Feasibility Studies under suspicion: cost/time overrun and low return in construction projects

Abstract

Recent international research show that estimated cost-benefit used in the decision-making process regarding investments in infrastructure projects is usually not very realistic. Frequently, the final costs for the public treasury surpass the costs estimated, in feasibility studies, while foreseen benefits shrink. Serious mistakes in feasibility analysis entail mismanagement of public funds and, therefore cause great damages to taxpayers. This article discusses the main causes for errors in estimates and mechanisms to improve the quality of the decision-making process, regarding investments in large infrastructure projects. In such sense, it discusses the “Reference Class Forecasting” method, developed from theories of Daniel Kahneman, winner of the 2002 Nobel Economics Prize. Furthermore, the article assesses the methods for multicriteria analysis and continuous monitoring of feasibility. In addition, there is the presentation of a case study involving two audits from Tribunal de Contas da União, the Brazilian Federal Court of Audit , which the feasibility of projects. Finally, it presents proposals that increases the accuracy of external control actions, thus, maximizing the real benefits for taxpayers.