Homo Heuristicus: From Risk Management to Managing Uncertainty in Large-Scale Infrastructure Projects

Abstract

Large-scale infrastructure projects tend to experience variances between estimated and final costs. Governments, in response, have been using statistical methods (including probabilistic approaches) such as reference class forecasting to try and mitigate cost overruns. While helpful in accommodating risk, such statistical methods often fail to account for a project's cost uncertainty. To reduce cost variance under uncertainty, it is necessary to use heuristics when formulating an infrastructure project's cost contingency. This article argues a need to adopt a vision of human nature described as <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">Homo heuristicus</i> (heuristics-using-person). We provide awareness and rationale for developing an “adaptive toolbox” of heuristics for ecologically rational and contextually aligned cost contingency decision-making. However, the selection, recognition, and evaluation heuristics for determining cost uncertainty have yet to be examined. Thus, future research is required to cultivate the heuristics needed to address the uncertainty that surrounds the determination of a cost contingency.