Cost Overruns and Formal Risk Assessment Program in US Rail Transit Projects

Abstract

Cost overrun in rail transit projects in the United States is a pervasive and constant phenomenon, yet there has been a lack of rigorous statistical analysis on project costs. This has been partly due to the difficulty of obtaining reliable cost data and the small size of the sample. In addition, the Federal Transit Administration (FTA) has required formal risk assessment on transit projects since 2003. Whether this strategy has improved the accuracy of cost estimates is not known. To fill these gaps, this study has collected the cost data of 81 US rail transit projects built during the last 40 years, the largest sample of its kind. It is found that the accuracy of cost estimates at the decision-making phase has improved over time. Also, major projects have higher percentage cost overruns than smaller projects. Further, the accuracy of cost estimates decrease as project implementation durations increase. The utilized statistical methods yielded no evidence to suggest that cost overruns differ between projects designed before and after 2003, when the FTA risk assessment program started. However, since project size and implementation duration have increased over time, the positive impact of the FTA risk assessment program can be inferred and acknowledged to some extent. This research can serve as a reference point for studies on the accuracy of conceptual cost estimates and help in budgeting future projects. It can also help in understanding the causes of cost overruns in capital projects.