Effective Risk Quantification for Major Transportation Projects (and the Fallacy of Reference Class Forecasting)

This presentation explains the two major schools of research on the causes of major transportation project cost overruns and the risk quantification methods being recommended to address the problem. The planning fallacy (optimism bias) is one school, and fundamental failure of project systems (systemic risks) is the other. This paper concludes that systemic risk, including both bias and project system practices, is the primary cause and describes the empirical research behind that conclusion. The presentation explains how the method proposed to address the planning fallacy called reference class forecasting (RCF) will result in institutionalized mediocrity of both practices and cost outcomes. AACE International® Recommended Practices for quantifying systemic and other risks including bias will be reviewed that support capital project system improvement and more competitive cost and schedule outcomes.