Cost underestimation

Cost underestimation is defined as the act of assessing the cost of a future venture lower than what actual cost turned out to be once the venture was implemented. Cost underestimation causes cost overrun. The main causes of cost underestimation are optimism bias and strategic misrepresentation.

See also

• Benefit shortfall
• Cost overrun
• Optimism bias
• Reference class forecasting
• Strategic misrepresentation

Sources and further reading

• Flyvbjerg, Bent, Mette K. Skamris Holm, and Søren L. Buhl, 2002, "Underestimating Costs in Public Works Projects: Error or Lie?" Journal of the American Planning Association, vol. 68, no. 3, 279-295.
• UK Department for Transport, 2004. Procedures for Dealing with Optimism Bias in Transport Planning: Guidance Document (London).