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Olympic Stadium - Take an estimate and double it

After speaking with the project manager responsible for the Olympic Stadium build project and one of the UKs foremost experts on major transport infrastructure projects, I was struck by the huge level of cost overrun even before any work had commenced.

Reacting to reports in the national press that the Olympic Stadium had actually come in way over its original estimate of 240m, I asked project manager Ian Crockford to explain how the planners had got things so wrong.

He said that the original estimate was just that, an estimate. The costing had been based on the information available at the time and before any in-depth site analysis had been carried out.

It was delivered last month on time, under budget at 486m.

A week later, while researching a piece for e-Project, I came across a similar explanation. In October 2010 the budget for Transport for Londons cable car project was set at 25m. Seven months later it was 50m. A 100% increase.

The reason, a TfL spokesperson said, was that this too had been a "preliminary estimate". But even factoring in for scope creep and other unforeseen consequences, why is there such a huge variance and why do organisations have so much difficulty calculating project budgets and sticking to them?

One explanation is that the reality of what it costs to build an 80,000-seat stadium or a link across the Thames is not something that senior management wants to hear. To push it through, it therefore makes sense for planners and promoters to disguise the actual costs. In other words set the costs purposely low in order to get the project approved.

But can this be right especially when taxpayers money is put at risk? And should this level of deliberate strategic misrepresentation be allowed to go unchecked?

The answer on both counts is no but dont hold your breath for a quick fix.

According to Professor Bent Flyvbjerg, Director of Oxford University's BT Centre for Major Programme Management, the same basic cost errors have been repeated for the last 70 years.

The golden rule, then, if you want to find out the true cost of a project: take an estimate and double it.

3 comments

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  1. Edward Wallington
    Edward Wallington 08 May 2011, 12:01 PM

    From my point of view it partly depends on the development process being followed.  E.g. in Agile (e.g. DSDM) the original estimate is based on the 'best guess' based on previous experieince etc and based on the requirements understanding at that point in time - at pre-funding stage this is usually high level requirements.  As the project is initiated and business requirements are investigated and spec'd up, then a better estimate is achieved - it is then down to the PM, sponsors etc to look at the requirements, estimates, current funding, risks etc and consider next steps and then to look at options to progress - which may require going back for more funding.An initial estimate is never going to be that accurate (in my view) unless one can fully spec all the requirements upfront - and this is a dangerous game to play, as requirements will likely change as the project progresses, especially on comples multi-year projects.  And if we cannot fully spec a project until it starts, how can we pin down a cost better than an estimate? 

  2. Paul Naybour
    Paul Naybour 06 May 2011, 03:55 PM

    SimonAre all projects doomed to failure in that case. If you look back in history projects have always been underestimated at the start so that they can get funding approval. Once the budget is approved then the real costs emerge. Some classic examples include:  St Pauls CathedralSydney Opera, HouseUnion Pacific Railroadbut surely these are successful projects for the countries that invested in them. I my view we focus too much on the cost and not enough on the long term benefits.

  3. Iain Simpson
    Iain Simpson 13 May 2011, 02:20 PM

    Hear, hear! The long term benefits are paramount to a project's critical success.However, I also empathise with James.Consider the original estimate for the Holyrood Scottish Parliament (10-40m).This was for a utilitarian, simple, building; a "box".After design revisions (well into the execution phase), poor management (throughout), scope creep, gold-plating, and a host of other nastiness,  the final cost was *cough* 414.4m; very diplomatically reported by parliament http://www.scottish.parliament.uk/nmCentre/news/news-07/pa07-018.htm"Well, I'll be...""That's ten times more...""Funded by tax payers..."But, the end result is of very high quality. Much better than a "box". Though the Iron Triangle is nowhere to be seen (probably sobbing in a dark corner somewhere), perhaps the end result could be considered a success.All I can say is that it's a great shame good project management wasn't applied from the very start.And let's not mention the Edinburgh Trams...