nep-ppm New Economics Papers
on Project, Program and Portfolio Management
Issue of 2013‒04‒20
nine papers chosen by
Arvi Kuura
Parnu College - Tartu University

  1. Overspend? Late? Failure? What the data say about IT project risk in the public-sector By Alexander Budzier; Bent Flyvbjerg
  2. Double Whammy - How ICT Projects are Fooled by Randomness and Screwed by Political Intent By Alexander Budzier; Bent Flyvbjerg
  3. What Causes Cost Overrun in Transport Infrastructure Projects?" By Bent Flyvbjerg; Mette K. Skamris Holm; S{\o}ren L. Buhl
  4. Looking into the Innovation Process: How International is Innovation in Multinational Companies? By Jannika Mattes
  5. The evolution of innovation networks: The case of a German automotive network By Buchmann, Tobias; Pyka, Andreas
  6. Infrastructure investment long term contribution: Economic development and wellbeing By Gelsomina Catalano; Davide Sartori
  7. Clean-Development Investments: An Incentive-Compatible CGE Modelling Framework By Christoph Böhringer; Thomas F. Rutherford; Marco Springmann
  8. External cost calculator for Marco Polo freight transport project proposals – call 2012 version By Martijn Brons Author-1-Name-First: Martijn Author-1-Name-Last: Brons; Panayotis Christidis Author-2-Name-First: Panayotis Author-2-Name-Last: Christidis
  9. Exploring Tradeoffs in the Organization of Scientific Work: Collaboration and Scientific Reward By Michaël Bikard; Fiona E. Murray; Joshua Gans

  1. By: Alexander Budzier; Bent Flyvbjerg
    Abstract: Implementing large-scale information and communication technology (IT) projects carries large risks and easily might disrupt operations, waste taxpayers' money, and create negative publicity. Because of the high risks it is important that government leaders manage the attendant risks. We analysed the based on a sample of 1,355 public0sector IT projects. The sample included large-scale projects, on average the actual expenditure was $130 million and the average duration was 35 months. Our findings showed that the typical project had no cost overruns and took on average 24% longer than initially expected. However, comparing the risk distribution with the normative model of a thin-tailed distribution, projects' actual costs should fall within -30% and +25% of the budget in nearly 99 out of 100 projects. The data showed, however, that a staggering 18% of all projects are outliers with cost overruns >25%. Tests showed that the risk of outliers is even higher for standard software (24%) as well as in certain project types, e.g., data management (41%), office management (23%), eGovernment (21%) and management information systems (20%). Analysis showed also that projects duration adds risk: every additional year of project duration increases the average cost risk by 4.2 percentage points. Lastly, we suggest four solutions that public-sector organization can take: (1) benchmark your organization to know where you are, (2) de-bias your IT project decision-making, (3) reduce the complexities of your IT projects, and (4) develop Masterbuilders to learn from the best in the field.
    Date: 2013–04
  2. By: Alexander Budzier; Bent Flyvbjerg
    Abstract: The cost-benefit analysis formulates the holy trinity of objectives of project management - cost, schedule, and benefits. As our previous research has shown, ICT projects deviate from their initial cost estimate by more than 10% in 8 out of 10 cases. Academic research has argued that Optimism Bias and Black Swan Blindness cause forecasts to fall short of actual costs. Firstly, optimism bias has been linked to effects of deception and delusion, which is caused by taking the inside-view and ignoring distributional information when making decisions. Secondly, we argued before that Black Swan Blindness makes decision-makers ignore outlying events even if decisions and judgements are based on the outside view. Using a sample of 1,471 ICT projects with a total value of USD 241 billion - we answer the question: Can we show the different effects of Normal Performance, Delusion, and Deception? We calculated the cumulative distribution function (CDF) of (actual-forecast)/forecast. Our results show that the CDF changes at two tipping points - the first one transforms an exponential function into a Gaussian bell curve. The second tipping point transforms the bell curve into a power law distribution with the power of 2. We argue that these results show that project performance up to the first tipping point is politically motivated and project performance above the second tipping point indicates that project managers and decision-makers are fooled by random outliers, because they are blind to thick tails. We then show that Black Swan ICT projects are a significant source of uncertainty to an organisation and that management needs to be aware of.
    Date: 2013–04
  3. By: Bent Flyvbjerg; Mette K. Skamris Holm; S{\o}ren L. Buhl
    Abstract: This article presents results from the first statistically significant study of causes of cost escalation in transport infrastructure projects. The study is based on a sample of 258 rail, bridge, tunnel and road projects worth US$90 billion. The focus is on the dependence of cost escalation on (1) length of project implementation phase, (2) size of project and (3) type of project ownership. First, it is found with very high statistical significance that cost escalation is strongly dependent on length of implementation phase. The policy implications are clear: Decision makers and planners should be highly concerned about delays and long implementation phases because they translate into risks of substantial cost escalations. Second, it is found that projects have grown larger over time and that for bridges and tunnels larger projects have larger percentage cost escalations. Finally, by comparing cost escalation for three types of project ownership--private, state-owned enterprise and other public ownership--it is shown that the oft-seen claim that public ownership is problematic and private ownership effective in curbing cost escalation is an oversimplification. Type of accountability appears to matter more to cost escalation than type of ownership.
    Date: 2013–04
  4. By: Jannika Mattes (University of Oldenburg & ZenTra)
    Abstract: This paper claims that internationalisation of innovation and the involved dispersal of activities in multinational companies needs to be reassessed. It is rarely a uniform phenomenon, but instead selective, sequential and temporal. The paper derives five ideal types of organising innovation in multinational companies: complete concentration, core-periphery concentration, sequential dispersal, modularised dispersal and inclusive dispersal. Empirical case studies illustrate that these different types do not only vary between projects, but are even applied selectively in different functional arenas of one and the same innovation project. This also shows that innovation is organised in a dynamic way and involves constant shifts and re-adjustments. Some general traits of different functional arenas are being derived. One of the core conclusions is that dispersed and internationalised constellations of organising innovation are applied in a far more cautious and less encompassing fashion than commonly expected. Instead, elements of control usually remain concentrated, and even seemingly dispersed settings do not imply extensive interaction and integration between the involved sites. A further result is that the organisation of innovation is not only a strategic phenomenon, but remains subject to emergent, path dependent constellations.
    Keywords: innovation, multinational companies, internationalisation, organisation, micro-level, innovation project, innovation process
    JEL: F23 O32
    Date: 2012–11
  5. By: Buchmann, Tobias; Pyka, Andreas
    Abstract: In this paper we outline a conceptual framework for depicting network development patterns of interfirm innovation networks and for analyzing the dynamic evolution of an R&D network in the German automotive industry. We test the drivers of evolutionary change processes of a network which is based on subsidised R&D projects in the 10 year period between 1998 and 2007. For this purpose a stochastic actor-based model is applied to estimate the impact of various drivers of network change. We test hypotheses in the innovation and evolutionary economics framework and show that structural positions of firms as well as actor covariates and dyadic covariates are influential determinants of network evolution. --
    Date: 2013
  6. By: Gelsomina Catalano (Centre for Industrial Studies (CSIL)); Davide Sartori (Centre for Industrial Studies (CSIL))
    Abstract: EThis paper builds on the empirical research carried out for the “Ex post evaluation of investment projects co-financed by the European Regional Development Fund (ERDF) or Cohesion Fund (CF) in the period 1994-1999â€, recently finalized by the European Commission. The study evaluated the long term contribution, direct and indirect, expected and unexpected, of ten selected environment and transport infrastructure investments to economic development as well as to quality of life and well-being of society. In fact, investment projects can foster economic development, which is generally quantifiable by economic welfare metrics, as e.g. reflected in the cost-benefit analysis. Although the concept of economic development is not disconnected from the wellbeing of society, it is acknowledged that there are a number of other factors that may affect public welfare, which are not usually captured by the traditional economic indicators. Social cohesion, environmental effects, territorial cohesion, institutional learning and social happiness are for instance factors that affect the level of social satisfaction, the perception of social reality and other dimensions which are outside the conventional economic dimension. An innovative methodology was therefore applied for the context of this study to integrate traditional quantitative tools, such as ex-post cost-benefit analysis, with analysis of qualitative evidence. This allowed to study, in a structured way, project effects on economic development together with the determinants of wellbeing to society. The results showed that effects on wellbeing vary from project to project to a high extent. In particular, social satisfaction or dissatisfaction can take place in reference to expectations and, when this is the case, effects (either positive or negative) are of a large magnitude. When social (dis)satisfaction is related to “objective†factors, the intensity of the effects is lower. For example, the introduction of tolls in the motorways reviewed had negative impacts on social happiness, partially counterbalancing general satisfaction arising from factors such as increased leisure opportunities, civic pride, etc. In other cases, delays in implementation generated widespread feelings of frustration among the public, thus limiting the satisfaction regarding the new infrastructure. In the case of the waste water treatment plants reviewed, satisfaction was rather limited by shortcomings intrinsic to the projects’ operations (odours, under-capacity, etc.). On the contrary, when specific measures are taken to purposely alter the perception of projects by the population, effects are magnified. In this respect, the two solid waste treatment projects in Galicia and Portugal are interesting to contrast the role played by awareness-raising campaigns. Both projects “objectively†contributed to citizen’s quality of life through the elimination of landfills and their replacement with green areas, but they both also had to deal with the necessity of “selling†the choice of the incinerator technology. While awareness-raising activities positively contributed to the satisfaction associated with the latter project, they were (at least initially) a negative factor in the former case. Pressure from environmental organizations also played a role in limiting the positive perception of the project. Finally, it is worth stressing that the level of satisfaction is important not only because it contributes to determining overall project performance in static terms, but also because it can have an influence on project functioning and achievements in dynamic terms. For example, in the solid waste field, social acceptance is an important issue since it may have an influence on the functioning of the projects by making possible better waste separation with regard to recycling and composting.
    Keywords: infrastructure investment, economic development, wellbeing, social satisfaction
    JEL: H54 H75 I38
    Date: 2013–03–09
  7. By: Christoph Böhringer (University of Oldenburg, Department of Economics); Thomas F. Rutherford (University of Wisconisn-Madison); Marco Springmann (University of Oldenburg, Department of Economics)
    Abstract: The Clean Development Mechanism (CDM) established under the Kyoto Protocol allows industrialized Annex I countries to offset part of their domestic emissions by investing in emissionsreduction projects in developing non-Annex I countries. We present a novel CDM modelling framework which can be used in computable general equilibrium (CGE) models to quantify the sector-specific and macroeconomic impacts of CDM investments. Compared to conventional approaches that mimic the CDM as sectoral emissions trading, our framework adopts a microeconomically consistent representation of the CDM incentive structure and its investment<br>characteristics. In our empirical application we show that incentive compatibility implies that the sectors implementing CDM projects do not suffer, and that overall cost savings from the CDM tend to be lower than suggested by conventional modelling approaches.
    Keywords: Clean Development Mechanism, Computable General Equilibrium Modeling
    JEL: C68 Q58
    Date: 2013–03
  8. By: Martijn Brons Author-1-Name-First: Martijn Author-1-Name-Last: Brons (European Commission – JRC - IPTS); Panayotis Christidis Author-2-Name-First: Panayotis Author-2-Name-Last: Christidis (European Commission – JRC - IPTS)
    Abstract: The Marco Polo programme of the European Commission aims to shift or avoid freight transport off the roads to other more environmentally friendly transport modes. The programme is implemented through yearly calls for proposals. The proposals received to each call are selected for financial support inter alia on the basis of their merits in terms of environmental and social benefits. The evaluation of each proposal's merits in terms of environmental and social benefits is based on the external costs for each transport mode. On the Commission’s request the Joint Research Centre, Institute for Prospective Technological Studies (JRC-IPTS) modified and updated the methodology underlying the calculation of external costs and the software application that automates the estimation of the impact on external costs for specific projects. The work was based on a combination of data and model results that allow the estimation of transport volumes, fleet mixes, levels of utilisation and resulting externalities with up-to-date methodologies for the economic valuation of these externalities. The new external cost methodology and calculator covers road, rail, inland waterways and short sea shipping. External cost coefficients are provided for environmental impacts (air quality, noise, climate change) and socio-economic impacts (accidents, congestion). The methodology permits the estimation of external cost coefficients for specific mode subcategories based on fuel technology, cruising speed, vehicle size, and cargo type.
    Keywords: freight transport, external costs of transport, sustainable transport, transport technology
    JEL: F18 Q51 Q53 Q54 Q55 Q56 R41
    Date: 2012–07
  9. By: Michaël Bikard; Fiona E. Murray; Joshua Gans
    Abstract: When do scientists and other knowledge workers organize into collaborative teams and why do they do so for some projects and not others? At the core of this important organizational choice is, we argue, a tradeoff between the productive efficiency of collaboration and the credit allocation that arises after the completion of collaborative work. In this paper, we explore this tradeoff by developing a model to structure our understanding of the factors shaping researcher collaborative choices in particular the implicit allocation of credit among participants in scientific projects. We then use the annual research activity of 661 faculty scientists at one institution over a 30-year period to explore the tradeoff between collaboration and reward at the individual faculty level and to infer critical parameters in the organization of scientific work.
    JEL: O31 O33
    Date: 2013–04

This nep-ppm issue is ©2013 by Arvi Kuura. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.