The document discusses a case study of an airport rail station project that went over budget. Some key points: - The original budget was £12M but the final cost was £29M, overestimating costs and risks. - Projects often suffer from "optimism bias" where costs are underestimated by 50-60% on average. Early risk identification and management can help reduce this bias. - Risks were either not properly identified, understood, or prioritized on this project. Conventional risk management was applied but did not highlight significant risks that contributed to cost overruns.

1. Where did it go ‘wrong’?
Jeremy Harrison

2. Date 04.07.13 2
The journey – directions
• The story
• Accounting for humans
• You know more than you think you do!
• Long term planning
• What can we do differently?

3. Date 04.07.13 3
The birth and growth of an airport

4. Date 04.07.13 4
The story…
• …opened 25 November 1999 by the Queen…..
18 months late!
… there by hangs a tale…

5. Date 04.07.13 5
The station

6. Date 04.07.13 6
Summary
• Lack of clarity of project objectives, critical success
factors and definition
• Allowed ‘key stakeholders’ to dictate terms; failed to
understand their vested interests
• Lack of appreciation of the complexity of aspects of the
deal – eg. land purchase
• Conventional risk management was applied, however it
did not highlight the significant risks or stop the
problems
• Fixed end date – ie fixed Queen opening date, before
completed all necessary deals
• Be realistic not optimistic!

7. Date 04.07.13 7
Project Costs..
• Original budget and business case - £12M
– Inherited from the airport operator
– Railways persuaded to take on and advised it was a well developed
scheme
– Land and access deals optimistically explained to be further on than
actually the case
• Outcome
– final cost £29M
– Gold plated car park

8. Date 04.07.13 8
So what happened?
• Risks not identified?
• Problem not understood or project scope not clear?
• Identify risks but don’t understand them and fail to react
appropriately?
• Distracted by too many risks – inability to prioritise?
Answer – one, some or all of the above

9. Date 04.07.13 9
Not the only one!

10. Date 04.07.13 11
Optimism Bias
67% on average
Underestimation of the cost
of Enhancement projects
Or 40% of the Final Cost was ‘unexpected’
at the beginning

11. Date 04.07.13 12
Optimism Bias – what is it?
• Defined as
–the measure of the extent to which actual project costs
(capital and operating) and duration (time from business case
to benefit delivery and time from contract award to benefit
delivery) exceed those estimated ( for a defined functional
output). It is also a measure of the degree by which the
benefits delivery by the project fall short of the benefits
estimated.
• In short - a way of adding an ‘amount’ for all those things not
thought of or analysed early on in the project life.

12. Date 04.07.13 13
OB - What is happening?
Cost as
finally
determinedCost
Time – GRIP stages
4/51/2
Optimism Bias
7/8
Predicted AFC
(during life cycle)
Initial Cost
Estimate
Authority Value

13. Date 04.07.13 14
DfT present values
GRIP Stage 1 3 5
Uplift OB value 66% 40% 6%
Department for Transport
Transport Analysis Guidance (TAG)
Unit 3.5.9
The Estimation and Treatment of Scheme Costs

14. Date 04.07.13 15
Conclusion
• Despite improving project management processes – the average
underestimation of project costs continues to be between 50-
60%.
• This is an empirically derived ‘average’ value therefore direct
application to a single project will be ‘wrong’
• The appropriate application is to portfolios when looking at
overall funding
• This is an ‘allowance’ for unidentified risks in the early stage
of project development – therefore improving earlier project risk
work reduces the uplift required
• Optimism Bias uplift covers all risks relating to a desired
functional output where as estimating uncertainty is around
the identified construction deliverable

15. Date 04.07.13 16
A principles approach
1 2 3 4 5 6 7 8
Output Definition Pre-Feasibility Option Selection
Single Option
Development Detailed Design
Construction,
Test and
Commission
Scheme
Handback Project Close Out
Track
Risks Risks Risks Risks Risks Risks Risks Risks
Signalling &
Telecoms
Risks Risks Risks Risks Risks Risks Risks Risks
Civils
Risks Risks Risks Risks Risks Risks Risks Risks
Electrification &
Plant
Risks Risks Risks Risks Risks Risks Risks Risks
Enhancements
Risks Risks Risks Risks Risks Risks Risks Risks
Estates
Risks Risks Risks Risks Risks Risks Risks Risks
Major Projects
Risks Risks Risks Risks Risks Risks Risks Risks
Engineering
Risks Risks Risks Risks Risks Risks Risks Risks
GRIP Lifecycle Stage
Asset
Impact – Cost, Schedule, Outputs, Safety
1 Define objectives
2 Identify risks
3 Analyse risks
4 Evaluate risks
5 Risk treatment
6 Monitor,
review,
communicate and
manage
Risk Register
Impact
Uncertainty
Exposure
Contingency

16. Date 04.07.13 17
Stakeholders
Risk Management
Principles
Threats/Opportunities
RISK
Stakeholders
Objectives
© Jeremy Harrison

17. Date 04.07.13 18
The building blocks
Uncertainty
that matters –
the FUTURE
VISION : RISK
Creativity
Knowledge
sharing/
Lessons
Learned
Value
add
© Jeremy Harrison

18. Date 04.07.13 19
Risk Management Approach
GRIP
Stage
Risk Approach
0 and 1 60% uplift applied to the Point Estimate to cover Optimism
Bias, Estimating Uncertainty and Risk Exposure
2 3 point estimate is made of Estimating Uncertainty and
Risk Exposure
3 Quantitative risk register of threats and opportunities
assessed for probability and impact, covering both
Estimating Uncertainty and Risk Exposure
Min ML Max

19. Date 00.00.00 Presentation title to go here 2020
Portfolio Effect Savings
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
£300,000 £350,000 £400,000 £450,000 £500,000 £550,000
2
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
£300,000 £350,000 £400,000 £450,000 £500,000 £550,000
3
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
£300,000 £350,000 £400,000 £450,000 £500,000 £550,000
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
£300,000 £350,000 £400,000 £450,000 £500,000 £550,000
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
£300,000 £350,000 £400,000 £450,000 £500,000 £550,000
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
£300,000 £350,000 £400,000 £450,000 £500,000 £550,000
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
£300,000 £350,000 £400,000 £450,000 £500,000 £550,000
n
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
£300,000 £350,000 £400,000 £450,000 £500,000 £550,000
1
Individual Projects
CP5 Portfolio
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
£300,000 £350,000 £400,000 £450,000 £500,000 £550,000
England & Wales
Scotland
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
£300,000 £350,000 £400,000 £450,000 £500,000 £550,000
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
£300,000 £350,000 £400,000 £450,000 £500,000 £550,000
Correlation
Programme
Risks
Portfolio Impacts Funding Route Totals

20. Date 04.07.13 21
What questions should we be asking?
• What question, if asked to day, would have the most impact on
the situation?
• What is most important to you here and now? And what makes it
so?
• What are the priorities? What are the criteria for deciding this?
• What are you not thinking of?
• What are you pretending not to know?
Art of Powerful Questions – open and penetrating to the issues

21. Date 04.07.13 22
Personal reflections
• Never too early to think ‘risk’ – uncertainties that matter!
• You know more than you think you do. What are you doing to tap
into that?
• You are as good as your weakest link – where is it?
• The time line is always longer than you think
• We are what we ‘need’ to be – optimistic or pessimistic