Optimism Bias Evaluation and Decision-Making Risk Forecast on Bridge Project Cost Based on Reference Class Forecasting: Evidence from China

The high uncertainty of megaproject results in increasing complexity in the decision-making and ultimately leads to different degrees of cost overrun and project delays. One of the critical reasons for cost overrun and delay is the optimism bias of decision makers. Although the previous literature h...

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Main Authors:	Huimin Liu, Canhui Jiang, Yan Liu, Marcel Hertogh, Xue Lyu
Format:	Article
Language:	English
Published:	MDPI AG 2018-10-01
Series:	Sustainability
Subjects:	optimism bias cost overrun project risk reference class forecasting Monte Carlo simulation decision making
Online Access:	https://www.mdpi.com/2071-1050/10/11/3981

id	doaj-ee3d801a25fd4016a3f9bcd2cb6ee028
record_format	Article
spelling	doaj-ee3d801a25fd4016a3f9bcd2cb6ee0282020-11-24T21:47:25ZengMDPI AGSustainability2071-10502018-10-011011398110.3390/su10113981su10113981Optimism Bias Evaluation and Decision-Making Risk Forecast on Bridge Project Cost Based on Reference Class Forecasting: Evidence from ChinaHuimin Liu0Canhui Jiang1Yan Liu2Marcel Hertogh3Xue Lyu4School of Engineering and Management, Nanjing University, Nanjing 210005, ChinaSchool of Engineering and Management, Nanjing University, Nanjing 210005, ChinaFaculty of Civil Engineering and Geosciences, Delft University of Technology, Stevinweg 1, 2628CN Delft, The NetherlandsFaculty of Civil Engineering and Geosciences, Delft University of Technology, Stevinweg 1, 2628CN Delft, The NetherlandsSchool of Engineering and Management, Nanjing University, Nanjing 210005, ChinaThe high uncertainty of megaproject results in increasing complexity in the decision-making and ultimately leads to different degrees of cost overrun and project delays. One of the critical reasons for cost overrun and delay is the optimism bias of decision makers. Although the previous literature has analyzed the cost overrun distribution of bridges, roads and other infrastructure projects, there is still a lack of research on how to make more reasonable decisions according to the cost overrun risk and cost-benefit theory by considering the expectation of cost overrun. Therefore, this paper firstly measures optimism bias by conducting the field research and interviews regarding over 30 long bridges in China. On the basis of the optimism bias measure, a decision-making risk model of bridge projects with the expectation of cost overrun has been built. Then the paper takes Hangzhou Bay Bridge as an example to discuss the influence of cost overrun predication, implicit benefits and the project’s operation time on NPV results. Moreover, the probability of project unbuildability risk under different degrees of cost optimism bias has also been discussed. Finally, suggestions for risk forecast are provided for decision-makers to make more objective and comprehensive judgments.https://www.mdpi.com/2071-1050/10/11/3981optimism biascost overrunproject riskreference class forecastingMonte Carlo simulationdecision making
collection	DOAJ
language	English
format	Article
sources	DOAJ
author	Huimin Liu Canhui Jiang Yan Liu Marcel Hertogh Xue Lyu
spellingShingle	Huimin Liu Canhui Jiang Yan Liu Marcel Hertogh Xue Lyu Optimism Bias Evaluation and Decision-Making Risk Forecast on Bridge Project Cost Based on Reference Class Forecasting: Evidence from China Sustainability optimism bias cost overrun project risk reference class forecasting Monte Carlo simulation decision making
author_facet	Huimin Liu Canhui Jiang Yan Liu Marcel Hertogh Xue Lyu
author_sort	Huimin Liu
title	Optimism Bias Evaluation and Decision-Making Risk Forecast on Bridge Project Cost Based on Reference Class Forecasting: Evidence from China
title_short	Optimism Bias Evaluation and Decision-Making Risk Forecast on Bridge Project Cost Based on Reference Class Forecasting: Evidence from China
title_full	Optimism Bias Evaluation and Decision-Making Risk Forecast on Bridge Project Cost Based on Reference Class Forecasting: Evidence from China
title_fullStr	Optimism Bias Evaluation and Decision-Making Risk Forecast on Bridge Project Cost Based on Reference Class Forecasting: Evidence from China
title_full_unstemmed	Optimism Bias Evaluation and Decision-Making Risk Forecast on Bridge Project Cost Based on Reference Class Forecasting: Evidence from China
title_sort	optimism bias evaluation and decision-making risk forecast on bridge project cost based on reference class forecasting: evidence from china
publisher	MDPI AG
series	Sustainability
issn	2071-1050
publishDate	2018-10-01
description	The high uncertainty of megaproject results in increasing complexity in the decision-making and ultimately leads to different degrees of cost overrun and project delays. One of the critical reasons for cost overrun and delay is the optimism bias of decision makers. Although the previous literature has analyzed the cost overrun distribution of bridges, roads and other infrastructure projects, there is still a lack of research on how to make more reasonable decisions according to the cost overrun risk and cost-benefit theory by considering the expectation of cost overrun. Therefore, this paper firstly measures optimism bias by conducting the field research and interviews regarding over 30 long bridges in China. On the basis of the optimism bias measure, a decision-making risk model of bridge projects with the expectation of cost overrun has been built. Then the paper takes Hangzhou Bay Bridge as an example to discuss the influence of cost overrun predication, implicit benefits and the project’s operation time on NPV results. Moreover, the probability of project unbuildability risk under different degrees of cost optimism bias has also been discussed. Finally, suggestions for risk forecast are provided for decision-makers to make more objective and comprehensive judgments.
topic	optimism bias cost overrun project risk reference class forecasting Monte Carlo simulation decision making
url	https://www.mdpi.com/2071-1050/10/11/3981
work_keys_str_mv	AT huiminliu optimismbiasevaluationanddecisionmakingriskforecastonbridgeprojectcostbasedonreferenceclassforecastingevidencefromchina AT canhuijiang optimismbiasevaluationanddecisionmakingriskforecastonbridgeprojectcostbasedonreferenceclassforecastingevidencefromchina AT yanliu optimismbiasevaluationanddecisionmakingriskforecastonbridgeprojectcostbasedonreferenceclassforecastingevidencefromchina AT marcelhertogh optimismbiasevaluationanddecisionmakingriskforecastonbridgeprojectcostbasedonreferenceclassforecastingevidencefromchina AT xuelyu optimismbiasevaluationanddecisionmakingriskforecastonbridgeprojectcostbasedonreferenceclassforecastingevidencefromchina
_version_	1725897119796035584

Optimism Bias Evaluation and Decision-Making Risk Forecast on Bridge Project Cost Based on Reference Class Forecasting: Evidence from China

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