Eli5: why are estimated budgets for big construction projects always wrong and end up spending more than expected? Why can’t we get better at these estimates?
In: Economics
A good analogy is try to estimate how long it will take to walk from Los Angeles to San Francisco and to do it accurately. A quick estimate would be I can walk x miles a day so that would be y days. But this fails because what if on day two there is a construction project, a protest, etc and your path is blocked. Or a road is out and you have to take a detour. What if on day three you got blisters and your feet are tired so you need to take a rest day. On day four one shoe fails so you need to take time to shop. Also breaking in a new pair of shoes may require some time. Your initially planned only called for carrying so much food but now you need to get more since it’s taking longer. Did you even account for the time to eat? Or rest? Can you actually really walk eight hours a day at the same solid pace? Maybe day seven there’s a really bad storm and you have to stop for a day. You also most likely did straight mileage but did you account for hills and rougher terrain? Roads are rarely straight.
So many things can affect the estimate. You can get more accurate if you go in more detail but there are tradeoffs, it costs more, takes longer. And to get really detailed you almost have to do it. So try to make it easier people add a buffer but it’s rarely enough because at the same time you can’t say a year just to be safe because will think you’re over exaggerating. Anything above what people can quickly come up with in their heads generally needs to be justified.
It’s a balance of trying to get a reasonable estimate without incurring the costs of building the thing itself (aka doing the hike). Sometimes you can walk what is expected to be the harder parts but even that could be misleading because maybe the part you walked was hilly and all but you weren’t tired from walking days, the weather was nice versus hot or rainy, and maybe it turns out the next five miles were the actual hard part due to a massive detour.
It’s all an estimate and until you actually do it you’re generally going to use the successful path, that is everything is going well. And the bigger the walk (project) the harder it is to estimate, which is also why they tend to try to get more detailed. But again it’s always a balance of cost to accuracy and when is good enough knowing it’s impossible to be fully accurate without actually doing it. Keeping mind accuracy costs go up disproportionately high. As in think how easy it is to estimate the walk with very little accuracy in seconds. Now try to improve it a bit with some research. Each degree of accuracy involves a lot more time, energy, and money. At some point you have to say close enough because again 100% accuracy is not possible without actually doing it. And even then if you did it before it may not work out the same this time. Maybe there’s no storm on day 7 but maybe you get sick on day 9. You can never be 100% accurate, and it will almost always be less than the actual time as you cannot account for all the random stuff you’ll encounter along the way.
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