14 July 2016

Higher likelihood of budget miscalculations in the case of management changes in major projects

Preventing serious budget overruns due to low cost estimates is a major challenge for projects in both the public and private sectors. Those involved in such projects tend to make calculations as conservatively as possible, in order to increase the chance of receiving a green light for the project. They more or less rely on the fact that, should there be an interim change in the project management, any resulting budgetary deficit will be scrutinised but nevertheless accepted.

The study by Brüggen and Luft, however, reveals that if people are aware beforehand that a change in the project management will occur, budget calculations will be far more conservative. This is done out of fear that the project will not be approved, or may not be able to be extended later. This line of thinking leads to greater budget overruns in the early stages of such projects, more so than when it is not known in advance that a change will take place. The importance of the certainty that a project will be launched appears to carry greater weight than the high risk of budget overruns.