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Why costs overrun: Risk, optimism and uncertainty in budgeting for the London 2012 Olympic Games


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The systematic under-estimation of costs in budgeting for large-scale projects raises the vexing question of why there are such incongruities between the projections made at initial stages and the eventual outturn cost. As a first step to understanding the sources of such budgeting overruns in the context of the Olympics, this research note outlines how the costs of the London 2012 Olympic Games were under-estimated in a series of budget forecasts, identifying sources of error and categorizing these according to the effects on budgeting of: (1) inattention to risk inside government; (2) biases in decision-making in the evaluation and use of information; and (3) uncertainty in project management and administration. These factors are accentuated through the planning and budgeting context, as estimates at different stages of the process serve alternative purposes and entail varying levels of knowledge and scrutiny.
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Why Costs Over-Run: risk, optimism and
uncertainty in budgeting for the London
2012 Olympic Games
Will Jennings
Published in the Journal of Construction Management and Economics
Full citation: Will Jennings. (2012). Why Costs Over-Run: Risk, Optimism and
Uncertainty in Budgeting for the London 2012 Olympics.’ Journal of Construction
Management and Economics 30(6): 455-462.
The systematic under-estimation of costs in budgeting for large scale projects
raises the vexing question of why there are such incongruities between the projections
made at initial stages and the eventual outturn cost. As a first step to understanding the
sources of such budgeting over-runs in the context of the Olympics, this research note
outlines how the costs of the London 2012 Olympic Games were under-estimated in a
series of budget forecasts, identifying sources of error and categorising these according
to the effects on budgeting of: 1) inattention to risk inside government, 2) biases in
decision-making in the evaluation and use of information, and 3) uncertainty in project
management and administration. These factors are accentuated through the planning
and budgeting context, as estimates at different stages of the process serve alternative
purposes and entail varying levels of knowledge and scrutiny.
Keywords: mega-events, Olympics, cost over-runs, risk, optimism bias
In one of the initial studies into the feasibility of a bid for the 2012 Olympics, the
total cost to London of hosting the Games was estimated at a modest £1.8 billion (for
details of that budget forecast, derived on the basis of a range of assumptions about a
‘specimen bid’, see Arup 2002a; 2002b). This figure later increased to £4.2 billion in the
bid dossier that was submitted to the International Olympic Committee (IOC) and again
revised upwards to £9.325 billion in a formal government review of the budget in 2007.
Since that review, cost increases have been absorbed into the sizeable construction and
programme contingencies for the project. Far from the London 2012 experience being
exceptional for the problem of spiralling costs, the under-estimation of project costs is
the norm in organisation of the Olympic Games (see Jennings 2012a), with the average
cost over-run from the estimates presented in the bid dossiers of applicant cities being
equal to more than 200% in all Games since 1976. This is also consistent with extensive
evidence on the systematic bias of mega-projects towards cost inflation (Merrow 1988;
Flyvbjerg et al. 2002; 2003; Jennings 2012b). This research note uses the case of London
2012 to test a number of explanations of cost over-runs in major projects in general and
in organisation of the Olympics in particular.
The concept of optimism bias is prominent in studies of large scale projects (e.g.
Flyvbjerg et al. 2003), and has also become influential in official planning guidance for
public works (e.g. HM Treasury 2011). There are, however, disparate theories about the
underlying causes of optimism bias, for example being grouped according to technical
(e.g. scope creep, imperfect information), psychological (e.g. decision-making biases),
economic (e.g. rent-seeking by firms and consultants), and political-institutional (e.g.
bureaucratic and organized interests) categories (see Flyvbjerg and COWI 2004). Each
of these theoretical perspectives tend to be attached to the selection of particular forms
of measurement and, because of this, are often limited in their discrimination between
the concurrent causal effects of variables, posing a threat to internal validity.
Studies of cost over-runs in large scale construction and infrastructure projects
have a range of methodologies available to them. Influential works in this field have
used quantitative methods to determine the general distribution of cost over-runs in
major projects and the factors associated with them (e.g. Merrow 1988; Flyvbjerg et al.
2002; 2003). An alternative approach is to undertake multi-N qualitative analysis of
planning and budgeting processes and outcomes, comparing the characteristics of cost
over-runs across a series of similar cases (e.g. Hall 1980; Jennings 2012a).
This research note uses a single case to analyse the evolution of cost estimates
over time through a form of process-tracing (George and McKeown 1985). To do this, it
analyses mutations in the estimated costs over a series of budget forecasts/assessments
for the London 2012 Olympics produced and published at significant intervals during
the planning, bidding and delivery phases (these are described in further detail below).
These figures were identified through a comprehensive search of the public record and
provide a longitudinal sampling frame that enables demonstration of how both headline
costs and estimates of specific items have risen over time and between critical points in
the decision-making process. The data was compiled from the original documents (with
the exception of the final budget which is detailed in a National Audit Office report) and
selected items are included where budget definitions of categories are consistent, and
enable direct comparison. Because there have been no revisions of the official budget as
a whole since 2007, this remains the benchmark for assessing costs (although there have
been changes in the expected cost of some items since 2007, which are discussed here).
This approach is designed to generate insights into generalities of the budgeting process
and the impact of the decision-making context of budget preparations on cost estimates.
For example, this distinguishes between initial scoping and the tendering phase (prior
to the IOC’s selection of London as host of the Olympic Games in this case) and the later
efforts of government to establish the terms of the public sector’s financial commitment
to the event. Such an approach does not, as a rule, consider incremental revisions of the
budget made on an ad hoc basis. Further, it focuses upon the headline figures and a
selection of major items because the budgets often leave ambiguities over which items
are covered under general categories (in some instances limiting the scope for direct
comparisons). The purpose of the qualitative analysis is therefore to use the case to test
alternative explanations of cost over-runs in major projects such as the Olympics. This
method is intended to inform the design of future multi-N studies, enabling systematic
testing of causal effects of different variables on the likelihood, timing and magnitude of
cost over-runs. It identifies changes in cost estimates and then assesses how these are
linked to (1) the political context of budgeting and adherence to guidance and technical
analysis, (2) the state of decision-making mind-sets in the formulation of estimates and
the application of budgeting procedures and the sorts of information used to construct
and evaluate budgets, and (3) changes to budgeting assumptions based upon changes in
technical or accounting scope and unanticipated shocks (i.e. incomplete information).
Over time, the cost estimates for the London 2012 Olympics evolved through a
number of forms and stages of budget preparation. Those selected for analysis here are
(1) the budget developed by external consultants for a ‘specimen bid’ (Arup 2002a), (2)
a subsequent probabilistic assessment of the risks and uncertainties associated with the
bid (PricewaterhouseCoopers 2003), (3) the estimates of the required expenditure that
were presented to the IOC as part of London’s candidate file (London 2012 Ltd. 2004),
and (4) the revised budget produced by the UK Government in 2007. These represent
the main public communications of the projected costs of London 2012. There are often
difficulties associated with resolving the question of what the final cost of the Olympic
Games is. As the Auditor-General of New South Wales concluded in a report following
the Sydney 2000 Olympics, “…[t]here is no one, simple answer to this apparently simple
question” (NSW Audit Office 2002, p. 3). This uncertainty is, in part, due to the changes
in the political and managerial purpose of budgets at different times in the project-event
lifecycle as well as to variation in resourcing of budgeting exercises. Such contexts give
rise to variation in the amount of information and resources available for preparation of
estimates as well as differences in the substantive purpose and meaning of the numbers.
The cost estimates of budgets presented at the bid stage are often speculative and used
as a basis for justification, for example, whereas budgeting at later stages tends to reflect
the concern of decision-makers with measuring and controlling costs. As this analysis
will outline, this has significant consequences for drift between projections made at the
initial stages of budget preparation, where information on technical specifications and
funding lines tends to be sparse, and budgets produced once the objectives, designs and
financing have been agreed upon.
Through comparison of data on the rising cost estimates for London, presented
in Table 1 in nominal prices,
it is possible to explain how the cost has blown out from
an initial forecast of less than £2 billion. While differences in the classification of certain
budget items can make direct comparisons difficult in some instances, it is clear that the
estimated cost of the operations and construction of infrastructure and facilities for the
Olympics have each been subject to considerable growth over time (even if inflation is
controlled for), reaching almost 1,000% for the latter. The other main areas in which
there was escalation of costs was the estimated security costs, which were not reported
in the budgets of either the Arup (2002a) report or the candidate file (London 2012 Ltd.
2004), despite estimates of security costs having been undertaken at that point. This
omission amounted to some £600 million that was missing from the original estimates
Figures are reported in nominal prices to enable referencing against the original sources, with
the value of nominal values in 2007 prices adjusted using the GDP deflator also listed in Table 1.
Price inflation therefore accounts for a small percentage of the cost inflation (no more than 15%).
of the total cost. (Since the 2007 government budget there has been a further increase of
£271 million in the cost of on-site security.) To similar effect, the tax liabilities of capital
expenditure had not been included prior to the 2007 budget, leading to the addition of
£836 million to the corrected budget of 2007. The last of the main sources of the rising
costs of London 2012 was the addition of sizeable contingencies for construction of
venues and infrastructure (£500 million) and for the interconnectedness of project risks
at the programme level (£2,247 million, including tax liabilities) (National Audit Office
2007, p. 16). While there have been subsequent increases in the cost of some venues
since 2007 -- for example, with the cost of the main stadium rising from £535 million in
July 2008 to £547 million in February 2009 (see Department for Culture, Media and
Sport 2009, p. 47) -- most of this inflation has been absorbed through the contingencies.
In certain respects, then, the incumbent government took the initial political ‘hit’, in
terms of criticism and unpopularity, through announcing the updated budget in 2007,
giving it substantial latitude for discretion in its subsequent management of the budget.
[insert Table 1 about here]
While it is well established that major projects tend to have poor track records in
terms of their completion times and cost over-runs (e.g. Merrow 1988; Flyvbjerg et al.
2002; 2003; Altshuler and Luberoff 2003) there is less consensus as to the determinants
of over-optimism in planning and budgeting. Further, ‘uplifts’ of cost projections are a
potential solution to reduce the likelihood of over-runs (Flyvbjerg and COWI 2004, pp.
28-35) but do not address the problem at source. Other explanations such as ‘strategic
misrepresentation’ (Flyvbjerg et al. 2002) are at odds with those that highlight the lack
of detail in scope definition (Merrow et al. 1981). This debate is fuelled because large
scale projects of this sort span the worlds of politics, capital financing and investment,
planning, engineering and project management, and so attract diagnoses and remedies
aimed at often disparate aspects. While no single field of enquiry has all the answers, it
is possible here to draw upon three strands of thinking to organise analysis of some of
the contributing factors of the under-estimation of costs for the London 2012 Olympics.
The first of these concerns the role of partisan politics and executive government in the
acceptance of over-confident assumptions and projections, such as found in accounts of
planning disasters in major public projects and policies (e.g. Hood 1994; Dunleavy 1995;
Moran 2001). According to this viewpoint, the risks and uncertainties attached to cost
estimates are often discounted in political and bureaucratic contexts. The second strand
of thinking relates to the problems of decision-making under conditions of uncertainty,
which give rise to systematic biases (Kahneman and Tversky 1979). This field provides a
menu of biases to account for misjudgements of either individual or collective decision-
making, such as ‘group think’ (Janis 1972) and ‘illusions of control’ (Clarke 1999). Third
of these strands concerns the technical complexities and uncertainties inherent to mega-
projects of this sort, as changes in scope definition or technological requirements lead to
drift from initial projections (Merrow 1988; Capka 2004). Such a perspective highlights
how modifications to project specifications and exogenous environmental shocks lead to
updating of critical assumptions. Together, these strands of thinking are far from being
exhaustive, but highlight the wide range of variables that can be attributed as a source of
cost over-runs in major projects such as the Olympics.
In light of the budget data, then, it is possible to test the validity of each of these
alternative perspectives regarding underlying causes of the under-estimation of costs
for the London 2012 Olympics. The remainder of this paper therefore seeks to evaluate
the extent to which the cost over-runs can be attributed to explanations drawn from the
following categories of: (i) inattention to risk inside government, (ii) decision-making
biases in the evaluation and the use of information, and (iii) uncertainty affecting project
management and administration.
(i) Inattention to Risk inside Government
It is possible to argue that under-estimation of the cost of London 2012 was due,
in part, to inattention to risk inside government: in the failure of British government to
recognise the uncertainties surrounding key assumptions and forecasts. For example,
over-estimation of the level of private sector investment in development of the Olympic
Village required a subsequent increase in the size of the public sector funding package.
This was because in preparation of the London bid budget “… £738 million of funding
from the private sector was included, despite not being supported by robust analysis”
(Public Accounts Committee 2008a, p. 5). More widely, the bid budget did not follow the
government's own guidance on budgeting procedures for major projects, and the risk of
optimism bias, “…despite HM Treasury having been consulted and the bid agreed across
Government" (Public Accounts Committee 2008a, p. 9). Indeed, there was sizeable error
(in the statistical meaning of the term) attached to the estimates of costs put forward in
the assessments undertaken by external consultants, such as Arup (2002a; 2002b) and
PricewaterhouseCoopers (2003), as [a]ll made clear in their advice … that significant
uncertainties existed and that further work was required to develop robust budget
figures, and this work was based on plans that have subsequently changed significantly
(National Audit Office 2007, p. 7). It is unsurprising, then, that these initial projections
had little resemblance to the amended budget later signed off by government in 2007:
“…before the bid, the size, scale and complexity of what was to be delivered, as well as
the need for this scale of programme contingency, had not been fully appreciated”
(Public Accounts Committee 2008a, p. 9). There is reason to argue, then, that inattention
of decision-makers inside government to the risks and uncertainties inherent to certain
budget items, and the implicit confidence intervals attached to forecasts, was a source of
the under-estimation of the cost of London 2012.
(ii) Biases in Decision-Making
There is some evidence that biases in decision-making were an important factor
in growth in the costs of London 2012 above initial predictions. In hindsight the over-
optimism of the initial forecasts is self-evident, inasmuch as the estimated headline cost
alone increased almost 300% from the candidature file submitted to the IOC in 2004 to
the government’s revised budget in 2007. More significantly, inspection of the feasibility
studies into the development of a London bid reveals that these were geared around a
review of the documents of successful bids of the past and acknowledged the need for
“… escaping from the world of realism” (Luckes 1998, p. 2). It is also arguable that other
decision-making biases were at work in formulation of the initial versions of the budget.
Specifically, there is some evidence of the anchoring of cost estimates with reference to
information from past Olympic Games or previous budget estimates, without reflection
upon the underlying uncertainties attached to them or the degree to which estimates of
Games costs were comparable across different contexts. The exploration of costs for a
‘specimen bid’ (Arup 2002) was, for example, considered to be “a good baseline” (Select
Committee on Culture, Media and Sport 2003, p. 16) for the projection of future costs,
even though these estimates had been compiled in the absence of information about
“…agreed project objectives and outputs (Arup 2002a, p. 4). Further, both the specimen
bid (Arup 2002a; 2002b) and the benchmarking exercise undertaken for government
(PricewaterhouseCoopers 2003) included figures that were taken from the budgets of
other major sporting events (i.e. the Olympic Games held in Atlanta in 1996 and in
Sydney in 2000 and the Commonwealth Games in Manchester in 2002), without critical
examination of the degree to which the cases were comparable. These were problematic
cases for comparison because of their operational and construction characteristics. For
example, the Atlanta Olympics involved a lower ratio of investment in the facilities and
infrastructure than was planned for London, while Manchester’s Commonwealth Games
had much fewer security threats to contend with than a London Olympics in the period
after 9/11.
As a result, some of the information used to construct and evaluate the budget
estimates for London 2012 was used as a point of reference for upward or downward
adjustments of nominal values, rather than performing scrutiny of the fundamentals of
the planning assumptions, such as the technical specification of venues or the specific
roster of items to be included in the final budget. Because of this, the initial budgeting
exercises did not explore the potential for inclusion of items associated with additional
costs outside the pre-defined set of budget categories. The Arup (2002a, p. 5) specimen
bid, for example, included a £109 million provision for ‘risk’, but in practice this was just
a straightforward percentage uplift of the cost estimates. Another potential bias in the
use of information from other Olympics or major events concerns representativeness
(Tversky and Kahneman 1974), in the treatment of information on costs drawn from
distinct economic, social, political and geographical contexts as being drawn from a
single population of (mega-event) budgets. While the functional characteristics of an
Olympic Games staged in London has similarities with those held in Atlanta and Sydney,
the costs associated with procurement and security, for example, are subject to place-
and time-specific parameters. Security provisions in Atlanta in 1996 and Sydney in 2000
are not comparable to London in 2012, because of the changed planning context after
September 11, while the global financial crisis that hit in 2008 constrained opportunities
for procurement from construction firms and the securing of private finance for projects
such as the Olympic Village. The representativeness of figures across events also varies
according to the extent to which public spending on regeneration and infrastructure is
incorporated within the Olympic budget subject to the particular planning ‘vision’ of the
Games organizers and their political principals. For example, the London bid was geared
more around the theme of regeneration and investment to a greater extent than Atlanta,
whereas Barcelona or Athens were drawn from a more comparable class of case.
(iii) Uncertainties in Economic and Technical Dimensions on Project Management
While inattention of government to risk and the presence of biases in decision-
making are significant factors in the under-estimation of costs for the London 2012
Olympics, there is compelling evidence concerning the effects of scope creep in technical
designs and structural requirements of the venues and infrastructure, as well as in the
classification of costs through accounting. Specifically, growth in costs of construction of
venues and infrastructure between the specimen bid, the probabilistic cost assessment,
the candidature file submitted to the IOC and the government-amended budget (shown
in Table 1) are not just attributable to cost inflation for existing designs, but also reflect
the increased size and complexity of the plans for the main Olympic site and associated
infrastructure. The total cost of infrastructure and event facilities were put at just £403
million in the Arup (2002a, p. 5) report and £751 million for a mid-range scenario in the
PricewaterhouseCoopers (2003, p. 10) probabilistic cost assessment. At the time of the
bid the cost of venues and infrastructure was estimated to be £2,670 (London 2012 Ltd
2004, p. 105), although this figure also included around £810 million of investment on
‘non-Olympic’ infrastructure from government and the £650 million Olympic Village to
be financed through a public-private partnership (National Audit Office 2007, p. 33).
After the revised budget introduced large contingencies to absorb any future
cost increases (National Audit Office 2007, p. 16), there was further pressure on the
projected cost of the venues, with the rising cost of the main stadium attributed to
insufficient competitive tension in procurement and cost pressure due to ‘additional
scope requirements’ in changes to the design of the stadium roof (see Department for
Culture, Media and Sport 2009, p. 47). Both the aquatics centre and velodrome were
subject to increased costs due to changes in design specification, with cost pressure of
£25 million for the velodrome being attributed to “complex foundations and ground
conditions” (ibid, p. 47). While the escalating costs of the London Olympics can be linked
to changes in the scope and structural requirements of construction, the main factor
behind the increased headline figures was scope creep in budgeting classification itself
during the government’s consolidation of the budget in March 2007. In this, much of the
increased cost -- from £4.2 billion at the time of the bid to £9.325 billion in the revised
budget -- was a result of reclassification of certain items as core Olympic costs and due
to inclusion of items that had been omitted from the bid due to uncertainty. Specifically,
£1,044 million of expenditure on infrastructure for the Olympic Park was re-integrated
into the official budget while the cost of tax liabilities on capital spending (£840 million)
and security provision (£600 million), which had been omitted from previous estimates,
were also consolidated into the budget. These budgeting omissions -- of infrastructure,
tax, security and a programme contingency to manage the interconnectedness of risk at
the programme level -- amounted to more than £4 billion, far greater than the increases
in costs due to changes in technical scope (for example, the cost of the aquatics centre
increased from an estimate of £75 million at the time of the bid to £313 million, while
the cost of the main stadium increased from £280 million to £547 million over the same
time period). These changes in accounting classification are also consistent with drift in
the purpose of the Olympic budget over time, evolving from a speculative planning and
bidding document (based on high levels of uncertainty and limited knowledge) to a tool
for public accounting and programme management.
Alongside these increases of costs due to scope creep both in technical designs
and accounting definitions, some of the pressures on costs can be linked to exogenous
factors, in particular in the security and economic domains. At the height of the global
financial crisis, commercial developers were unable to raise the anticipated private
finance for the Olympic Village and Media Centre projects, requiring bailouts of around
£700 million from the public sector (National Audit Office 2011, p. 17). The economic
downturn also was a factor in the loss of competitive tension in tendering for two of the
largest sporting venues -- the main stadium and the aquatics centre (National Audit
Office 2008, pp. 37-38). Some changes in scope creep are therefore linked to external
hazards or threats, rather than changes in the preferences of planners or their political
These alternative diagnoses of determinants of the cost over-runs of the London
2012 Olympics have sought to extend understanding of the over-optimism present in
Olympic budget estimates and mega-projects in general. The relevance of ideas drawn
from a range of disciplines and fields suggests theoretical and methodological pluralism
is desirable when dealing with a vast and complex project such as the Olympics. The use
of a single case enables the contextual analysis of budget preparations. From this, it is
evident that cost estimates tend to come into focus over time, as uncertainties of scope
diminish and as information and resources are increasingly committed to formulation of
definitive plans and accurate figures. The process of budgeting therefore entails a series
of stages at which different visions of the Games are communicated. This gives rise to
‘drift’ in the practice and the perceptions of budgeting, from the initial scoping and risk
assessments, to promotion of bid documents to the IOC, to the finalizing of the financing
arrangements for the Games. Such a contextual view cautions against claims of strategic
misrepresentation on the part of planners (Flyvbjerg et al. 2002), since budgets can have
quite different meanings and applications at different points in time and are often not
presented as objective truths. This points to the possibility of viewing budget plans for
mega-projects in the same way as Clarke’s (1999) characterisation of disaster plans as
‘fantasy documents’ designed to express uncertainty in terms of risk and to provide
reassurance about manageability to an external audience.
In itself, the concept of optimism bias offers a false panacea for gaining insight
into causal processes underlying cost over-runs in major projects, since the inferences
drawn from these systematic patterns of behaviour are insufficient for determining why
certain projects go over budget whereas others do not. Further, solutions targeted at
changing over-optimistic cultures at the project adoption phase (e.g. Public Accounts
Committee 2012, p. 9), and cost ‘uplifts’ (e.g. Flyvbjerg and COWI 2004), do not entirely
resolve the underlying problem (in some instances uplifts may even set a high baseline
from which further over-runs can occur, for example legitimising changes in technical
scope later on). The method and analysis presented in this paper highlight a number of
potential lines for future enquiry. Firstly, the disparate theoretical focus on technical,
psychological, economic, and political-institutional categories needs to be integrated
within a more comprehensive framework that enables systematic testing of the causal
effects of different variables on the likelihood, timing and magnitude of cost over-runs.
Secondly, future research might consider how process-tracing methods of the sort used
here might be combined with multi-N qualitative analysis to determine the causes of
cost over-runs across a larger sample of (a) Olympic Games, and (b) mega-projects in
general. As such, there is potential for case studies to be integrated with quantitative
methods, for example through ‘fuzzy set’ comparative analysis (Ragin 2000), to assess
the relative size of effect of (qualitative) variables associated with cost over-runs. This
would, for example, qualitatively assign weights to each of the variables that contributed
to the project cost over-run (e.g. political interference, shortfalls in private investment,
changes in accounting or technical scope of the project, unexpected increases in labour
costs). Such an approach would be able to offer more generalizable insights into sources
of cost over-runs in major projects. It might, in turn, enable the development of theory
better equipped for dealing with the intersection of politics, psychology, economics and
project management.
Through this brief analysis of the under-estimation of costs in budgeting for the
London 2012 Olympics it is evident that there are a number of alternative explanations
to the question of why costs over-run in Olympic budgets and mega-projects of this sort
more widely. Firstly, under-attention of decision-makers inside government to risk can
lead to the detachment of cost projections from assumptions or uncertainties inherent
to the methods used to generate them. Secondly, over-optimism is a common feature of
the process of drawing up bid documentation designed to secure votes of IOC members,
rather than rewarding realism, while the anchoring of cost estimates with data from
other events introduces potential error into budgeting. Thirdly, and finally, the rising
costs of the Olympics are often associated with scope creep, either due to change in the
technical specification of projects or in budgeting classification, and with exogenous
shocks in the wider economic and security environment. The under-estimation of costs
in an event the scale of the Olympics (Jennings 2012a) is consistent with the systematic
bias of mega-projects towards cost inflation (e.g. Merrow 1988; Flyvbjerg et al. 2003)
and unsurprising in view of the large number of points at which it is possible for things
to not go according to plan. This research note has sought to show, however, that to
understand the determinants of cost over-runs it is important to locate budgeting in
context and recognise the problems inherent to decision-making under conditions of
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Table 1. Estimated cost of specified items of the budget for the London 2012 Olympics
Arup (2002)
PwC (2003)
Nominal case
Candidate File
Estimates (2004)
revised budget
£ million
£ million
£ million
£ million
2002 prices
2003 prices
2004 prices
2007 prices
Infrastructure and facilities
Land acquisition
Site security
Total security
Total cost
Nominal £ in 2007 prices (GDP
PwC (2003)
London 2012 Ltd
NAO (2007)
*Denoted as ‘provision for risk’ (Arup 2002a, p. 5)
†Estimate at time of bid, not included in budget (NAO 2007, p.33)
Excludes cost of site security listed as part of Olympic Delivery Authority core costs (NAO 2007, p. 16)
... Preuss et al. (2019) published their book on cost and revenue overruns of Olympic Games for the period of 2000-2018 while differentiating between the Organising Committees for the Olympic Games (OCOG) and the Olympic infrastructure costs. Other research of a similar nature is provided by Jennings (2012), who used a parliamentary government dataset, which was argued contextually, and analysed the different areas of cost overruns, but limited the research to the London 2012 Games. It is noteworthy that the initial budget for London was not clear as four different cost projections were made available, which is symptomatic for mega projects that include many different sub-projects and financing bodies. ...
... It is noteworthy that the initial budget for London was not clear as four different cost projections were made available, which is symptomatic for mega projects that include many different sub-projects and financing bodies. Jennings (2012) has been cited in works by Ahiaga-Dagbui and Smith (2014), Lind and Brunes (2015), and Invernizzi et al. (2018) that have a focus on cost overruns and highlight London 2012. ...
... That is usually undertaken eight years before the Games. For mega events in a serious auction-like awarding procedure (such as bid competitions), the bid book cost estimation may be a politically false set amount (Preuss and Schnitzer 2015 for FIFA World Cups) or a pure underestimation (Jennings 2012), both of which built a false base with which to calculate cost overruns. Better cost estimations can be serious governmental projections as the government is politically responsible for taxpayer money, and not a politically acting bidding committee. ...
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The so-called ‘Oxford Study’ by Flyvbjerg et al shows Olympic cost overrun of 170-750% with a substantial risk of a further cost overrun above this range in the future. The aim of this paper is to re-analyse the results by using a method in accordance with the international convention of comparing across time and geographies. The dataset used has abundantly more governmental data than in the Oxford Study. The results of the Oxford Study for the period of 2000–2016 could not be replicated. It is argued why the statistical analysis and their data reliability are misleading, thus leading to a discovery of six typical misperceptions. In contrast to those authors, this paper shows cost overruns (Olympics 2000–2014) for direct non-OCOG investments in the range of 13–178%. Further, it shows that the costs of the Olympic Games represent less than 0.28% of the GDP; hence, it is clear that the Games cannot cause a severe national economic crisis. This paper provides a discussion on the underlying assumptions of the Oxford study, thus providing valuable insights for politicians who intend to submit an Olympic bid, and contextualises cost overruns caused by fixed deadlines and long planning horizons. I disagree with the claim by Flyvbjerg et al. that hosts give a blank cheque to the IOC and I contend that demands and a tight coupling are fixed in the Host City Contract, thus negating the blank cheque assertion.
... This research was a single critical case study to analyse the series of events through process-tracing [15,16], leading to the final predictable surprise event [17]. The Greenvale housing development in Trinidad and Tobago was chosen as the critical case study to show the project issues, societal issues, and sunk cost expenditures over time during and after project delivery. ...
... This research adopted a qualitative approach, where a critical 'case study' [38] was used to address the research questions. A critical case study was selected to investigate the causal chain of diachronic decision-making events, or lack thereof, through processtracing [15,16]. This critical case study methodology is advantageous in providing details through multiple sources of instruments about contemporary phenomena and decision processes using real-life contexts [39], particularly in situations where the benefit of hindsight can provide analytical inferences as compared to statistical generalisation. ...
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The concept of ‘Lock-In’, or the escalating cost of overcommitment on a project to a failing course of action, has unforeseeable implications in project management. This paper presents a case study on the occurrence and consequences of lock-in within the context of public sector housing projects in a small island developing state (SIDS). It demonstrates that cost overruns continue beyond the commissioning phase and throughout the project’s lifecycle, even though technical contingencies were implemented to deliver the intended project benefits. The findings unpack the implications of political expediency as a strategic tool mobilised to supersede proper technical decision-making prior to project execution. It concludes that project practitioners’ commitment to select and continue with a sub-optimal project can lead to the implementation of ineffective solutions to justify their actions, resulting in failed outcomes with negative social consequences. This research helps to advance project management knowledge in the us-er/operation phase, because previous scholarly work was limited to investigating lock-in from project conceptualisation to the commissioning phase.
... Even though considerable support exists for the Planning Fallacy theory explanation [85][86][87], it is not without methodological and theoretical limitations, which we will address in the next section of this article. We hasten to note that the construction engineering and management and project management literature, bar the work of a few authors such as Ika et al. [79], Liu and Napier [88], Jennings [89], and Lind and Brunes [90], has been unable to provide original and adequate explanations of cost overruns beyond the studies published before 2002an explanatory theory has not been forthcoming. Needless to say, we repeatedly see the same causes being identified and a tendency to focus on explaining the failings of a project's internal management and operations [91][92][93]. ...
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The cost overrun phenomenon plagues capital projects worldwide. While policymakers and practitioners are aware of the potential for cost overruns to occur while procuring their projects, they have struggled to mitigate them. This article takes stock of cost overrun research and suggests two major periods stand out. First, it focuses on the period from 1960 to 2002 and briefly reviews studies examining issues influencing cost estimation accuracy. Then, we look at the present period (2002 to 2022), where the Planning Fallacy theory has been championed and identified as the best way to explain why cost overruns occur. While the Planning Fallacy has filled the theoretical void in the literature, we question its legitimacy as it has been unable to effectively address the cost overrun phenomenon. Moving forward, we suggest a line of inquiry based on the theoretical polyphony of the 'Fifth Hand' principle, which offers a new framing to remedy cost overruns in capital projects.
... To prevent the failure project management, business models are important mainly when aspects like the budgeting management is not effective and the planning does not reflect the reality, refers Jennings (2012) in his research on the cost overruns in case of major events like the Olympic Games. Flyvbjerg & Stewart (2012) found that the Olympic Games from 1960-2012 faced cost overruns, with an average overrun of 179 per cent in real terms. ...
Conference Paper
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Abstract: The article "Sharing of teaching staff information via QR-code usage" presented at the conference, which has the common name "Information Systems Management and Evaluation ». One of the most famous information systems in user practice is an information system - "Human Resources Information System" (HRIS), which is essentially a database of the HR organization, which in itself does not provide any management decisions and need a special person who to this database is constantly filled and made changes. In this article, based on the analysis of empirical data is offered a specific solution for database management of HRIS remotely by members of the company. The process of personnel management becomes more effective and operational with the help of one of the technologies IoT- QR code. University Information about the instructors are constantly changing and the human resources department is necessary each time to make changes to the database. There are cases when you need urgent information on the teacher, and it is impossible to obtain an instant on a number of subjective reasons. QR code technology offers amazing features such as: 1. Easy access 2. Deeper relationship with customers 3. Bridge online and offline media 4. Real-time information 5. Invoke user's curiosity These technologies can provide information about the teachers for students, undergraduates, doctoral students, researchers and administration. Files using this technology consist of not only text but also videos in 3D animation. This article describes a practical example of the use of IoT technologies - QR code to improve the efficiency of the automated human resource management system (for example, Almaty Management University).The purpose of this work: to show the ways to improve the information system "Human Resources Information System” (HRIS) through the use of user-friendly, intuitive and fast QR code technology. The object of study: the work of the personnel department, IC ‘Human Resources Information System’ (HRIS) 6. Research model: observation, cross sectional model 7. Variables: behavioral variables 8. Methodology: analysis of the usage and importance of QR code for users. 9. The results of studies: the formation of stable opinion of the importance of the QR code. 10. Criteria for evaluation of thinking: creativity, innovation and technological advancement 11. Findings: not fully disclosed the potential of QR code technology has a significant impact on society. Practical implications: all the legal information about the instructors optically encoded from paper, which definitely contributes to the idea of open systems. It provides simplicity and high reading speed and user interaction with the information. Keywords: QR code, human resource information system, new content, IoT and IoE, physical web, file formats 1
... Project management scholars have explored much that affects project outcomes (see, e.g., Baccarini, 1999;Denicol et al., 2020;Fagnot et al., 2018;Ika, 2009;Jennings, 2012;Serrador & Pinto, 2015;Shenhar et al., 2001;Subramani et al., 2014). A growing theme of this research is the effect of behavior on projects, such as project management leadership styles (Asree et al., 2019;Li et al., 2020;Rehman et al., 2020;Vaagaasar et al., 2020); mindfulness, spirituality, and ethics in project management (Oeij et al., 2018;van der Walt & Steyn, 2019); organizational culture (Arditi et al., 2017); and the behavior of senior management (Clegg & Kreiner, 2013;Unger et al., 2012). ...
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While the effect of power on organizations has been well researched, how power influences behavior in projects is less well understood. Taking a case-study approach and using the Theory of Planned Behavior (TPB), we traced the thoughts of project managers subject to power, particularly those who resisted. We discovered that power bore down on project managers through new injunctive norms, encouraging them either not to resist or eventually to compromise and yield to new norms that changed their experiential attitudes. The TPB brings a new perspective to project management research, illustrating how power affected project managers’ behavior and influenced project outcomes.
... Another notable example was the London Crossrail Programme, which saw an increase in the total sum of the various contracts from GBP GBP 14.8 billion in 2013 to GBP GBP 17.6 billion in 2018 [21]. Similarly, the Olympic Games' original construction budget was GBP GBP 4.2 billion in 2005 when the site preparation for the Olympic Park commenced, but the final construction costs were reported to be an astonishing GBP GBP 9.32 billion in 2011 [22,23]. ...
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This research explores the failure of competitively tendered projects in the UK construction industry to procure the most suited contractor(s) to conduct the works. Such work may have equal relevance for other developed nations globally. This research seeks to teach clients and their representatives that "lowest price" does not mean "best value", by presenting a case study of a successfully negotiated tender undertaken by a small-to-medium enterprise (SME) contractor; SME studies are relatively scant in academic literature. By applying the "lessons learnt" principle, this study seeks to improve future practice through the development of a novel alternative procurement option (i.e., negotiation). A mixed philosophical stance combining interpretivism and pragmatism was used-interpretivism to critically review literature in order to form the basis of inductive research to discuss negotiation as a viable procurement route, and pragmatism to analyse perceptions of tendering and procurement. The methods used follow a three-stage waterfall process including: (1) literature review and pilot study; (2) quantitative analysis of case study data; and (3) qualitative data collection via a focus group. Our research underscores the need to advise clients and their representatives of the importance of understanding the scope of works allowed within a tender submission before discounting it based solely on price. In addition, we highlight the failings of competitive tendering, which results in increased costs and project duration once the works commence on site. These findings provide new contemporary insight into procurement and tendering in the construction industry, with emphasis on SME contractors, existing relationships, and open-book negotiation. This research illustrates the adverse effects of early cost estimates produced without first securing a true understanding of project buildability and programming. Our work concludes with a novel insight into an alternative procurement option that involves early SME contractor involvement in an open-book environment, without the need for a third-party cost control.
... However, as Davies and Mackenzie (2014) indicated, system integration is difficult in complex megaprojects. The TMT's BI in megaproject practices, such as the London Olympic project ( Jennings, 2012 ), the Zuiderzee line ( De Bruijn and Leijten, 2007 ), and Thailand's development of four million hectares of irrigated lands ( Dyer, 2017 ), is often not satisfactory. All these problems are closely related to the behavioral biases of TMT. ...
Behavioral integration (BI), or the extent to which top management team (TMT) members engage in collective interactions, is a critical element for achieving business success in corporate management that has rarely been examined in megaproject studies. The organizational complexities of megaprojects contribute to biases in TMT's behavior. This study presents a team-level analysis of the drivers of BI in megaprojects through the theoretical lens of social capital. Based on a survey conducted with 128 senior managers from 48 megaprojects, the results showed that (1) both the structural and cognitive dimensions of social capital have a significantly positive effect on BI, with the structural dimension being more influential; (2) the relational dimension of social capital showed a partial effect on BI; (3) affective commitment plays a mediating role that bridges social capital and the TMT's BI. These findings shed new light on cultivating interactions among TMT members in governing megaprojects.
A strong public project governance structure is instrumental to ensure the effective and efficient delivery of projects in the public domain. The Norwegian State Project Model is an example of such a structure; a standardized classification of projects into stages, with defined decision points, where requirements regarding documentation are specified. In Iceland, the public project governance structure has been criticised. This paper investigates the Icelandic framework by comparison to the Norwegian framework, through a desk analysis of both structures. Furthermore, the features and perceived utility of the Icelandic project governance structure are assessed by interviewing selected public stakeholders who are representatives of seven important organizations in the public sector. The study indicates that there is a significant difference between the frameworks where the Icelandic framework is lacking crucial elements of what constitutes best practices in modern project governance. In view of extensive plans for investments in infrastructure in the coming years, there is an urgent need for reforming the Icelandic project governance structure.
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The cost overrun phenomenon on projects worldwide creates a major source of risk that warrants investigation. The prevailing factor school of thought provides strong empirical evidence that critical factors contributing to cost overruns are both context-specific and project-specific. Although many studies have been conducted identifying factors and causes of cost overruns, very few studies have investigated root causes. Additionally, a limited body of knowledge is available within the context of Small Island Development States (SIDS). To fill this gap, the objectives of this study were to identify and determine the main critical factors contributing to the cost overrun phenomenon in public sector social housing programmes (PSSHPs). These selected factors were thereafter categorized under leading root causes, and their severity was determined based on primary stakeholders’ perspectives. One hundred and twenty-three factors were identified from the literature, of which forty-one critical factors were extracted and grouped under four root causes based on a pilot survey of relevant public sector housing experts in the Trinidadian and Jamaican construction sectors. These refined factors and root causes were formulated into a questionnaire survey. One hundred and five responses were obtained from professionals who had a minimum of five years’ experience in various phases of public housing delivery. The severity of these critical factors was evaluated, ranked, and categorized using the relative importance index (RII) approach. The findings uncovered the leading root cause, which is political in nature. The top five critical factors are the selection of politically aligned contractors, the intentional design of inadequate contracts, the project actors' deliberately underestimating costs, the partisan project management team, and strategic misrepresentation. These findings are unique to SIDS and contribute to knowledge to reframe contemporary project management practices, which focus mainly on technical causes. Finally, as existing technical solutions are ineffective in curbing cost overruns in PSSHPs, these findings also inform public sector policymakers to focus on prioritization, control, and mitigation of political risks in formulating effective governance mechanisms. Doi: 10.28991/ESJ-2022-06-03-016 Full Text: PDF
Traditional design-bid-build guidelines suggest that engineering estimates should be within +/-10% of the lowest contractor bid and recommend this value as a reference to identify anomalies in the bidding process. This guidance, however, neglects delivery approaches such as design-build (D-B). This research examines 305 D-B highway projects procured using best-value and identifies the underlying reasons for bid dispersion and cost estimates inaccuracies. This study found an average bid dispersion of 27%, suggesting that a larger threshold (i.e., 25%) is needed to account for the inherent variability of D-B projects. This study also found that engineering estimates are on average 2% more than the awarded price. This result contradicts findings in existing literature and suggests that current practice in D-B best-value may be more conservative than other procurement methods. The study explores four potential reasons for bid dispersion and engineering estimate inaccuracies and suggests strategies for improvement. By providing a better understanding of bid dispersion and engineering estimate accuracy, this study will ultimately assist in the development of new policies and processes for D-B best-value projects.
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Back cover text: Megaprojects and Risk provides the first detailed examination of the phenomenon of megaprojects. It is a fascinating account of how the promoters of multibillion-dollar megaprojects systematically and self-servingly misinform parliaments, the public and the media in order to get projects approved and built. It shows, in unusual depth, how the formula for approval is an unhealthy cocktail of underestimated costs, overestimated revenues, undervalued environmental impacts and overvalued economic development effects. This results in projects that are extremely risky, but where the risk is concealed from MPs, taxpayers and investors. The authors not only explore the problems but also suggest practical solutions drawing on theory and hard, scientific evidence from the several hundred projects in twenty nations that illustrate the book. Accessibly written, it will be essential reading in its field for students, scholars, planners, economists, auditors, politicians, journalists and interested citizens.
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This article presents results from the first statistically significant study of cost escalation in transportation infrastructure projects. Based on a sample of 258 transportation infrastructure projects worth $90 billion (U.S.), it is found with overwhelming statistical significance that the cost estimates used to decide whether important infrastructure should be built are highly and systematically misleading. The result is continuous cost escalation of billions of dollars. The sample used in the study is the largest of its kind, allowing for the first time statistically valid conclusions regarding questions of cost underestimation and escalation for different project types, different geographical regions, and different historical periods. Four kinds of explanation of cost underestimation are examined: technical, economic, psychological, and political. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, i.e., lying. The policy implications are clear: In debates and decision making on whether important transportation infrastructure should be built, those legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust the cost estimates and cost-benefit analyses produced by project promoters and their analysts.
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The task of governing the Olympic Games and the Olympic movement now takes place in an age in which states and societies are increasingly organized in response to risk. At the heart of the risk management in organising the Olympics is the tension between the inherent riskiness of mega-events, which is attributable to their scale and complexities, combined with immense societal, political and organisational pressures for the management of risk. Over time, too, staging the Olympics has become more complex, and riskier, as a consequence of its growing scale and commercial success. Since the 1980s, a profound transformation has occurred in how the Games are organised and governed, with the increased transfer of risk to the market and the spread of regulation as a mode of governance and the formal practice of risk management across functions ranging from finance to security to critical infrastructures to public health. This book is a unique theoretical and empirical analysis of how the Olympic Games are governed, exploring the challenges and pressures of staging the world's largest event and the recent emergence of the formal practice of risk management as a response of decision-makers to the operational demands and complexities of the Games.
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Policy-induced waste and forseeable fiascoes are serious and endemic problems of the British political and administrative systems. They can be traced to - the large-scale of British policy making; - a core executive preoccupation with speedy policy-making, giving inadequate scope for deliberation and legislative scrutiny; - a strong form of political hyper-activism, induced by the UK’s particular system of party competition; - the over-confidence of a talented but inexpert and overly centralizing administrative elite; and - the periodic failure of internal checks and balances inside the core executive.
More than ever before, the Nation requires the transportation community to tackle some very tough and demanding challenges. These challenges are multifaceted: a demand for safer systems, greater transportation capacity, complex multimodal solutions, environmentally enhancing context-sensitive designs, and an urgent requirement to renew or replace an aging and over-stressed transportation infrastructure. The solutions are difficult and complex. To address the Nation's transportation challenges successfully when megaprojects are the solutions, agencies must be able to plan, program, design, and deliver projects of immense size and complexity effectively. Not only are the resulting projects necessarily large, complex, and costly, but also they attract intense pressure to minimize, if not to avoid completely, their adverse construction and postconstruction impacts on daily commerce, quality of life, and the environment.
Many decisions are based on beliefs concerning the likelihood of uncertain events such as the outcome of an election, the guilt of a defendant, or the future value of the dollar. Occasionally, beliefs concerning uncertain events are expressed in numerical form as odds or subjective probabilities. In general, the heuristics are quite useful, but sometimes they lead to severe and systematic errors. The subjective assessment of probability resembles the subjective assessment of physical quantities such as distance or size. These judgments are all based on data of limited validity, which are processed according to heuristic rules. However, the reliance on this rule leads to systematic errors in the estimation of distance. This chapter describes three heuristics that are employed in making judgments under uncertainty. The first is representativeness, which is usually employed when people are asked to judge the probability that an object or event belongs to a class or event. The second is the availability of instances or scenarios, which is often employed when people are asked to assess the frequency of a class or the plausibility of a particular development, and the third is adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available.
As the scale of planning increases so do the possibilities for error—and the author argues that the scale of some planning mistakes is such that they may correctly be termed disasters. Two sorts of disaster are discussed : positive and negative. The former have been implemented (eg Concorde or the Sydney Opera House), the latter aborted (eg London's third airport). The author analyses how the conditions and the protagonists can give rise to planning disasters, and suggests some ways in which disasters may be avoided or limited.
The management of large-scale public–private projects, programmes and policies presents a special challenge for executive politics.1 Mega-projects can be identified from their scale, complexity and dependence upon large volumes of financial, human and material resources. These vast multi-billion dollar mega-projects are often commissioned through government or with state subsidies and are contracted to private firms. The projects themselves tend to involve substantial uncertainties and complex technological, design and engineering requirements — whether these relate to roads, bridges, skyscrapers, dams, airports, computer systems or gas pipelines. They usually involve a mixture of public and private stakeholders often across multiple jurisdictions, which stimulate political interests and conflicts. Such projects include both civil engineering and construction works and information technology systems, as in taxation or benefits administration, and are notable for their scale and level of complexity. Examples of mega-projects in Britain include those such as Crossrail, the Millennium Dome, the NHS National Programme for IT (NPfIT) and the London 2012 Olympics.