Primetime 9-5-2005: Roads Infrastructure Cost Underestimation

ajapale said:

Hi Legend,

The "law of averages" as you term it cannot apply in this case since it is a non random event.

I'm reapeating my self here but there was systematic underestimation of infrastructure costs in the 1980's and 1990's

ajapale

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i can't agree. Allowing for averages to both exceed/not exceed is fundamental to any aspect of budgeting. I go shopping every week. I expect to pay 100 euro. Some weeks I pay more. Some weeks I pay less. i do not pay 80%+ more every week. Although the NRA could have got the first few estimates wrong, their ability to estimate should have become much closer to being accurate as newer projects came on stream. Instead they are under-estimating just as much still today. Like any business the more you do somethign the better you should become at it. Just think about the extimate of the current national development plan as opposed to how much it is going to cost. Look at how far behind it is. Have you driven the 100km byond Fermoy to Port Laoise recently? The road linking the 2 biggest cities in this state?

Keep in mind that the NRA were the people who refused the Kinsale Road Roundabout flyover in Cork at a then cost of less than 10 million punts i think. The current expected cost is now 50 million euro minimum.

Hi Purple,

I like your shopping analogy because it illustrates the point Im making very well. Spend on weekly shopping is an example of another non random event.

Many people systematically underestimate their spend on their weekly shop. Beacause the 'law of averages" does not work for non random events week after week the shopper will spend more than the estimated.

In contrast flipping a coin can be considered a random event and over time you would expect an equal number of heads and tails.

Estimating spend on road building is a non random event and you would NOT expect there to be an even number of over and under esimates.

ajapale

ajapale said:

Many people systematically underestimate their spend on their weekly shop.
ajapale

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This is a daft analogy. The average weekly shop is maybe 100 euro and the sum of all parties involved in tendering, estimating, spending, and suffering the consequences of overspend is one. You can't compare an amateur operation of no significance with a nationally important process like road building.

Erith,

Yes, I agree all analogies are slightly daft.

The fact remains, however, the process of estimating spend on national infrastructure in Ireland was not a random process. It was (and probably still is) a flawed process systematically skewed in favour of under estimates.


ajapale

ajapale said:

Erith,

Yes, I agree all analogies are slightly daft.

ajapale

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I didn't say all analogies are slightly daft, I said that particular one was (unqualified) daft.

As for the random process issue, I think you trying to make too simple a model.

The idea of a professional cost estimate is that they calculate accurately costs based on sound historical evidence, this includes so-called unforeseens. Ask any architect how much something will cost to build and they will give you a figure and add a percentage on because they know a) it will rain, b) the plumber won't turn up on time c) a Viking settlemnet will be discovered with live Vikings in it, whatever. Point is they know from experience **** happens and they can deliver a mean cost of said **** happening.

Anyway an honest estimate given by an experienced firm will have an accurate total estimate of cost for the full package. Maybe it rains for a year and a half and a new species of underground monkey is discovered whose habitat is clamped under immediate protection: an statistically high level of setback => overspend. Maybe it rains for five minutes and the contractors all turn up on time and work hard: an statistically low level of setback=> underspend.

The conclusion to be reached if there is "systematic" underestimating going on is that the offers are dishonest or incompetent. Take your pick.

By the way, the fact that a study of 25 countries over 70 years produces a massive spike for public cost of raod building in Ireland is fairly damning in itself.

Hi Erith,

Im trying (unscucessfully) to find a reference to the study done by the Dutch (Danish?) guy. Do you know anything about this study?

Im also going to research the process employed in estimation, tendering, project management for public infrastrucure in Ireland.

At a personal level Im pretty happy when I drive the length of the magnificient M7 that it has been completed and Im not too concerned that there has been some cost overrun. But thats my opinion....

ajapale

Hi AJ,
I only heard the 'fluff piece' but I think he was Danish. Perhaps Primetime have a website?

"Im also going to research the process employed in estimation, tendering, project management for public infrastrucure in Ireland."
Hi ajapale. If you do get some info on the tender process can you please post a summery on AAM as I, and I'm sure others, would be very interested in know about it.

Sorry to labour this but I feel like the point of the discussion has been hijacked.

1) Ireland pays 87% more than original estimate

2) Everyone else pays 20%.


We are not talking shades of grey here.

The Danish researcher is Prof. Bent Flyvbjerg (Aalborg University).

Some of the publications from his transport study are [broken link removed], [broken link removed] and [broken link removed] (pdfs).

There are other publications linked from [broken link removed] that are also worth a look.

Thanks Cobalt, I look forward to some light bedtime reading!

I have to agree with erith. It's obvious from examing the numbers that there is a serious issue here. its either overcharging by the builders, or serious under estimating by the NRA. One or the other made a balls up.