Why Costs Over-Run: Risk, Optimism and Uncertainty in Budgeting for the London 2012 Olympics

The systematic under-estimation of costs in budgeting for large-scale projects raises the vexing question of why there are such incongruities between the projections made at initial stages and the eventual outturn cost. As a first step to understanding the sources of such budgeting overruns in the context of the Olympics, this research note outlines how the costs of the London 2012 Olympic Games were under-estimated in a series of budget forecasts, identifying sources of error and categorizing these according to the effects on budgeting of: (1) inattention to risk inside government; (2) biases in decision-making in the evaluation and use of information; and (3) uncertainty in project management and administration. These factors are accentuated through the planning and budgeting context, as estimates at different stages of the process serve alternative purposes and entail varying levels of knowledge and scrutiny.