Governing Large Projects: A Three-Stage Process to Get It Right

Private and public megaprojects, whether new plant facilities, IT systems, skyscrapers, airports, railways, roads, or the Olympics, are frequently associated with dramatic cost and schedule overruns. The root causes are behavioral biases – such as optimism and deliberate deception – accompanied by principal-agent issues and a lack of project-related skills. Through a three-stage process – i.e., Forecasting, Organizing, and Executing (FOX) – we organize and offer solutions to mitigate the cognitive biases and agency issues planners and policymakers face in large projects. Following the three-stage FOX process and building on Behavioral Decision Theory (BDT), we first review evidence for the accuracy of Reference Class Forecasting (RCF), which considers comparable past projects to forecast a current, planned project. We provide evidence for RCF performance and recent methodological extensions such as Similarity Based Forecasting (SBF). Second, considering the principal-agent and project governance literature, we offer organizational solutions to reduce unfounded optimism and deception, including debiasing techniques and specific measures to curb principal-agent issues. Third, we suggest combining a project modular design with speedy implementation for faster, better, cheaper, and lower-risk execution. Overall, we offer an original, holistic theoretical view that deals with both behavioral and strategic elements of how to debias large projects, along with direct practical implications and advice for those who manage megaprojects with increasingly high stakes and risks.