dates that the final QA2reports were completed.The mean deviation of the P50 points shown in Figure 1 is 1.8%, and the mean deviation of theP85 points is 1.5%, which basically reflects that the quality assurers recommend increasing costs(in 18 of the 28 projects). The range of the deviation is from -14.0% to 10.8% for the P50estimates and from -12.3% to 10.8% for the P85 estimates, which implies large variation.However, the standard deviations are 5.7% for the P50 estimates and 5.6% for theP85 estimates,which implies lesser variation.11 Measured as ((external analyst’s estimate - NPRA estimate)/NPRA estimate) x 1007
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3PrefaceThe research presented in t
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5Table of contentsPART 1 ..........
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7Summary/abstractThe work reported
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101 IntroductionProjects are increa
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collection and interpretation of th
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15normative agendas, in other words
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17world of projects. The choice of
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19Figure 3 Sources and dataThe proj
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21In line with Flyvbjerg (2006b), t
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233 Concepts and constructs of thep
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25by most BOKs and textbooks in pro
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274 Main topics covered by the rese
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294.2 Empirical indications from ex
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31Budget proposed by the Norwegian
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3330 %Difference (%) from the propo
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3520 00018 000Cost development from
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37In paper 9 (Magnussen 2009a) an a
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395 Conclusions and directions for
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41estimates must be implemented at
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43Klakegg, Ole Jonny, Terry William
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45List of government documents 11Fi
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47Part 2 - Papers1. Magnussen, Ole
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Paper 1Magnussen, Ole Morten, and K
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AbstractCost overruns and delays ar
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Cost effectiveness considerations:
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demonstrates another fundamental is
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Figure 1 The Extended Quality Assur
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Expected effects of the revised qua
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ReferencesBerg, Peder, Kilde, Halva
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International Journal of Project Ma
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O.M. Magnussen, N.O.E. Olsson / Int
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Paper 3Magnussen, Ole M., and Nils
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MANAGING THE FRONT-END OF PROJECTS:
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Olsson, Samset, Austeng and Lädre
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1995; Packendorff, 1995), mainly cr
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to a better way of managing the fro
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Figure 1 Basic structure of the ind
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from empirical investigations has b
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among organizations, not individual
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actors, the relationships are repro
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the network approach has been used
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established based on the views of i
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IHFJKGAELDMBCA - The focal projectB
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the NDEA. The communication strateg
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Directorate for Cultural Heritage (
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the project. The basic activity was
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assumed to be more important than o
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Another interesting observation was
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REFERENCESEngwall, Mats. 2003. No p
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Söderlund, Jonas. 2002. On the dev
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Flexibility at Different Stages in
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Reproduced with permission of the c
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Paper 5Olsson, Nils O. E., and Ole
Page 126 and 127: PAPERSGovernance Frameworks for Pub
Page 128 and 129: supporting setting of and achieving
Page 130 and 131: The study proceeded as follows:•
Page 132 and 133: y the Chief of Defence Materiel, he
Page 134 and 135: (within MoD but independent of thep
Page 136 and 137: Norway U.K. (MoD) U.K. (OGC)Charact
Page 138 and 139: from the external consultants was s
Page 140 and 141: governance. International StudiesRe
Page 142 and 143: Paper 7Williams, Terry, Ole Jonny K
Page 144 and 145: The development of the frameworksUK
Page 146 and 147: notable characteristic of the Norwe
Page 148 and 149: Office to the National Audit Office
Page 150 and 151: highly complex and changing decisio
Page 152 and 153: ARTICLE IN PRESSAvailable online at
Page 154 and 155: ARTICLE IN PRESST. Williams et al.
Page 164 and 165: Paper submitted to the Internationa
Page 166 and 167: One constraint is that actual costs
Page 168 and 169: In other words, the QA scheme is a
Page 172 and 173: 20,0 %15,0 %10,0 %5,0 %0,0 %P50 est
Page 174 and 175: The pre-eminent result is that the
Page 176 and 177: Results from the analysis of the de
Page 178 and 179: more fundamental assessments of pro
Page 180 and 181: Paper 10Magnussen, Ole M. 2009. Exp
Page 182 and 183: Explaining cost estimate difference
Page 184 and 185: changes and external factors. Facto
Page 186 and 187: 30 %Difference (%) from the propose
Page 188 and 189: Table 2 Areas associated with expla
Page 190 and 191: agency. In this case, the observed
Page 192 and 193: ReferencesFlyvbjerg, B., Holm, M.K.
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