The Influence of Optimism Bias on Time and Cost on Construction Projects

Abstract

The unresolved scholarly debate to curtail cost and time performances in projects has led to alternate solutions, departing from the dominant technical school of thought to include concepts from behavioural sciences. In this paper, we consider the psychological effect, namely optimism bias, as one of the root causes for delays in cost overruns on projects. The research objectives were to determine the level of bias among project participants, rank time and cost overrun causes according to the participants’ bias score and establish a mitigation strategy to curb potential delays and cost overrun impacts based on the bias scores obtained. A literature survey was conducted to determine causal factors contributing to delays and cost overruns linked to optimism bias. Through a pilot survey of three semi-structured interviews, eighty factors obtained from the literature survey were reduced to 24 critical delay and cost overrun factors relevant to Trinidad and Tobago. A questionnaire was subsequently developed seeking construction professionals to rate their bias scores based on an 11-point Likert scale. The research confirms that project planners and decision-makers exhibit moderate levels of optimism bias; however, participants lacked awareness of the impact of optimism bias on projects outcomes. Project location, environmental impacts and historic preservation, and labour disputes are the top three critical factors where project professionals displayed increased optimistic tendencies. It is proposed that contingency “time window” and reference class forecasting be implemented as control mechanisms to mitigate the impacts of time and cost overruns on projects. This research introduces a novel method to account for and measure optimism bias on construction projects. This study adds knowledge into delays and cost overruns causation and provides a foundation for future studies on quantifying psychological effects on projects and enhancing overall project management practices. Doi: 10.28991/esj-2021-01287 Full Text: PDF

Toward a Deeper Understanding of Optimism Bias and Transport Project Cost Overrun

“…This view is inferred from the assumption that optimism bias is inherent in the nature of the sponsors and planners of a proposed transportation project. They are likely to inadvertently underestimate costs, time, and risks and overestimate benefits in the preparation of the overall pre-construction forecast (Chadee et al, 2021; Love & Ahiaga-Dagbui, 2018). The causal explanations that attribute the primary sources of cost overruns to the behavioral decision-making concepts of strategic misrepresentation and optimism bias are summarized as the Psycho-strategic school of thought (Ahiaga-Dagbui & Smith, 2014; Love et al, 2015b).…”

“…A further review of the research design of the chosen articles found that similar in-depth investigations were adopted by Odeck and Kjerkreit (2019), Hayasaka et al (2018), and Love et al (2017). However, the review also observed that Chadee et al (2021) and Du et al (2019a) used Likert scale questionnaires to extrapolate the exhibition of optimism bias in project planners. Whereas current researchers in transport cost management are experiencing a shift from technical and engineering-managerial causal explanations to psychological and political explanations, they should priortize a methodological change in the field to elicit more systemic and insightful conclusions.…”

“…At this stage, it also appears that the relationship between political pressure and optimism bias in the complex institutional environment of the cost appraisal phase of transport projects would benefit from a closer examination. Importantly, a considerable number of studies relied on the comparison of cost at the time of decision-to-build and cost at completion as a proxy to postulate the impacts of optimism bias on transport project cost overrun without delving into the factors and conditions that give effect to the bias in decision-making (e.g., Chadee et al, 2021; Hayasaka et al, 2018; Kutsch et al, 2011). This proxy considerably limits readers’ ability to fully understand the project-specific, as well as the systemic, cost overrun causes and how much optimism bias can be implicated in the causal analysis.…”

Climate change inaction: Cognitive bias influencing managers' decision making on environmental sustainability choices. The role of empathy and morality with the need of an integrated and comprehensive perspective

“…Shu and Bazerman (2010), Mazutis and Eckardt (2017), Gifford (2011), Chadee et al (2021) Source: Personal elaboration.…”

Rationalizing Critical Cost Overrun Factors on Public Sector Housing Programmes

“…Optimism bias/ appraisal optimism [6,30,32,33,41,97,98,141] Overcommitment/ lock-in [9,30,54,142,143] Cautious attitude towards risks [54] Cognitive biases (e.g., anchoring, framing, Dunning-Kruger effect) [3,27,31,54,[134][135][136] Prejudices (discrimination, favouritism) [81,[144][145][146]…”