Two weeks before the opening ceremony of the Olympic Summer Games in Rio de Janeiro, the Games are on track to incur a cost overun of USD 1.6 billion, or 51% in real terms out of total sports-related costs of $4.6 billion, according to a new study from Oxford University’s Saïd Business School published today, The Oxford Olympics Study 2016: Cost and Cost Overrun at the Games.
‘The billion-dollar-plus cost overrun on the Rio Games comes at a time when Brazil can ill afford it, given that it’s facing its worst economic and political crisis since the 1930s and the state of Rio de Janeiro is particularly hard hit by recession,’ said Professor Bent Flyvbjerg, lead researcher of the study. ‘But Brazil is not a unique case. All summer and winter Games that we’ve studied have shown cost overruns. For a city and country to host the Games is a huge undertaking and one of the most costly and financially risky megaprojects they can undertake.’
Other findings of the Oxford study are:
- At an average cost overrun of 156% in real terms, the Olympics have the highest cost overrun of any type of megaproject in the world.
- The Games are the only type of megaproject where delivery has never been on budget.
- Nearly half (47%) of all Games exceed their budget by more than 100%.
- The average sports-related cost of hosting the Games over the past decade has been $8.9 billion.
- The most expensive Summer Games to date was London 2012 at $15 billion; the most expensive Winter Games was Sochi 2014 at $22 billion.
- The Olympic Games Knowledge Management Programme has been effective in helping to reduce costs, through better knowledge sharing between host cities.
- Host governments and the IOC have not been transparent about the true cost and cost overrun of the Games. For example, the UK government claimed that the London Games came in under budget, but the real cost overrun for London was 76% or $6.5 billion.
‘All Games come in over budget,’ comments Professor Flyvbjerg. ‘If you wanted to make it as difficult as possible to deliver a megaproject on budget, you would do exactly what they do at the Games. You would assemble a team that has never delivered this type of project before, in a location that has never seen such a project. Then you would enforce a non-transparent and highly questionable bid process that encourages overbidding and places no responsibility for costs with the entity that decides who wins the bid. That unfortunately is the reality we see with the Games.’
The study advises host nations, cities, and the IOC to get as realistic a picture as possible of costs and risks. ‘The Olympics Games are unique in their complexity and huge expense and we need to try and avoid situations such as Athens 2004, which contributed to Greece’s economic problems and is still being played out a decade later. Our hope is that this study will help potential host cities and nations in their planning,’ said Professor Flyvbjerg.
There have been efforts by the IOC to reduce budget overrun and costs. To produce more effective knowledge sharing between host cities, it initiated the Olympic Games Knowledge Management Programme in the 1990s, first used in the lead up to the Sydney 2000 Summer Games and thereafter. A statistical comparison of the Games before 1999 and post 1999 concludes that the programme has been effective in reducing costs – median cost overrun for Pre-1999 Games is 166%, compared to 51% for Post-1999 Games. The IOC is well advised to ensure the programme is rigorously enforced and to not allow repetition of outlier cost overruns like that of Sochi 2014.
The study disputes the claim by the organisers of London 2012 that the London Games came in under budget. Professor Bent Flyvbjerg explains: ‘In 2005, London secured the bid with a cost estimate that two years later proved inadequate and was revised upwards around 100%. When it was revealed that the final outturn costs were slightly below the revised budget, the organisers falsely, but very publicly, claimed that the Games were under budget. Such misinformation is unethical in our view. Our study shows that we should not count on organisers and governments to provide us with reliable information about the real costs of hosting the Olympics.’
Bent Flyvbjerg is the first BT Professor and Chair of Major Programme Management at Oxford University. He works for better management of megaprojects and cities. He also writes about the philosophy and methodology of social science.
Alexander Budzier is the Fellow of Management Practice in the Field of Information Systems. He researches and teaches on issues of project and program(me) management, IT-enabled change, systems thinking, decision making and risk.
Oxford University’s Saïd Business School