Regression to the mean is nice and reliable. Regression to the tail is reliably scary. We live in the age of regression to the tail. It is only a matter of time until a pandemic worse than covid-19 will hit us, and climate more extreme than any we have seen. What are the basic principles that generate such extreme risk, and for navigating it, for government, business, and the public?
The Iron Triangle 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. Finally, we draw implications about the underlying generative processes that lead to power law behaviour, which might help to further understand the pitfalls and shortcomings of cost and cost risk management in ICT projects.
Managing large-scale transportation infrastructure projects is difficult due to frequent misinformation about the costs which results in large cost overruns that often threaten the overall project viability. This paper investigates the explanations for cost overruns that are given in the literature. Overall, four categories of explanations can be distinguished: technical, economic, psychological, and political. Political explanations have been seen to be the most dominant explanations for cost overruns. Agency theory is considered the most interesting for political explanations and an eclectic theory is also considered possible. Non-political explanations are diverse in character, therefore a range of different theories (including rational choice theory and prospect theory), depending on the kind of explanation is considered more appropriate than one all-embracing theory.
Road networks, on which governments around the world spend significant shares of their civil engineering budgets, are rightly considered the lifeline for modern and successful economies. While those have been transformed by numerous innovations and (especially digital) disruptions, both the process and materials used in building roads as well as their key parameters and functionalities have remained remarkably unchanged over the past years and decades. However, this seemingly natural continuity should definitely not lead to the assumption that there will be no major changes in the road construction industry in the future. It is already becoming apparent that four megatrends – autonomous driving, automated production, digitization, and advances in road construction materials – as well as a new process flow for road construction are bound to not only make the roads of the future look significantly different from those of today, but also make road construction much faster and cheaper. Our aspiration in publishing this white paper is to provide objective insights into the various aspects posed by the emerging revolution in the road construction industry, its implications, and the pressing question of how to prepare for the shake-up of the industry landscape. The ideas and information in this article are the result of many months of work by numerous experts from McKinsey & Company and Oxford Global Projects. This paper should offer the latest and most relevant know-how on the status of road construction in Europe, current challenges, and an assessment of the potential of novel technologies and processes.
