Double Whammy - How ICT Projects are Fooled by Randomness and Screwed by Political Intent

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

A Systematic Mapping of Factors Affecting Accuracy of Software Development Effort Estimation

Software projects often do not meet their scheduling and budgeting targets. Inaccurate estimates are often responsible for this mismatch. This study investigates extant research on factors that affect accuracy of software development effort estimation. The purpose is to synthesize existing knowledge, propose directions for future research, and improve estimation accuracy in practice. A systematic mapping study (a comprehensive review of existing research) is conducted to identify such factors and their impact on estimation accuracy. Thirty-two factors assigned to four categories (estimation process, estimator’s characteristics, project to be estimated, and external context) are identified in a variety of research studies. Although the significant impact of several factors has been shown, results are limited by the lack of insight into the extent of these impacts. Our results imply a shift in research focus and design to gather more in-depth insights. Moreover, our results emphasize the need to argue for specific design decisions to enable a better understanding of possible influences of the study design on the credibility of the results. For software developers, our results provide a useful map to check the assumptions that undergird their estimates, to build comprehensive experience databases, and to adequately staff design projects

Software cost estimation

The paper gives an overview of the state of the art of software cost estimation (SCE). The main questions to be answered in the paper are: (1) What are the reasons for overruns of budgets and planned durations? (2) What are the prerequisites for estimating? (3) How can software development effort be estimated? (4) What can software project management expect from SCE models, how accurate are estimations which are made using these kind of models, and what are the pros and cons of cost estimation models

Strategies Construction Managerial Leaders Use to Counteract Material Cost Overruns

The project cost overruns instigated through the loss of construction materials lowers the profitability of each stakeholder significantly. The purpose of this single case study was to explore strategies managerial leaders of a large construction firm used to counteract material cost overruns successfully. The diffusion of innovation theory was the conceptual framework for this study. The target population consisted of 6 managerial leaders with experience in large construction projects adhering to waste management standards and industry certifications. Data were collected using semistructured interviews and review of company documentation. The data analysis approach involved the content analysis research method to interpret and code the verbatim transcriptions of interviews into categories. The 2 principal categories from the study data were material management and planning and the supply chain and logistics. The results of the study yielded evidence of 2 strategies to counteract the material cost overruns, which were to strengthen partnerships with the suppliers and to hold regular audits at the project sites. The implication of this study for social change includes the potential to conserve depleted land minerals and valuable land reserves from becoming landfill by providing construction managers with information about strategies to counteract material cost overruns

The Influence of Optimism Bias on Time and Cost on Construction Projects

The unresolved scholarly debate to curtail cost and time performances in projects has led to alternate solutions, departing from the dominant technical school of thought to include concepts from behavioural sciences. In this paper, we consider the psychological effect, namely optimism bias, as one of the root causes for delays in cost overruns on projects. The research objectives were to determine the level of bias among project participants, rank time and cost overrun causes according to the participants’ bias score and establish a mitigation strategy to curb potential delays and cost overrun impacts based on the bias scores obtained. A literature survey was conducted to determine causal factors contributing to delays and cost overruns linked to optimism bias. Through a pilot survey of three semi-structured interviews, eighty factors obtained from the literature survey were reduced to 24 critical delay and cost overrun factors relevant to Trinidad and Tobago. A questionnaire was subsequently developed seeking construction professionals to rate their bias scores based on an 11-point Likert scale. The research confirms that project planners and decision-makers exhibit moderate levels of optimism bias; however, participants lacked awareness of the impact of optimism bias on projects outcomes. Project location, environmental impacts and historic preservation, and labour disputes are the top three critical factors where project professionals displayed increased optimistic tendencies. It is proposed that contingency “time window” and reference class forecasting be implemented as control mechanisms to mitigate the impacts of time and cost overruns on projects. This research introduces a novel method to account for and measure optimism bias on construction projects. This study adds knowledge into delays and cost overruns causation and provides a foundation for future studies on quantifying psychological effects on projects and enhancing overall project management practices. Doi: 10.28991/esj-2021-01287 Full Text: PD

The Empirical Reality of IT Project Cost Overruns: Discovering A Power-Law Distribution

If managers assume a normal or near-normal distribution of Information Technology (IT) project cost overruns, as is common, and cost overruns can be shown to follow a power-law distribution, managers may be unwittingly exposing their organizations to extreme risk by severely underestimating the probability of large cost overruns. In this research, we collect and analyze a large sample comprised of 5,392 IT projects to empirically examine the probability distribution of IT project cost overruns. Further, we propose and examine a mechanism that can explain such a distribution. Our results reveal that IT projects are far riskier in terms of cost than normally assumed by decision makers and scholars. Specifically, we found that IT project cost overruns follow a power-law distribution in which there are a large number of projects with relatively small overruns and a fat tail that includes a smaller number of projects with extreme overruns. A possible generative mechanism for the identified power-law distribution is found in interdependencies among technological components in IT systems. We propose and demonstrate, through computer simulation, that a problem in a single technological component can lead to chain reactions in which other interdependent components are affected, causing substantial overruns. What the power law tells us is that extreme IT project cost overruns will occur and that the prevalence of these will be grossly underestimated if managers assume that overruns follow a normal or near-normal distribution. This underscores the importance of realistically assessing and mitigating the cost risk of new IT projects up front

On top management support for software cost estimation

Inaccurate software cost estimates continue causing project overruns and hurting firms’ economy. This thesis addresses the problem by focusing on top management role in applying estimation methodologies successfully in organisations. The research questions are 1) How does top management support software cost estimation, and 2) What are the impacts of top management support for creating a good cost estimate for a software project? Three empirical studies, one quantitative and two qualitative, were conducted to address the research questions. The studies identified practices, through which top management is involved in cost estimation, and collected evidence on the impact of practices on estimation success. The quantitative study is based on views of 114 Finnish software professionals, and the quantitative studies are based on in-depth findings from three Finnish software producing companies and projects. The results show that top management support for estimation is mostly indirect. Management focuses on creating a successful environment for estimation instead of hands-on participation.The key factors of top management support include adequate resources, demonstrating the importance of estimation and seeking realism. This indirect role is enough for successful estimation.On the other hand, the results provide evidence that top management may negatively impact estimation. For example, unclear expectations may cause the project team to aim for the wrong outcome, expressed expectations may bias estimation and interpreting estimates as commitments may decrease estimators’ motivation and cause them to give high estimates. The practical implication is that top management should avoid direct participation in software estimation and focus on sustaining a supportive and unbiased environment. By doing this, many projects should be able to avoid failures hurting firms’ competitiveness. From the research perspective, the results provide evidence that people-related perspectives are an important factor in software estimation, implying that a shifting focus from methodologies toward managerial topics is justified.Epätarkat ohjelmistoprojektien kustannusarviot johtavat suunnitelmien ylittymiseen ja rasittavat yritysten taloutta. Tämä väitöskirja keskittyy ylimmän johdon rooliin arviointimenetelmien menestyksekkäässä soveltamisessa organisaatioissa. Väitöskirjan tutkimuskysymykset ovat 1) kuinka ylin johto tukee ohjelmistojen kustannusarviointia ja 2) mitä vaikutuksia johdon tuella hyvän kustannusarvion laatimiseksi on ohjelmistoprojektille? Väitöskirjan tulokset perustuvat yhteen määrälliseen ja kahteen laadulliseen tutkimukseen. Tutkimukset tunnistivat tapoja, joilla johto osallistui kustannusarviointiin sekä keräsi näyttöä osallistumiskäytänteiden vaikutuksista arvioinnin onnistumiseen. Määrällinen tutkimus pohjautuu 114 suomalaisen ohjelmistoammattilaisen näkemyksiin, kun taas laadulliset tutkimukset pohjautuvat löydöksiin kolmen suomalaisen ohjelmistoyrityksen toteuttamista kolmesta ohjelmistoprojektista. Tulokset osoittavat, että ylimmän johdon tuki arvioinnille on pääasiallisesti epäsuoraa. Johto keskittyy hyvien edellytysten luomiseen sen sijaan, että osallistuisi arviointiin henkilökohtaisesti. Tärkeimpiin tapoihin tukea arviointia kuuluvat mm. riittävien resurssien varmistaminen ja realististen arvioiden tavoittelu. Yllä kuvattu epäsuora osallistuminen on riittävää arvioinnin onnistumiseksi. Toisaalta johdon toimet voivat myös vaikuttaa arviointiin negatiivisesti. Esimerkiksi epäselvät tavoitteet saattavat johtaa väärien asioiden tavoitteluun, johdon esittämät odotukset voivat vääristää arvioinnin tuloksia ja arvioiden tulkitseminen lupauksiksi voi laskea arvioitsijoiden motivaatiota ja johtaa perusteettoman korkeiden arvioiden antamiseen. Esitettyjen tulosten perusteella johdon pitäisi välttää suoraa osallistumista arviointiin ja keskittyä arviointia tukevan ilmapiirin luomiseen. Näillä toimilla useat projektit voisivat todennäköisesti välttää yrityksille vahingolliset epäonnistumiset. Tutkimusnäkökulmasta tulokset osoittavat, että inhimilliset tekijät ovat merkittävässä roolissa kustannusarvioinnissa, ja lisäpanostukset johtamisnäkökulmien tutkimiseen ovat perusteltuja

Combining Reference Class Forecasting with Overconfidence Theory for Better Risk Assessment of Transport Infrastructure Investments

Assessing the risks of infrastructure investments has become a topic of growing importance. This is due to a sad record of implemented projects with cost overruns and demand shortfalls leading, in retrospect, to the finding that there is a need for better risk assessment of transport infrastructure investments. In the last decade progress has been made by dealing with this situation known as planners’ optimism bias. Especially attention can be drawn to the use of reference class forecasting that has led to adjustment factors that, when used on the estimates of costs and demand, lead to cost-benefit analysis results that are modified by taking historical risk experience into account. This article seeks to add to this progress in risk assessment methodology in two ways: first it suggests to apply reference class forecasting (RCF) in a flexible way where the effort is focused on formulating the best possible reference pool of projects and second to apply overconfidence theory (OT) to interpret expert judgments (EJ) about costs and demand as relating to a specific project up for examination. By combining flexible use of RCF with EJ based on OT interpretation it is argued that the current adjustment factor methodology of RCF can be further developed. The latter is among other things made possible by the comprehensive project databases that have been developed in recent years. For this article the project database developed in the UNITE research project 2009-2013 has been employed. The presented simulation-based risk examination named SIMRISK is concluded to provide a new ‘in-depth’ possibility for dealing with uncertainties inherent to transport decision making based on socioeconomic analysis. In addition a further research perspective is outlined