Journal of Construction Engineering and Management, 5pp. This file was downloaded from:
In Olympic Risks I document the systematic occurrence of cost overruns at Olympic Games sinceand explore some of the reasons why initial forecasts turn out to be so wrong. This research is the first to combine systematic analysis of Olympic cost overruns over time and an examination of their causes.
Between andthe average cost overrun from the estimates presented in the bid book to the final cost was more than per cent. This far exceeds the average cost overrun on other major projects identified in existing studies. It is also despite considerable efforts on the part of the International Olympic Committee over the past decade to make the evaluation of bids more rigorous via the technical requirements of its candidature process.
Through an investigation of the factors behind each Olympic cost overrun, from Montreal in to London ina number of common themes emerge. The short-term interest in securing the event can lead to under-estimation of the commitment required. As a consequence, the version of events that are presented in bid dossiers often have little resemblance to the real thing.
This can result from inadequate definition of the project scope or poor controls in management it can also result from drift in the preference of planners. For example, changes to the design of the stadium roof led to cost pressures for the main stadium for London Another crucial source of scope creep is unanticipated exogenous shocks, such as fluctuations in steel prices.
Subsoil exploration — that is, drilling — has been a recurring theme in Olympic construction. Designs of the velodrome for Montreal had to be modified due to the discovery of weak and unstable subsoil which had been missed by earlier geological studies — further pushing costs upwards.
Unexpected findings about the soil profile of the site for the Athens Olympics led to a last minute change in design of the foundations for the stadium roof. The phenomenon of scope creep is also observed in budgeting re classification. Much of the growth in the official budget for London can be linked to this, in the redefinition of certain items as core Olympic costs after the bid had been won.
Risk, moral hazard and fantasy documents One of the most important factors in Olympic cost overruns is a failure to identify and manage risk. This is despite the increasing attention of Olympic organizers to risk in planning.
When the global financial crisis hit the private sector withdrew from the project, only returning later once the level of risk attached to the project had subsided. This points to the problem of moral hazard in major events where the government is required to act as backer of last resort for the Olympics this is enshrined through the host city contractwhich enables the private sector to transfer risk to the state but seek to accrue profits.
Private developers returned to the Olympic Village project once the volatility in the financial markets had calmed down.
The final aspect of Olympic planning that gives rise to the under-estimation of risk is the illusion of control created through the use of detailed planning documents and complex budgeting methods.
The numbers presented in bid books often take on a fictional character, having little resemblance to the final cost as plans for the event take shape and as uncertainties of scope diminish. In the case of Londonthe application of a series of technical methodologies which included a probabilistic budget assessment and financial audits were unable to prevent revisions of technical scope and drift in political and bureaucratic decisions such as growth in the security budget.
This has many parallels with the role of bid books in securing the support of host governments and citizens as well as the IOC. Most of all, this highlights the gap between the organisational rhetoric of planning, and how it characterises routines and controls, and reality on the ground.
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