Posted by: olymponomics | July 22, 2012

Cost overruns of Olympic proportions

Optimism bias in Olympic budgeting is a problem that is well known (see for example the discussion of bid books in the chapters that I contributed to the edited volumes Terrorism and the Olympics and Mega-Crises). Indeed, this is a problem that dates back to the revival of the modern Olympics, where the cost of restoring the ancient Panathenaic Stadium for the Athens 1896 Olympics was severely under-estimated, coming in at 57% above the predicted cost. In Olympic Risks I analyse the size and frequency of cost overruns at Summer Olympics since 1976, finding the average cost overrun to be more than 200% in nominal terms. I also have conducted a more detailed study of the cost overrun in planning for the London 2012 Olympics. There are a number of factors behind the systematic recurrence of cost overruns in Olympic planning, but key are the bid process itself, which requires commitments when decision-makers are subject to high levels of uncertainty over the future shape of the Games, and the potential for scope creep in plans (ranging from drift in the technical design of venues to changes in the security requirements for the events). At the same time, cost overruns can also be attributed to failures to manage risk (often as risks and technical guidance are disregarded or controls are poorly implemented) and to potential for moral hazard given that the host government is required to act as backer of last resort for the Games, according to the terms of the host city contract.

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