BIG IS FRAGILE: AN ATTEMPT AT

THEORIZING SCALE
Atif Ansar1,*, Bent Flyvbjerg1, Alexander Budzier1, Daniel Lunn2

Affiliations:
1Sad
Business School, University of Oxford, OX1 1HP, UK.
2Department of Statistics, University of Oxford, OX1 3GT, UK.

* To whom correspondence should be addressed.

E-mail: atif.ansar@sbs.ox.ac.uk

Printed in:
Bent Flyvbjerg, 2017, ed., The Oxford Handbook of Megaproject Management,
Oxford University Press

Full reference:
Atif Ansar, Bent Flyvbjerg, Alexander Budzier, and Daniel Lunn, 2017, "Big Is
Fragile: An Attempt at Theorizing Scale," in Bent Flyvbjerg, ed., The Oxford
Handbook of Megaproject Management (Oxford: Oxford University Press),
Chapter 4, pp. 60-95; URL for final print: http://bit.ly/2bctWZt

All rights reserved

 There is nothing more deceptive than an obvious fact.
Sherlock Holmes in The Boscombe Valley Mystery, Sir Arthur Conan Doyle.

INTRODUCTION
Theories of big have advocated the proposition that bigger is better since
the mid-nineteenth century, drawing especially on notions of economies of
scale and scope (Stigler, 1960; Silberston, 1972 Chandler, 1990), natural
monopoly (Mill, 1848; Mosca, 2008), or preemptive capacity building (Porter,
1980). Building big has traditionally been seen as necessary to secure efficient
economies of scale and to lock competitors out of future rivalry (Ghemawat,
1991; Ghemawat & der Sol, 1998; Hayes & Garvin, 1982, p. 78; Penrose, 1959,
2009, pp. 89-92; Wernerfelt & Karnani, 1987). Economies of scale in the
production of electricity, for example, assume declining average cost curve as
output expands (Ansar & Pohlers, 2014: Figure 1).

Theories of big have held an enduring sway on management practice. Scaling

is deemed necessary for survival and competitive advantage in many
industries such as steel (Crompton & Lesourd, 2008), shipping (Cullinane &
Khanna, 2000), banking (Cavallo & Rossi, 2001), telecommunications
(Majumdar & Venkataraman, 1998; Foreman & Beauvais, 1999), water, and
electricity utilities (Kowka, 2002; Pollitt & Steer, 2011). Big ventures are
witnessed when companies try to pursue new product or geographic markets:
Motorola spent US$ 6 billion in technological rollout of its Iridium satellite
constellation (Bhid, 2000); the German steel company ThyssenKrupp spent
over US$ 11 billion to enter the US and Brazilian markets (Ansar, 2012). In the
context of economic development, Sachs (2006) has popularized the view that
big challengessuch as poverty alleviation, energy and water scarcity, or
urbanization can only be solved with big push solutions.

Theories of big are not universally accepted, needless to say. Schumacher

(1973) championed, Small is beautiful. Easterly (2002, 2006) has argued
against the big push mega-reforms that Sachs favors. Perhaps the most
persistent attack on theories of big has come from Lindblom who advanced
the notions of muddling through (1959) and disjointed incrementalism
(1979) as an alternative to bigger is better. In the academic debate, a school
of thought emerged around the notion of incrementalism, with concepts such
as logical incrementalism (Quinn, 1978); modularity (Baldwin & Clark, 2000);
real optionality (Copeland & Tufano, 2004); adaptive change (Heifetz et al.,
2009). The key rationale for incrementalism is based on the well-documented
limits of rationality in decision making under uncertainty (Atkinson, 2011, p.
9).

Yet theories of big have maintained an enduring upper hand in mainstream

business and government practice: megaprojects, justified on the bases of
theories of big, are more ubiquitous and bigger than ever (Flyvbjerg, 2014). A
renewed enquiry into the validity of theories of big has become urgent

2
because big capital investment decisions routinely fail in the real world.
Motorolas Iridium went bankrupt within three years of its launch wiping
nearly US$10 billion of equity (Kerzner, 2009: 351). ThyssenKrupps
megaprojects in Americas initiated in 2005 suffered a worse fate. By June 2012
ThyssenKrupps survival was in doubt and the companys share price was a
quarter of its May 2008 high. The company was forced to raise fresh capital in
part by selling its ill-fated US steel plant at a steep discount to its archrivals
ArcelorMittal and Nippon-Sumitomo. ThyssenKrupps top management team,
including the Chairman Gerhard Cromme, who initiated the big capital
investments, was fired. Other cases of big bets gone awry abound. Losses
from Bostons Big Dig or Citigroups bold bets reach into the billions of
dollars (Dash & Creswell, 2008). Not only did the costs sunk into Japan's
Fukushima nuclear power plant become unrecoverable; its cleanup costs
rippled far into the economy. Beyond the financial calculus, even the reticent
Chinese government is opening up to the profound and unforeseen human
and environmental impacts of China's Three Gorges dam (Qiu, 2011; Stone,
2008, 2011).

Over the last fifteen years evidence from large datasets has mounted that the
financial, social and environmental performance of big capital investments, in
the public and private sectors alike, is strikingly poor (see, for example, Nutt,
1999, 2002; Flyvbjerg et al, 2002, 2003, 2005, 2009; Titman, Wei, and Xie, 2004;
Flyvbjerg & Budzier, 2011; Van Oorschot et al., 2013; Ansar et al., 2014).

In this chapter we characterise the propensity of big capital investments to

systematically deliver poor outcomes as fragility a notion suggested by
Taleb (2012). A thing or system that is easily harmed by randomness is fragile.
We argue that, contrary to their appearance, big capital investments break
easilyi.e. deliver negative net present valuedue to various sources of
uncertainty that impact them during their long gestation, implementation,
and operation. We do not refute the existence of economies of scale and scope.
Instead we argue that big capital investments have a disproportionate (non-
linear) exposure to uncertainties that deliver poor or negative returns above
and beyond their economies of scale and scope. We further argue that to
succeed, leaders of capital projects need to carefully consider where scaling
pays off and where it does not. To automatically assume that "bigger is
better," which is common in megaproject management, is a recipe for failure.

Below, first we develop and draw linkages between three theoretical

concepts: Big, Fragility, and Scale versus Scalability. Building on the relevant
literature, we advance twelve propositions about the sources and
consequences of fragility, which we then apply to big capital investments.
Specifically, we develop the construct of investment fragilitythe
threshold at which the cumulative losses from an investment exceeds the
investments cumulative gains. Second, we substantiate our propositions
about the fragility of big capital investments using evidence from a dataset of
245 big dams. Our theoretical propositions and evidence from big dams
suggests that big capital investments fail to achieve the aspirations of

3
scalability and efficiency set for them at the outset. Once broken, these
investments become stranded causing long-term harm to the companies and
countries that undertake them.

THEORY AND CONSTRUCTS

What Is Big?
Whether something is big seems obvious enough. Yet the construct of big and
the related ideas of large, large-scale, major, mega, or huge etc. prove
deceptively elusive when subjected to scrutiny. A literature review of
definitions of big and related words reveals a non-exhaustive list of multiple
dimensions of the construct of big such as:
Physical proportions measured in height, length, mass, weight, area,
or volume;
Inputs required to build and run the thing measured in terms of
quantities (and quality) of land, labor, or equipment required;
Financial outlay measured in upfront capital expenditure (Flyvbjerg,
2014), recurrent operational expenditure, or end-of-life costs (Clark &
Wrigley, 1995, 1997);
Supply measured in the units of output that the thing can produce
(Samuelson, 1948; Stigler, 1958) or the multiplicity of outputs
(Chandler, 1990);
Demand being served measured not only in terms of units of demand
but also the quality, speed, and functionality (Weinstock &
Goodenough, 2006);
Temporality measured in time it takes to build the thing or the length
of its life span (Gomez-Ibanez, 2003);
Spatial fixity or immobility and the cost of moving an assetbig tends
to spatial fixity (Ansar, 2012);
Complexity measured, for example, with a focus on the technical
aspects of the asset or its delivery (Simon, 1962); or with a focus on the
social and political complexity (Liu et al., 2007);
Impact measured in number of people who might benefit or be
harmed; number of functions enabled or disabled; or the magnitude
and pace of change the thing can cause in its environment.

The relationships among these multiple dimensionsand even the indicators

within each dimensionare seldom straightforward. For instance, it is often
taken for granted that in order to reduce the amount of time required to
complete a venture, e.g. a software IT project, a manager would need to
mobilize more programmers, which will also increase the capital expenditure
of the venture (for a discussion see Atkinson, 1999; Williams, 2005).

Bigness entails multiple and unpredictable interactions across the dimensions

we have listed with which theories of bigsuch as the notion of economies of

4
scalehave not meaningfully engaged. The risk of big is reflected in these
interactions, which we turn to now.

What Is Fragility?
Taleb (2012) proposes the construct of fragility, and its antonym antifragile, to
capture the type of randomness and risk we talk about here. Talebs
inspiration for the concept came from his observation that there is no random
event that can benefit a porcelain cup resting on a table yet a wide range of
uncertain events such as earthquakes or human clumsiness that can pose
harm (Taleb 2012, p. 268). Fragile things, like the porcelain cup, are vulnerable
to members of the disorder family such as randomness, uncertainty,
volatility, variability, disturbance, or entropyterms we use interchangeably
belowi to explore the fragility of big capital investments.

Fragility as a construct has found increasing use in diverse fields such as

construction (Shinozuka et al., 2000; Choi et al., 2004); human bones (Seref-
Ferlengez et al., 2015); global financial and banking crises (Davis et al., 1995;
Taleb et al., 2012; Klemkosky, 2013; Calomiris & Haber, 2014); mathematics
(Taleb & Douady, 2013); ecology and ecosystems (Nilsson & Grelsson, 1995;
Sole & Montoya, 2001); interdependent networks (Callaway et al., 2000;
Buldyrev et al., 2010; Vespignani, 2010; Parshani et al., 2011; Gao et al., 2012;
Morris & Barthelemy, 2013); material sciences, e.g. in assessing properties of
glass forming liquids (Scopigno et al., 2001; Mauro et al, 2014; Martinez-
Garcia et al., 2015); conflict-prone countries (USAID, 2005; Ziaja, 2012);
democratic political systems (Mitchell, 1995; Issacharoff, 2007); and even
personal ethics (Nussbaum, 2001). Despite its diverse uses, fragility has
certain common meanings across these fields. Taking our point of departure
in Talebs work, because this is the most comprehensive, and supplementing
this with other sources, we first distill a general definition of fragility. Second,
we use this to develop a more specific concept called investment fragility,
which we apply to big capital investments.

Fragility describes, how [a] system suffers when it encounters disorder

(Taleb and Douady, 2012, p. 1677, italics in the original). The outcome of
fragility is typically an irreversible loss of functionality. Our preliminary
proposition, which well refine below, is as follows:

Proposition 1. Fragility is typically irreversible. Once

broken the fragile cannot be readily restored to its original
function.

Fragility as a material property is signified by a materials breaking point

(Scopigno et al., 2003; Martinez-Garcia et al., 2015). Mauro et al. (2014) call this
unique intrinsic fragility threshold a structural signature. Buldyrev et al.
(2010) conducted similar structural analysis on networks such as electricity
grids (also see Vespignani, 2010). They find that intrinsic structural features of
networkssuch as number of nodes; whether a network is isolated or

5
interdependent; and number of interconnections with other networkscan
help determine the critical threshold at which the various networks break
downii. As a more generalizable proposition:

Proposition 2. A thing (material, system, process, or

network) has a unique fragility threshold, which careful
structural analysis and experimentation can reveal, at
which it will break down under influence from stressor(s).
All other things being equal, the lower the preset threshold
the greater the fragility.

An assumed benefit of big is that the fragility threshold increases with size.
However, Taleb (2012, pp. 278-80) argues that larger organisms such as
elephants tend to have a lower fragility threshold as a proportion of their size
than smaller organisms. Thus, for example, it might take a stone twice the
body weight of a cat to cause a fatal outcome. But a boulder only half the
bodyweight of an elephant might suffice for its fragility threshold. The source
of this disproportionally greater fragility of bigger systems is to be found in
Andersons (XXXX) notion of more is different. As a more generalizable
proposition, we advance:

Proposition 3. As a system grows bigger, the relative size of

a stressor required to break it will decline disproportionately.

As suggested before another source of fragility is the interconnectedness of

systems. In other words inherited fragility. Inherited fragility helps to map
out the diffusion of harm in the event of fragility in a corner of an
interconnected system of systems. As a generalizable proposition:

Proposition 4. In an interdependent system of systems with

no redundancy the threshold of fragility for the whole
system of systems is the same as the threshold of the
systems weakest component.
Systems with a low fragility threshold and low function
recoverability (Quadrant 4) require a great deal of
cushioning to protect them from breaking.
below suggests a composite way to map different things on the spectrum of
greater to lesser fragility. This constitutes two dimensions: First, on the
vertical axis is how easily something breaks, i.e. a high or low preset fragility
threshold. Second, on the horizontal axis is how easily can the broken thing
be recovered to its self-same functional state once the fragility threshold is
crossed, i.e. high or low function recoverability.

However, not all things are as unlucky as Humpty the egg. A multi-use
electric fuse also breaks easily but can also be easily restored to perform its
sacrificial function (Quadrant 3). In contrast, a diamond has a high fragility
threshold but once broken the damage is irreversible (Quadrant 2). Finally,
fungiand many systems in nature (Taleb, 2012)do not break easily and

6
easily recover (Quadrant 1). Incidentally, as our discussion on scalability in
the next section shows, systems in Quadrant 1 share many properties with
highly scalable systemsiii.

Figure 1: A Map Of Fragility

Function Recoverability
Low High

e.g.. Diamonds e.g., Fungi

2 1
High
Fragility Threshold

4 3
Low

e.g., Humpty Dumpty e.g., Multi-Use

The Egg Electric Fuse

Source: Authors

Proposition 5. Systems with a low fragility threshold and

low function recoverability (Quadrant 4) require a great
deal of cushioning to protect them from breaking.

Closely related to the distinction between intrinsic and inherited fragility

is the distinction between apparent and hidden fragility. The eggs
vulnerability to breaking is apparent. We thus handle eggs with care when
bought at the grocery to cook for tomorrows breakfast. We also do not act
surprised when eggs break. Similarly, an electric fuses fragility is apparent
and in fact intended. In contrast, hidden vulnerability is insidious and entails
surprise. Vespignani (2010, p. 985) finds that in cases of highly interconnected
networks breakage is typically abrupt at a relatively low critical threshold,
which introduces an element of surprise: This makes complete system

7
breakdown even more difficult to anticipate or control than in an isolated
network.

Hidden fragility has an interaction effect with inherited fragility: Achilles

heel is a reminder of this phenomenon when a small hidden weakness is
inherited by the otherwise mighty systemiv.

Proposition 6. The information conditions necessary to

make a system truly robust are very strong because some
minor source of hidden fragility is likely to remain. In
instances of hidden and inherited fragility, seemingly robust
systems will break down abruptly at a surprisingly low
critical threshold. Lack of preparedness in instances of
hidden and inherited fragility will accentuate the
consequent harm.

Although Taleb (2012, see, e.g., pp. 270-71) underplays the role of cumulative
processes in creating fragility, hidden fragility is often created or exacerbated
by them. Taleb typically focuses on fragility caused by one single blow.
Cumulative fragility, in contrast, is death by a thousand cuts. Keil &
Montealegre (2000) liken such an ill-fated investment to a frog being boiled to
death without knowing it (also see Keil, 1995; Royer, 2003).

Poorly understood dynamic changes often lower the fragility threshold

without warning. Even a minor stressor, in such circumstances, leads to
unexpected breakage. Seref-Ferlengez et al. (2015), for instance, find that
human bones are constantly exposed to microdamage from routine stressors.
Microdamage from routine wear and tear begins to accumulate that
contributes additively to reduced fracture toughnessi.e. lowering of the
threshold at which the bone breaks (Seref-Ferlengez et al., 2015, p.1). In
technological systems accumulation of small errors is often behind man-made
disasters (Turner and Pidgeon, 1997).

Proposition 7. Cumulative hidden processes will increase

the propensity of fragility of a system over time.

Hidden fragility also has sociological and psychological features. Scholars of

power relationships suggest that organizations can tacitly choose to ignore
the obvious (Flyvbjerg, 1998) or people in organizations know that we do not
want to know (Ansar, 2015). Psychological biases such as overconfidence also
bring fragilities due to expert problems (in which the expert knows a lot
but less than he thinks he does) (Taleb, 2012, p. 215). Psychological theories
predict that hidden fragilities in systems designed by experts will be the norm
not the exception (Kahneman, 2011). NASA lost its $125 million Mars Climate
Orbiter in September 1999 because one engineering team used metric units
while another used imperial units for a spacecraft maneuver (Reichhardt,
1999; also see Hodgkinson & Starbuck, 2012, pp. 2-5 for discussion of NASAs
space shuttle disasters in light of theories of organizational decision making).

8
Our inability to recognize and correct this simple error has had major
implications, said Edward Stone, the Director of the Jet Propulsion
Laboratory (JPL) at NASA that oversaw the mission, according to CNN (30
September 1999). Also see Proposition 6 on information conditions of
correcting hidden fragility.

Proposition 8. Behavioral and psychological biases will

make the detection of hidden fragility more difficult. Hidden
fragilities in systems designed by experts will be the norm
not the exception.

Proposition 9. In sociological and organizational contexts,

hidden fragility will be hidden in plain sight.

Although Taleb has tended to focus on external causes of disorder, ecologists

working on fragility pay equal attention to internal changes that cause
fragility (see Nilsson & Grelsson, 1995). Theorists of broken symmetry have
also noted that as internal complexity increases, the threat of internal sources
of disturbanceoften driven by entirely random processesgrows non-
linearly exposing a larger system to breakdown with no apparent cause
(Anderson, 2011). From a consequentialist perspective, the distinction
between external and internal stressors is immaterial: it is the magnitude of
the negative outcome that follows that matters. Taleb (2012, p. 136) argues:

You can control fragility a lot more than you

thinkdetecting (anti)fragilityor, actually, smelling it[...]
is easier, much easier, than prediction and understanding the
dynamics of events, the entire mission reduces to the central
principle of what to do to minimize harm (and maximize
gain) from forecasting errors, that is, to have things that dont
fall apart, or even benefit, when we make a mistake...Not
seeing a tsunami or an economic event coming is excusable;
building something fragile to them is not.

From a consequentialist perspective, a generalizable proposition that can be

advanced is as follows:

Proposition 10. If a system or process is systematically

delivering poor outcomes, it is an indicator of fragility.
Discard or redesign the system.

Proposition 11. It is easier to be robust against the

magnitude of harm that fragility might bring than predict
or control the sources of stressor(s).

9
The Special Case Of Investment Fragility
Above we analyzed general features of fragility. Now we turn to the special
case of investment fragility, which we define as the vulnerability of a financial
investment to becoming non-viable, i.e., losing its ability to create net economic value.
When applied to physical assets such as roads, oil refineries, bridges, factories,
real estate developments etc., investment fragility causes them to become
stranded assetsi.e. where assets suffer from unanticipated or premature
write-offs, downward revaluations or are converted to liabilities (Ansar et al.,
2013, p.2). A broken or stranded asset is a net drag on the economyi.e. it
consumes resources inefficiently that could have been put to alternative uses.
An economy with too many assets prone to fragility is at a heightened risk of
system-wide failure due to the domino-like effect of inherited fragility that
can spread from one corner of the system of systems to the whole.

Benefit-to-Cost Ratio (BCR): A Rule-Of-Thumb To Detect The Investment Fragility

Threshold
The fragility threshold of an investment can be located by modeling the
investments payoff structure. Figure 2 illustrates such a payoff structure
graphically: the discounted stream of gain and the discounted stream of pain
of a hypothetical investment is sorted in a descending order and then graphed.
Since investments typically span long time horizons it is imperative to
incorporate time value of money in the payoff structure by introducing an
appropriate discount rate (see Souder & Shaver, 2010). The point of fragility in
Figure 2 is where the cumulative painarea 1 in Figure 2just exceeds the
cumulative gainthe area 2 in Figure 2. In other words, an investment is
broken when the cumulative gain-to-pain ratio falls below 1, less gain in the
numerator than the pain in the denominator. The gain-to-pain ratio, which is
commonly thought of as benefit-to-cost ratio (BCR) in literature on capital
budgeting, thus serves as a useful rule-of-thumb for detecting the fragility
threshold of an investment.

Like the more general case of fragility, an asset suffers from greater intrinsic
investment fragility when the absolute threshold of disturbance required to
break it is lowe.g., a low ex ante benefit-to-cost ratiowhereby a stressor
easily pushes the benefit-to-cost ratio below 1. The stressor may be, for
example, just one weather event in the 60-year life of the asset that causes so
much mess that costs of dealing with it spiral out of proportion. As with
many fragile things, there is an element of surprise in investment fragility as
wellseemingly improbable, and often minor, stressor(s) can cause
disproportionate harm.

An investment is more fragile when once broken it is difficult or nearly

impossible to reposition it to make recovery possible via alternative uses. Less
specific assetsfor example, buildings that can change useare less prone to
becoming irreversibly broken than assets with a higher specificity (see

10
Gmez-Ibez, 2003 for a rich ground of interconnections between investment
fragility and discussion on hold up in transaction cost economics).

Figure 2: Graphing "Investment Fragility"

Gain/Pain Investment Fragility

F(X) Threshold
when area 1 2
Gain

2 Variable
X

1
Pain

Source: Adapted from Taleb (2012, p. 273).

Similarly, an asset has higher intrinsic investment fragility when its gain
(anticipated benefits and any windfall) is capped but the pain (anticipated
cost and any unforeseen losses) is uncapped. This propensity exhibits itself in
the shape of Figure 2 in where the top left part of the curve (gain) is bounded
and finite but the bottom right part of the curve (pain) is unbounded and
potentially an infinite pit. Based on this observation, Taleb (2012, p. 158, italics
in the original) proposed: Fragility implies more to lose than to gain, equals more
downside than upside, equals (unfavourable) asymmetry.

What Is Scalability?
The Oxford English Dictionary defines "scalable" and "scalability" in the
following manner:

"scalable, adj.
Able to be changed in scale. rare.
1977 Jrnl. Royal Soc. Arts 125 770/1 Such lasers are scalable since large
volumes could be pumped uniformly."

11
"scalability n. the property of being scalable.
1978 Sci. Amer. Nov. 44/2 It took demonstrations of the scalability of the
technology and tests of improved beam focusing...to catalyze an effort that led
to support by the AEC."

We note, in particular, the unsatisfactory definition of the word scalable.

What does the ability to be changed (or equally change without external
force) in scale mean? In practice, scalability is most commonly discussed in
the field of computer science, system architecture, and software programming
(Hill, 1990; Gunther, 2007). This is insufficient for our purposes.

In academic literature, an understanding of whether, and under what

conditions, something has the ability to be changed in scale has been deeply
informed by advances in mathematics and particularly the field of fractal
geometry. Mandelbrots research identified two primary dimensions of scale:
temporal and spatial. A grain of sand, a pebble, a rock, a cliff, and the
coastline of say Britain represent a continuum of finer to coarser grades of the
spatial scale (see Mandelbrot, 1967). Similarly, the price movements of a stock
price over a scale between five seconds to five years represents finer to coarser
grades of a temporal scale. Finer and coarser grades of scale can also be
thought of in terms of degrees of zoom-in (microscopic) and zoom-out
(macroscopic). To Mandelbrots spatial and temporal scale, we introduce a
third scale: relational. The relational scale not only refers to the number of
end-users (e.g., few or many) but also to the heterogeneity of end-users and
their tailored need (see Ansar, 2010; Ansar, 2012 for a more extensive
discussion on a spatial, temporal, and relational multi-scalar framework)v.

Based on this understanding of scale, we define scalability as the ability of a

thing (e.g., a system, system of systems, process, or network) to effortlessly
transition back and forth from the very micro to the very macro spatial,
temporal, and relational scales. Effortlessness connotes minimum friction in
terms of the time, cost, etc. it takes to build up or remove capacity. Over
longer time scales, effortlessness implies ability to quickly upgrade without
losing compatibility. However, if scalability is understood and practiced as
mainly the ability to scale up, with scant attention to scaling down which is
the dominant approach today in both the academy and practice (Sutton and
Rao 2014) then this in and of itself adds fragility. Here we therefore
understand scalability as the ability to change in both directions, i.e., both up
and down.vi

In contrasting big and scale we arrive at a key insight. Big typically possesses
a degree of slack, which Weinstock and Goodenough (2006), call the ability
to handle increased workload (without adding resources to a system). A big
power plant, for example, rarely operates at full capacity. If demand were to
increase from one segment of the day to another the power plant can be
ramped up to meet some or all of the added demand. However, this limited
slack is different from true scalability. Thus, although the big power plant
might be able to meet some incremental demand in a spatially, temporally,

12
and relationally narrow field, it cannot effortlessly be scaled up (or scaled
back down) to resolve a national or global energy crisis. Linking big,
scalability, and fragility we therefore advance the following:

Proposition 12. Fragility arises when big is forced into

doing what was best left to the scalable.

FRAGILITY IN ACTION: EVIDENCE FROM LARGE

DAMS
The 12 propositions about fragility above are based on a literature study. We
now test the propositions against evidence from capital investments in 245
large dams. Our study of large dams began as an inductive enquiry into an
under-researched question: will the brisk building boom of hydropower
mega-dams underway from China to Brazil yield a positive return? Our
previous effort (Ansar et al. 2014) found strong evidence that most large dams
were too costly and took too long to build to deliver a positive risk-adjusted
return. Our empirical results motivated us to begin theory development that
would help us answer why investments in large dams might be particularly
prone to what we above call investment fragility, i.e. for the benefit-cost
ratio to fall below 1?

Figure 3 presents an overview of the dataset by regional location of the dams,

wall height, project type, vintage, and actual project cost. With a total value of
$353bn (2010 prices) built between 1934 to 2007 on five continents in 65
different countries, our dataset on large dams is the largest of its kind. All
large dams for which valid and reliable cost and schedule data could be
found were included in the study. The data and the inductive study are
described in Ansar et al. (2014).

13
Figure 3: Sample Distribution Of 245 Large Dams (1934-2007), Across Five
Continents, Worth USD 353B (2010 Prices)

Location Size - Dam Wall Height (m)

South Asia 150 15-29

East Asia 100-149
Europe 25
29 72
30-44
Africa 29
50
40
60-99 45-59
North America Latin America

Project Type Project Vintage

Irrigation & 1990-2007 1934-1949

other
Hydropower
59
61 97 1980-1989
1950-1969
89

Multipurpose 1970-1979
(with hydropower)

Actual Project Cost (2010 USD millions), percent

12.5%
10.0%
7.5%
5.0%
2.5%
0.0%
10 1,000 40,000
Millions of 2010 US dollars
Source: Ansar et al. (2014)

Why Study Big Dams?

We find that large dams serve a particularly useful empirical setting to
develop theory on investment fragility for the following reasons.

14
First, big dams are archetypical megaprojects. Dams are bespoke, site-specific
constructions that have large physical proportions; require mobilization of
vast quantities of inputs (materials, land, labor, or physical equipment); entail
huge up-front financial outlays; generate a large number of unit of outputs;
take a long time to build; last a long time; are spatially fixated; are highly
complex not only in terms of number of constituent parts but also in terms of
high interdependencies between constituent parts. Large dams typically also
impact large numbers of people and the environment in their construction,
operation, and eventual removal.

Second, dams are indivisible and discrete assets. A 90% complete dam is as
valueless as a dam not built at all. For this reason, the physical scope and
costs associated with a dam are methodologically well-defined and therefore
particularly well-suited for like-for-like comparisons between planned and
actual outcomes.

Third, the main part of the whole-life costs of a dam are rendered up front during the
construction phase. Unlike, thermal power plants, dams do not require large
variable costs in subsequent time periods for feedstock. There is a degree of
transparency possible with the cash flows (or streams of costs and benefits)
associated with dams that is much more difficult to establish for other big
capital investments.

Finally, results from large dams are generalizable to other big venture. Large dams
are a widely studied engineering problem, or what conventional theory might
consider a standardized production technology (Sidak & Spulber, 1997),
generating basic services, such as electricity or water, as outputs with
seemingly established demand trends. Intuition would suggest that the
overall planning uncertainties ought to be more limited in large dams than,
for example, big capital investments based on revolutionary new technologies.
A discovery of systemic errors in the building of dams would be indicative
that the problems of investment fragility will be even more severe for less
standardized capital investments.

What Happens To Big Dams?

Proposition 10 in the previous section suggested that if a system or process is
systematically delivering poor outcomes it is an indicator of fragility.
Specifically, we are interested in testing whether benefit-cost ratios fall below
1.

Cost Performancevii
With respect to cost overruns, we make the following observations:
- 3 out of every 4 large dams suffered a cost overrun in constant local
currency terms.
- Actual costs were on average 96% higher than estimated costs (median
27%; IQR 0.86). The evidence is overwhelming that costs are

15
 systematically biased towards underestimation and overrun (Mann-
Whitney-Wilcoxon U = 29646, p < 0.01); the magnitude of cost
underestimation is larger than the error of cost overestimation (p <
0.01). The skew is towards adverse outcomes (i.e. going over budget).

Graphing the dams cost overruns reveals a long tail as shown in

- Figure 4; the actual costs more than double for 2 out of every 10 large
dams and more than triple for 1 out of every 10 dams. The long tail
suggests that planners have difficulty in establishing probabilities of
events that happen far into the future (Taleb, [2007] 2010, p. 284).

Figure 4: Density Trace Of Actual/Estimated Cost (i.e. Costs Overruns) In

Constant Local Currency Terms With The Median And Mean (N = 245)

Median
Mean

Schedule Performanceviii
Not only are large dams costly and prone to systematic and severe budget
overruns, they also take a long time to build. Large dams on average take 8.6
years. With respect to schedule slippage, we make the following observations:

- 8 out of every 10 large dams suffered a schedule overrun

- Actual implementation schedule was on average 44% (or 2.3 years)
higher than the estimate (median 27%, or 1.7 years) as shown in Figure
5. A schedule overrun is detrimental to the benefit-cost ratio as it

16
 delays when much-needed benefits come on line. This decreases the
net present value of future benefits. Even without a cost overrun, a
schedule delay in and of itself can cause investment fragility. As the
bulk of the costs of a big dam are incurred upfront they are not as
sensitive to the discount rate as the benefits, which arrive farther in the
future.

- Like cost overruns, the evidence is overwhelming that implementation

schedules are systematically biased towards underestimation (Mann-
Whitney-Wilcoxon U = 29161, p < 0.01); the magnitude of schedule
underestimation (i.e. schedule slippage) is larger than the error of
schedule overestimation (p < 0.01).

Graphing the dams schedule overruns also reveals a long tail as shown in
- Figure 5, albeit not as long as the tail of cost overruns. Costs are at a
higher risk of spiraling out of control than schedules.

Figure 5: Density Trace Of Schedule Slippage (N = 239) With The Median

And Mean

Median
Mean

17
Investment Fragility Threshold For Big Dams
Proposition 2 advanced that different systems have different fragility
thresholds. For big dams the typical forecasted benefit-cost ratio (BCR) was
1.4. In other words, planners expected the net present benefits to exceed the
net present costs by about 40%. With no change in future benefits or
operations & management costs, a project suffering a cost overrun ratio of 1.4
or greater thus breach the fragility thresholdits BCR would fall below 1 and
the broken assets upfront sunk costs would become unrecoverable.

- The absolute threshold of 1.4 for big dams is broadly in line with many
other physical infrastructure assets such as road, rail, bridge, or tunnel
capital investments that too typically expect to generate a BCR of
approximately 1.4 (NAO, 2014).

- Using the BCR of 1.4 as the fragility threshold, we found that

investments in big dams are more fragile than investments in road,
bridge, or tunnel projects. Investments in big rail projects are, however,
even more fragile than investments in big dams. We arrived at this
conclusion comparing the evidence on 245 big dams with a sample of
another 353 roads, rail, and fixed link (bridges and tunnels) projects
(see Flyvbjerg et al., 2002, 2003, 2005; Ansar et al., 2013).

- Investments in nearly half (47%) of the dams broke the fragility

threshold, i.e., a cost overrun ratio of 1.4 or greater, compared to 14%
for roads (n = 239, MCost Ovverun = 1.22) and 25% for fixed links (n = 39,
MCost Ovverun = 1.37). For rail projects (n = 79, MCost Ovverun = 1.44) just
over 50% of the sample had a cost overrun ratio greater than 1.4.

- In terms of runaway cost overruns, however, investments in big dams

have a worse performance than rail projects. For big dams the 80th
percentile cost overrun is nearly double the original estimate (P80 Cost
Ovverun = 1.99) and the 90 percentile more than triple (P90 Cost Ovverun =
th

3.07) suggesting a long and fat tail. For rail the skew towards runaway
cost overruns is less pronounced (P80 Cost Ovverun = 1.75 and P90 Cost
Ovverun = 1.90) suggesting a truncated tail compared to big dams,
though still long and fat compared to a normal distribution.

- Our calculations of the fragility threshold of big dams have a

conservative bias. We have assumed that dams' benefits did not also
fall short of targets, even though there is strong evidence in the existing
literature that this is the case (WCD, 2000a; McCully, 2001; Scudder,
2005). We made this assumption because a comprehensive dataset of
planned versus actual benefits of dams, like we have built for cost and
schedule of big dams, does not yet exist. Data we have available on 84
hydroelectric large dam projects from our sample thus far suggests that
they suffer a mean benefits shortfall of at least 11%.

18
Note that big dams suffer from the fundamental unfavorable asymmetry of
fragile systems: the potential gain from big dams is capped but the pain is
uncapped (see Figure 2). For example, in years of extreme drought a big
hydropower dam may produce next to no power, but in years of floods the
dams ability to generate electricity is capped at the maximum of its design
limit. So the maximum benefits the dams can produce are bounded but
maximum losseseither from upfront cost overruns or subsequent operation
& maintenance costsare not. Factoring in benefit shortfalls and cost
overruns on operation & maintenance costs, a bigger proportion of
investments in big dams likely break than our conservative calculations
suggest.

In summary, our conservative estimates suggest that investments in nearly

half the dams break before the big dams even begin their operational life. This
is due to outsized cost overruns on the upfront capital expenditure. Fragility
at such an early stage of an investments life cycle can be likened to an
investment stillbirth. Subsequent discussion will show that the investment
fragility risk only increases for durable and immobile big assets as their life
progresses due to cumulative fragility.

Why Do Investments in Big Dams Break?

The explanation for why investments in big dams break can be found in the
thought processes that lead to their construction. We reviewed previously
confidential business cases (called Staff Appraisal Report or Project Appraisal
Document) at the World Bank presented to the Banks Board prior to a final
decision to build big dams. A typical business case puts forth the following
line of argumentation to justify financing for a dam:

- First, the business case outlines the massive electricity or water

shortfall a country faces;
- Second, the business case argues that the country possesses large
untapped hydropower resources;
- Third, the business case proposes that a big dam should be built on a
site deemed to be particularly advantageous by experts. The business
case goes on to argue that the proposed big dam will be a big
increment in solving the electricity or water scarcity of the country;
- Fourth, the business case cites technical studies which show that the
big dam will be capable of quickly filling the gap between current
market need and market supply and offer slack to meet surging future
demand;
- Fifth, the business case also cites studies by economists, that the
proposed big dam will be the least costly expansion path that will
adequately meet the projected demand owing to its economies of
scale (U.S. Department of Energy, 2009). Usually only one or two
other alternatives are considered;

19
 - Finally, detailed calculations are shownsometimes spanning several
appendicesthat the present value of benefits of the proposed big dam,
as of the date of the decision to build, will exceed the present value of
the costs. In other words, that the benefit-cost ratio will exceed 1.
Typically, little to no data on costs and benefits are shown for
competing alternatives.

This thought process resembles more the rationalization of a pre-selected

solution (a large dam) than the rational assessment of alternative ways to
solve a given problem (provision of water and electricity). The process is
rationalization presented as rationality (Flyvbjerg 1998). We identify several
deep flaws.

First, although the typical business case correctly identifies the challenge as
one of scalability i.e., to effortlessly turn on or off the supply of electricity and
water anywhere (spatial), anytime (temporal), and for anyone (relational)
instead of proposing a scalable solution the business case proceeds to propose
a single-shot big fix. Recall Proposition 12: Fragility arises when big is forced into
doing what was best left to the scalable.

Second, the number of alternatives considered against the preferred solution

is few if any. Alternatives such a decentralized generation or improving
energy productivity are ignored. As Priemus (2008, p. 105) illustrates, it is
typical for planners to settle early on a big asset as the preferred solution and
then alternatives are whittled down to nothing. This limits the option set
presented to decision makers.

Third, by invoking the logic of purported economies of scale (by way of least
cost expansion path), the business case then proposes building a staggeringly
big dam since the bigger the dam the more scalable and efficient it appears on
paper. Even as a typical business case worries a great deal about efficiency
that might arise out of big size, it fails to dwell on the non-linear risks that
will arise from big commitments to durable and immobile assets.

The Various Facets Of Investment Fragility in Big Dams

Thus far we have empirically substantiated the essential argument of this
chapter that big capital investments are prone to fragility particularly when
big is used as a blunt substitute for scalability. In particular we have looked at
evidence for Propositions 2, 10, and 13. We now turn to finding empirical
support for other propositions advanced in the theory section.

Proposition 1 advanced that fragility is typically irreversible. In the empirical

setting of investments in big dams this proposition takes on two facets. First,
once the investment is broken typically due to an upfront cost overrun it is
nearly impossible to reposition the asset to generate a positive returni.e.
increasing revenues to pay back the escalated up-front costs and debt

20
financing on them proves elusive as best. The Yacyret Hydroelectric
Projecta joint venture between Argentina and Paraguay under the Yacyret
Treaty on the Parana River started in 1973 and only fully completed 38 years
later in 2011 according the treatys intended proposalis a telling case. The
dam operated at 60% of its intended capacity from 1998 onwards. In June 2001,
the World Bankone of the dams financierspublished its Implementation
Completion Report (ICR), which arrived at the following conclusion about the
projects outcome:

Based on the above, it is clear that the project has not met its
goals as there is no solution on how to terminate the project, and
operate at full capacity. As explained, the project has operated for
a prolonged period of time at an unintended level [below
intended capacity]. In addition, the project presents a poor ERR
[Economic Rate of Return], negative NPV [Net Present Value]
recalculated by this ICR, and uncertain project sustainability. As
a result, the outcome of Loan 3520-AR is rated unsatisfactory,
and the outcome of the Yacyret scheme as a whole is rated
unsatisfactory mainly because of its big negative NPV ( p. 6).

The projects lower-than-expected volume of output was exacerbated by a

lower-than-expected price of electricity. The World Bank (2001) report goes on
to explain that the Yacyret dam has a big negative NPV because the spot
price [of electricity sold] has been (and is estimated to remain so after year
2001) lower than US$30 per MWh [agreed in the 40-year 1973 treaty]. The
ICR did not envision a scenario in which the dam would revert to a positive
NPV due to the sheer scale of costs sunk into the project.

Second, the breaking of an investmentunlike the porcelain cup at the

beginning of this chapterhappens in slow motion. Yet decision-makers
appear unable to reverse commitment to the losing course of action. In the
case of Yacyret dam, the World Banks Project Performance Audit Report
prepared by the World Banks independent evaluation department, found:
[World] Bank performance is rated as unsatisfactory. The appraisal
overlooked the downside risk of a slower demand growth, which proved to
be of paramount importance. Later, opportunities to reassess the project were
wasted in spite of the recommendations made by a good quality and timely
Public Investment Review (PIR) in 1985. The Bank also accepted non-
compliance with financial covenants (World Bank, 1996b, p. 14). The
Yacyret dams Project Performance Audit Report (World Bank, 1996b, p. 16)
neatly summed up the insidious but irreversible fragility of big capital
investments, In several occasions the Bank had a good case for stopping the
project before the major civil works were too advanced. But it did not. The
phenomenon, whereby smart people and organizations are unable to stop
themselves from throwing good money after bad goes by many names in the
academic literature such as escalation of commitment or lock-in (McNamara
et al., 2002). The financial magnitude of a big venture is so large that once
started the commitment turns into a binding, ruinous, co-dependence.

21
 Proposition 3 suggested that proportionality matters when considering the
impact of fragility. In the case of dams, an investment in a big dam built in a
poor country plays out very differently when compared to an investment in a
similar big dam built in a rich country. This position appears so obvious as to
be trivial, but the real-life effects are striking.

Big dams built in North America (n = 40) have considerably lower cost
overrun (M = 11%) than big dams built elsewhere (M = 104%) as show in
Figure 6. Note, however, that 3 out of 4 dams in our reference class had a
North American firm advising on the engineering and economic forecasts.
Consistent with anchoring theories in psychology, we interpret this
observation as an indication of an overreliance on the North American
experience with large dams, which appears to be biasing cost estimates
downwards in the rest of the world. Experts may be anchoring their
forecasts in familiar cases from North America and applying insufficient
adjustments (Flyvbjerg et al., 2009; Tversky and Kahneman, 1974), for
example to adequately reflect the risk of a local currency depreciation or the
quality of local project management teams. Proponents often hold up the
Hoover Damfinished in 1936 in the U.S.as a prime example for why
similarly big dams ought to be built in poor countries. Evidence shows,
however, that the likes of Hoover dam are false analogies. Instead decision
makers in developing countries should consider evidence for the entire dam
record, and in the case of big dams, investment fragility is the most likely
outcome in developing countries.

Figure 6: Location Of Large Dams In The Sample And Cost Overruns By

Geography

0 25 50 75 100 200 500

Average cost overrun (%)

22
Similarly, with respect to construction schedule, we find that countries with a
higher per capita income tend to have lower schedule overruns than countries
with lower per capita income. We concur with the interpretation of Bacon and
Besant-Jones (1998, p. 325) that the best available proxy for most countries is
[the] country-per-capita income[for] the general level of economic support
that a country can provide for the construction of complex facilities. This
result reinforces the argument that developing countries in particular, despite
seemingly the most in need of complex facilities such as large dams, ought to
stay away from bites bigger than they can chew.

Finally, when an investment in a big dam breaks in a poor country, the

countrys economy as a whole more readily inherits that fragility by way of
accumulating debt. Brazil's Itaipu Dam was built in the 1970s. It cost nearly
$20 billion, 240% more in real terms than predicted and it impaired Brazil's
public finances for three decades. Similarly, the actual cost of Tarbela dam,
the majority of which was borrowed from external sources, amounted to 23%
of the increase in Pakistans external public debt stock between 1968-1984; or
12% for Colombias Chivor dam (1970-1977) as shown in Table 1. Companies
and countries with insufficiently large balance sheets to absorb adverse
outcomes of big bets gone awry face financial ruin.

Table 1: Total Stock Of Public Net External Debt (US$ Current, MM)
Year Colombia Pakistan
1968 3,252.4
1970 1,296.6
1977 2,699.6
1984 9,692.8
Debt increase over the
implementation 1,403.0 6,440.5
schedule
Cost of mega-dam
over the relevant
Chivor dam Tarbela dam
period (US$ current
MM)
168.7 1,497.90
Cost of dam as percentage of debt increase
12.0% 23.2%
Source: Ansar et al. (2014)

As the discussion leading to Propositions 5 & 6 above showed, there is

typically an aspiration to make a seemingly fragile system more robust. In

23
investment fragility terms, this means building in a contingency as a buffer
against cost overruns. The conventional logic being that if a project returns a
BCR greater than 1 even after taking the contingency into account then the
investment can be considered robusti.e. it will not easily cross the fragility
threshold. Evidence suggests, however, that standard contingencies are too
low. For example, in providing a contingency against inflation for big dams in
our sample, forecasters expected the annual inflation rate to be 2.5% on
average, but it turned out to be 18.9% (averages for the entire sample). Had
adequate contingencies been provided, the benefit-cost ratios would have
been lower and investments would not have readily received the final go-
ahead.

Sensitivity analysis is another mechanism by which an aspiration to

robustness is formalized in business cases of big capital investments. But like
contingencies, this exerciseas customarily conducted in business cases of
big capital investmentsis perfunctory. A typical ex ante sensitivity analysis
stress tests for a very narrow range of variance around the base case, whereas
the actual ex post evidence shows that a very wide range ought to have been
tested. The difficulty is that when the sensitivity analysis range is widened
from the narrowest confines to reflect real-life variance, the business case falls
apart. The before versus after picture of Colombias Guavio hydroelectric
project is illustrative.

Figure 7 exhibits a facsimile of a representative section on benefit-to-cost

analysis from the World Banks 1981 Staff Appraisal Report of Colombias
Guavio hydroelectric project, which gave the final decision to build the dam.
As the facsimile illustrates, planners of Guavio first conducted a base case
scenario that showed that the dam had a positive economic rate of return (of
15%) greater than the opportunity cost of capital (11%). Planners then
conducted a sensitivity analysis on the base case benefits and costs but only
subjected them to a stress test range of 15%. The planners, despite
acknowledging that their estimated were subject to uncertainty, appear
reluctant to test for extreme events even if such events are characteristic for
large dams, as we saw with the long, fat tails above.

24
Figure 7: An Aspiration To Investment Robustness in Guavio Hydroelectric
Project

Source: World Bank (1981, p. 42)

As it turned out, the Colombian utility that owned the Guavio dam went
bankrupt (World Bank, 1996a, p. iii). The dams actual outturn costs (in local
currency constant prices) spiraled six times their estimate. Instead of the +15%
cost overrun that the ex ante sensitivity analysis allowed for, a +500% stress
test would have been more appropriate! The investment in Guavio did not
just break. It shattered.

The World Banks Implementation Completion Report, which reported the ex post
outcomes of the Guavio dam conceded that the investment in Guavio was
broken even before the hydroelectric project began operational life.
Generally speaking the project's outcome has to be considered highly
unsatisfactorythis has been at a high cost, particularly in terms of the non-
viability (financial and economic) of the project at completion (World Bank,
1996, p. iv).

Proposition 7 advanced that cumulative, and often hidden, processes increase a

systems fragility over time. With respect to big dams, we have thus far
focused on investment fragility that happens at the beginning of the life of a
big dam due to a cost overrun that exceeds the expected future benefits. Now
we turn to the cumulative investment fragility of big dams as they age. This

25
occurs when large costs are incurred to repair, overhaul, or decommission the
ageing big dam. These late-life costs can turn an aging big dam into a liability
in perpetuity. We review two case examples to elucidate cumulative fragility
both from a material and an investment perspective.

Cumulative material fatigue from minor stressors, poor maintenance, and

new demands placed on an infrastructure can cause physical collapse without
warning. The sudden structural collapse of the Stava dams in the Eastern
Italian Alps on 19 July 1985 that resulted in 268 human fatalities is a tragic
case of physical fragility brought on due to years of neglect. The Stava dams,
even though visibly in a state of decay, had kept on performing their intended
function. Since the cost of rehabilitating the dams was high, the ownersthe
Prealpi Mining Co. of Bergamoixfelt little pressing need to act. The dams
then collapsed with no apparent discreet causea hallmark of cumulative
fragility (see Luino & Graff, 2012, p. 1042). The physical fragility of the dams
and the resulting casualties also caused investment fragility: financial
liabilities for the clean up exceeded 130 million and criminal sentences for
many of the individuals involved in the operation of the dams.

A dramatic physical collapse is, however, not necessary to inflict cumulative

investment fragility. The Kariba dam, on the border between Zimbabwe and
Zambia, presents a salient and current casex. The Kariba hydroelectric
program was built in two phases. The first phase entailed the construction of
the dam wall, which had a height of 128 m and impounded Lake Karibathe
largest man-made lake in the world at the time. In contrast to the typical big
dam, Kariba Phase 1 was built at breakneck speed. The civil works were
completed in just four years from 1955 to 1959. The first electricity was
generated in January 1960 (WCD, 2000b, p. 9). All 6 generators installed
during the first phase were in operation by 1962, with a capacity of 666MW
which exceeded the intended scope of 500MW. Karibas Phase 1 is also among
the rare big dams that came in on budget; built within its then 80.8 million
budget envelope (World Bank, 1956; WCD, 2000b).

Karibas Phase 1 thus appears to have beaten the odds to a healthy birth. But
cumulative processes have pushed Kariba towards investment fragilityxi.
Outflows of water from the dams sluice gates have, over time, eroded the
plunge pool below the gates. The pool, which was initially 10m deep has
gradually worn down to over 80m eroding towards the dam walls
foundations as shown in Figure 8. The structural integrity of Kariba dam is
now under a pressing threat.

26
Figure 8: Cumulative Fragility: Erosion Near The Foundation Of Kariba
Dam Wall

Source: World Bank (2014, Figure 2)

The cumulative fatigue of Kariba dams structure has placed decision makers
in an unenviable squeeze: either allow the dam to collapse and bear
unthinkable human, environmental, and financial losses or embrace huge
outlays to maintain the dam in perpetuity. For now four institutionsthe
European Union, Swedish Government, African Development Bank, and the
World Bankhave spurned into action to provide $295 million in loans to
undertake repairs that are expected to take at least ten years (World Bank,
2014). Although the scour in the plunge pool is the most pressing problem
facing the Kariba, a number of other issues have begun to creep up such as
the swelling of the concrete and malfunctioning of flood gates. Karibas
maintenance bills are unlikely to be a fixed predictable sum with a clear end
date. Whether donors will find sources of finance in perpetuity to maintain
the dam is an open question.

Karibas material fatigue is a reminder that big dams have finite life spans.
Even if not in the next decade or two, in foreseeable human history a big dam
like Kariba will have to be removed (even if it were to be rebuilt) lest it were
to accidentally collapse. No on has the remotest idea how much will need to
be spent on the end-of-life arrangements of a big dam like Kariba. Such

27
rehabilitation and demise costs were not anticipated in Karibas original BCR
analysis. 95% of the worlds big dams were built in the last century and many
are approaching the stated end of their service lives (Lavigne, 2005). Will
dams less illustrious than the Kariba find resources for repairs in perpetuity?
Or will the forgotten dams only be heard of when they collapse from
cumulative fatigue like the Stava dams? There are over 45,000 big dams in the
world. Who will pay for their decommissioning or reconstruction?

Proposition 8 suggested that cognitive biases make it difficult for laypeople

and experts alike to detect fragility. The Vajont dam in Italy is perhaps a
particularly unfortunate case illustrative of psychological and sociological
dimensions of fragility. Located 100 km north of Venice, Vajont was the
worlds highest thin arch dam with a height exceeding 260 meters
equivalent to a 60-storey skyscraperat its completion in 1960. The dam was
built across the Vajont Valley, a deep, narrow gorge characterized by massive,
near-vertical cliffs. On 9 October 1963 a giant landslide collapsed into the
reservoir at an unanticipated speed, which generated a 250-meter tsunami
that overtopped the dam destroying villages downstream. Nearly 2,000
people died. Apart from levying exacting human loss, the dam also lost its
economic function.

Although the proximate cause of Vajonts fragility appears to be an

unexpected natural disaster, the root causes point to biases of human
judgment under uncertainty (Tversky and Kahneman, 1974; Kahneman and
Lovallo, 1993; Lovallo and Kahneman, 2003; Kahneman, 2011). The literature
in psychology suggests that experts (e.g., statisticians, engineers, or
economists) and laypersons are systematically and predictably prone to errors
when forming judgments under uncertainty. Biases, such as overconfidence
or overreliance on heuristics (rules-of-thumb) underpin these errors, which
result in the underestimation of risk.

The behavior of the experts responsible for building Vajont is consistent with
such cognitive biases: By November 1960 it had become clear that the rock
mass sloping towards the reservoir behind the dam was severely fractured.
Experts reached the conclusion that it was not possible to completely stop the
landslide but nonetheless assumed that by elevating the level of the reservoir
in a careful mannerthe rate of movement [of the sliding mass] could be
controlled (Petley, 2008; also see Semenza & Ghirotti, 2000; Kilburn & Petley,
2003). Experts psychological confidence that they could control the landslide
is consistent with the notion of illusion of control, a tendency for people to
overestimate their ability to control outcomes (Kahneman & Riepe, 1998).
Experts illusion of control was exacerbated by a systematic underestimation
of variance of the underlying risk factors they faced. Experts built several
scale models to simulate the potential outcomes of a landslide into the
reservoir behind the Vajont dam wall. However, these models did not
consider the cumulative effect that a large mass might have if it slid at very
high speed, which turned out to be the eventual outcome (Marco, 2012, p. 145-
46).

28
In line with Proposition 9, we find that at the organizational level such
psychological biases appear not to be readily attenuated. For example, we
analyzed whether cost estimates of big dams have become more accurate
over time. The idea being that even if psychological causes led to errors in
earlier projects, organizational factors would intervene over time to
attenuate psychological biases. In contrast, our statistical analysis suggested
that irrespective of the year or decade in which a dam was built there are no
significant differences in forecasting errors (F = 0.57, p = 0.78). Similarly, we
did not observe a trend indicating improvement or deterioration of
forecasting errors (F = 0.54, p = 0.46) as also suggested by
Figure 9. Organizations appear to not be learning from past mistakes. Why
organizations fail to attenuate adverse outcomes of psychological biases
continues to be a lively area of future research (see Durand, 2003; Makadok,
2011).

Figure 9: Inaccuracy Of Cost Estimates (Local Currencies, Constant Prices)

For Large Dams Over Time (N=245), 1934-2007

Mean

29
 SUMMARY AND CONCLUSIONS
Megaprojects, in the private and public sectors alike, are more ubiquitous and
bigger than ever before. These big capital investments are justified on the
basis of theories of big that underpin two aspirations: An aspiration to
efficiency from purported economies of size or scope; and an aspiration to
scalability from building capacity ahead of demand. We found that big
investments have a poor track record in delivering on either aspiration.
Contrary to the conventional proposition of bigger is better, we found big
capital investments to have a propensity to fragilityvulnerability of the
investments to become unrecoverable due to the impact of random events(s).

Our theoretical argument can be summarized as follows: the emphasis of

theories of big on efficiency and building capacity ahead of demand
encourages managers to take definitive, static bets on big ventures
(Klingebiel &Adner, 2015, p. 222). What theories of big fail to incorporate in
their logic is that oversizing a system increases its complexity
disproportionately due to the greater number of permutations of interactions
now possible among more sub-components, and this leads to fragility. Small
errors in one or a few interactions of the bigger system magnify. All of this
exerts a financial toll: propensity to cost overruns at construction;
unexpectedly large bills in fixing new vulnerabilities when they become
apparent as the system ages; and huge clean-up costs if the system has to be
decommissioned or if it collapses. Despite their Goliath appearance, big
capital investments break easilyi.e. deliver negative net present value--
when faced with disturbances. A greater propensity to fragility is intrinsic to
big investments.

We further argue that conventional theory has conflated big with scalability.
Big entails being bespoke and complex with multiple attributes such as large
upfront financial outlays, durable temporal horizons, spatial immobility, and
ability to produce large units of outputs. In contrast, scalability is best
understood by considering the difference between a live musical performance
and a digital recording of the same music. The live concert is only available at
the prescribed place (spatial), at the prescribed time (temporal), and to a
limited audience (relational). Anyone can enjoy the digital recording,
anywhere, anytime. The live concert does not scale. The recording is scalable.
Fragility arises when big is forced into doing what was best left to the scalable.

We substantiate our argument using evidence from a dataset of 245 big dams
with a total value of $353bn (2010 prices) built 1934 to 2007 on five continents
in 65 different countries. Our primary findings are:
Nearly half the dams we studied suffered a cost overrun so large for the
projects to be considered broken even before they began operations. That
is, the capital sunk up front could not be recovered. Fragility at such an

30
 early stage of an investments life cycle can be likened to an investment
stillbirth.
Cost risks for big dam have fat tails the actual costs more than doubles
for 2 out of 10 dams; triples for 1 out of every 10 big dams.
Managers do not seem to learn. Forecasts today are likely to be as wrong
as they were between 1934-2007.
Costs aside, big dams take a very long time to build, on average 8 years,
which is a late coming to solve pressing energy and water needs.
Investment fragility risk increases as the life of a big dam progresses due
to cumulative processessuch as material fatigue and threat of
catastrophic failurewhich trigger need for costly rehabilitation in
perpetuity.
Costs of maintaining or removing big dams past their intended service
lives is a looming financial liability.
The companies or countries that undertake big investments inherit their
fragility. For example, the outsized costs of big dams and similar
megaprojects have caused an explosive growth of debt in developing
countries hamstringing their economic potential. Developing countries,
despite seemingly the most in need of complex facilities such as big dams,
ought to stay away from projects that are big relative to the national
economy.

Ought decision-makers abandon all big ventures? Of course not. But decision-
makers must carefully assess when bigger is better, instead of unthinkingly
assume this is the case. Evidence suggests that on a risk-adjusted basis more
often than is assumed big ventures are unlikely to present good value. Top
decision-makers responsible for giving the final green light to a big capital
investment ought to remain skeptical of the numbers presented to them at
appraisal. Decision-makers should also seek to de-bias estimates of time to
task completion, costs, and benefits by demanding more extreme stress tests,
reflecting the full variance of phenomena, to determine the fragility threshold
of the investment they are about to undertake. We would also advise against
making big capital investments decisions on razor-thin margins. Big
investments need far more cushioning to avoid fragility than current
management practice tends to assume.

If big is fragile, whats the alternative? We do not have the space here to
answer this question. Elsewhere, we study managers who work by the
heuristic, "If big is fragile, then break it down," to deliver their projects
successfully, and we study theories that support this approach, such as
theories of modularization (Baldwin & Clark, 2000; Schilling & Steensma,
2001; Garud et al., 2003; Levinson, 2006); real options in product innovation
(Klingebiel & Adner 2015), and greater user-producer co-development
(Grabher et al., 2008, Ansar, 2012). We hope to report from this work later. For
now, we conclude that prior to committing to a big venture, managers should
rigorously consider possible alternatives. Scholars should similarly carefully
re-evaluate theories of big. Our data indicate that the current tendency to

31
 accept theories of big at face value and lock in early in capital project decision
making to a big favorite solution, often erring towards the monumental,
drives fragility and therefore incurs a high risk of failure.

REFERENCES
Alchin, L. (2013). The Secret History of Nursery Rhymes. United Kingdom: Nielsen.
Anderson, P. W. (1972). More Is Different. Science, 177(4047), 393396.
Anderson, P. W. (2011). More And Different: Notes from a Thoughtful Curmudgeon (1 edition). Hackensack,
NJ: World Scientific Publishing Company.
Ansar, A. (2010). New Departures in Infrastructure Provision: an Ongoing Evolution Away from Physical
Assets to User Needs (DPhil). Oxford University, Oxford.
Ansar, A. (2012). Location Decisions of Large Firms: Analyzing the Procurement of Infrastructure Services.
Journal of Economic Geography. http://doi.org/10.1093/jeg/lbs042
Atif Ansar. (2015). Transformational Leadership In The Public Sector. Lecture Delivered at the Major
Projects Leadership Academy (MPLA). University of Oxford.
Ansar, A., Caldecott, B., & Tillbury, J. (2013). Stranded Assets and the Fossil Fuel Divestment Campaign:
What Does Divestment Mean for the Valuation of Stranded Assets. Oxford: University of Oxford.
Ansar, A., Flyvbjerg, B., & Budzier, A. (2013). The Time Bomb: Why Even the Best Companies Bet the Shop
Without Knowing It. Unpublished Working Paper, University of Oxford.
Ansar, A., Flyvbjerg, B., Budzier, A., & Lunn, D. (2014). Should We Build More Dams? the Actual Costs of
Mega-Dam Development. Energy Policy, 69, 4356.
Ansar, A., & Pohlers, M. (2014). Fluid Populations, Immobile Assets: Synchronizing Infrastructure
Investments with Shifting Demography. International Area Studies Review, 17(2), 222248.
Atkinson, M. M. (2011). Lindbloms lament: Incrementalism and the persistent pull of the status quo. Policy
and Society, 30(1), 918. http://doi.org/10.1016/j.polsoc.2010.12.002
Atkinson, R. (1999). Project Management: Cost, Time and Quality, Two Best Guesses and a Phenomenon,
Its Time to Accept Other Success Criteria. International Journal of Project Management, 17(6), 337
342.
Baldwin, C., & Clark, K. (2000). Design Rules: The Power of Modularity. Cambridge, MA: The MIT Press.
Barabasi, A. (2003). Linked: How Everything Is Connected to Everything Else and What It Means for
Business, Science, and Everyday Life. New York City, NY: Basic Books.
Bendor, J. (2015). Incrementalism: Dead yet Flourishing. Public Administration Review, 75(2), 194205.
http://doi.org/10.1111/puar.12333
Benjamin, W. (2008). The Work of Art in the Age of Mechanical Reproduction. (J. A. Underwood, Trans.).
London: Penguin.
Bhid, A. (2008). The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected
World. Princeton: Princeton University Press.
Bliuc D, Nguyen ND, Milch VE, Nguyen TV, Eisman JA, & Center JR. (2009). Mortality Risk Associated
with Low-Trauma Osteoporotic Fracture and Subsequent Fracture in Men and Women. JAMA, 301(5),
513521. http://doi.org/10.1001/jama.2009.50
Brennen, C. E. (1995). Cavitation and Bubble Dynamics. Cambridge: Cambridge University Press. Retrieved
from
https://books.google.com/books?hl=en&lr=&id=yRhaAQAAQBAJ&oi=fnd&pg=PR11&dq=CAVITA
TION+AND+BUBBLE+DYNAMICS&ots=O6sQAMkef0&sig=hwe_4-Q0_lPifyW4Z6yBGtWBTDs
Brooks, F. P. (1995). The Mythical Man-month: Essays on Software Engineering (2 edition). Reading, Mass:
Addison Wesley.
Buldyrev, S. V., Parshani, R., Paul, G., Stanley, H. E., & Havlin, S. (2010). Catastrophic Cascade of Failures
in Interdependent Networks. Nature, 464(7291), 10251028. http://doi.org/10.1038/nature08932
Callaway, D. S., Newman, M. E., Strogatz, S. H., & Watts, D. J. (2000). Network Robustness and Fragility:
Percolation on Random Graphs. Physical Review Letters, 85(25), 5468.
Calomiris, C. W., & Haber, S. H. (2014). Fragile by Design: The Political Origins of Banking Crises and
Scarce Credit: The Political Origins of Banking Crises and Scarce Credit. Princeton, NJ: Princeton
University Press.
Cavallo, L., & Rossi, S. P. (2001). Scale and Scope Economies in the European Banking Systems. Journal of
Multinational Financial Management, 11(4), 515531.

32
Chandler, A. D. (1990). Scale and Scope: Dynamics of Industrial Capitalism (New Ed edition). Cambridge,
MA: Harvard University Press.
Choi, E., DesRoches, R., & Nielson, B. (2004). Seismic Fragility of Typical Bridges in Moderate Seismic
Zones. Engineering Structures, 26(2), 187199.
Clark, G. L., & Wrigley, N. (1995). Sunk Costs: A Framework for Economic Geography. Transactions of the
Institute of British Geographers, 20(2), 204223.
Clark, G. L., & Wrigley, N. (1997a). Exit, the Firm and Sunk Costs: Reconceptualizing the Corporate
Geography of Disinvestment and Plant Closure. Progress in Human Geography, 21(3), 338.
Clark, G. L., & Wrigley, N. (1997b). The Spatial Configuration of the Firm and the Management of Sunk
Costs. Economic Geography, 73(3), 285304.
Clauset, A., Shalizi, C. R., & Newman, M. E. (2009). Power-Law Distributions in Empirical Data. SIAM
Review, 51(4), 661703.
CNN. (1999, September 30). NASAs Metric Confusion Caused Mars Orbiter Loss. Retrieved May 5, 2015,
from http://edition.cnn.com/TECH/space/9909/30/mars.metric/
Connolly, W. E. (2013). The Fragility of Things: Self-Organizing Processes, Neoliberal Fantasies, and
Democratic Activism. Durham, NC: Duke University Press.
Copeland, T., & Tufano, P. (2004). A Real-World Way to Manage Real Options. Harvard Business Review,
82(3), 9099.
Crompton, P., & Lesourd, J.-B. (2008). Economies of Scale in Global Iron-Making. Resources Policy, 33(2),
7482. http://doi.org/10.1016/j.resourpol.2007.10.005
Cullinane, K., & Khanna, M. (2000). Economies of Scale in Large Containerships: Optimal Size and
Geographical Implications. Journal of Transport Geography, 8(3), 181195.
http://doi.org/10.1016/S0966-6923(00)00010-7
Dash, E., & Creswell, J. (2008). Citigroup Saw No Red Flags Even as It Made Bolder Bets. The New York
Times, 23, A1.
Davis, E. P. (1995). Debt, Financial Fragility, and Systemic Risk (New Ed edition). Oxford, UK: Clarendon
Press.
Dorcey, T., Steiner, A., Acreman, M., & Orlando, B. (1997). Large Dams: Learning from the Past Looking
at the Future - Workshop Proceedings, Gland, Switzerland, April 11-12, 1997 (No. 17875) (pp. 1156).
The World Bank. Retrieved from http://documents.worldbank.org/curated/en/1997/07/440782/large-
dams-learning-past-looking-future-workshop-proceedings-gland-switzerland-april-11-12-1997
Durand, R. (2003). Predicting a Firms Forecasting Ability: The Roles of Organizational Illusion of Control
and Organizational Attention. Strategic Management Journal, 24(9), 821838.
Easterly, W. R. (2002). The Elusive Quest for Growth: Economists Adventures and Misadventures in the
Tropics. Cambridge, MA: The MIT Press.
Easterly, W. R. (2006). The Big Push Dj Vu: A Review of Jeffrey Sachss the End of Poverty: Economic
Possibilities for Our Time. Journal of Economic Literature, 44(1), 96105.
Electrobras. (n.d.). Eletronorte - Tucuru. Retrieved May 8, 2015, from
http://www.eln.gov.br/opencms/opencms/pilares/geracao/estados/tucurui/
E. Philip Davis-Debt, financial fragility, and systemic risk-Oxford University Press, USA (1995).pdf. (n.d.).
Ernst & Young. (n.d.). Spotlight on Oil and Gas Megaprojects. Retrieved August 10, 2015, from
http://www.ey.com/GL/en/Industries/Oil---Gas/EY-spotlight-on-oil-and-gas-megaprojects-
infographic#.VchjHTBVhBd
Flyvbjerg, B. (1998). Rationality and Power: Democracy in Practice. Chicago, IL: University of Chicago
Press.
Flyvbjerg, B. (2009). Survival of the Unfittest: Why the Worst Infrastructure Gets Built--and What We Can
Do About It. Oxford Review of Economic Policy, 25(3), 344367.
Flyvbjerg, B. (2012). Why Mass Media Matter and How to Work with Them: Phronesis and Megaprojects.
In B. Flyvbjerg, T. Landman, & S. Schram (Eds.), Real Social Science: Applied Phronesis (pp. 95
121). Cambridge: Cambridge University Press. Retrieved from
http://papers.ssrn.com/abstract=2278219
Flyvbjerg, B. (2014). What You Should Know About Megaprojects and Why: An Overview. Project
Management Journal, 45(2), 619. http://doi.org/10.1002/pmj.21409
Flyvbjerg, B., Bruzelius, N., & Rothengatter, W. (2003). Megaprojects and Risk: An Anatomy of Ambition.
Cambridge: Cambridge University Press.
Flyvbjerg, B., & Budzier, A. (2011). Why Your IT Project May Be Riskier Than You Think. Harvard
Business Review. Retrieved from http://hbr.org/2011/09/why-your-it-project-may-be-riskier-than-you-
think/ar
Flyvbjerg, B., Garbuio, M., & Lovallo, D. (2009). Delusion and Deception in Large Infrastructure Projects.
California Management Review, 51(2), 170193.

33
Flyvbjerg, B., Holm, M., & Buhl, S. (2002). Underestimating Costs in Public Works Projects: Error or Lie?
Journal of the American Planning Association, 68(3), 279295.
Flyvbjerg, B., Holm, M., & Buhl, S. (2005). How (In) Accurate Are Demand Forecasts in Public Works
Projects? Journal of the American Planning Association, 71(2), 131146.
Flyvbjerg, B., Holm, M. K. S., & Buhl, S. L. (2005). How (In)Accurate Are Demand Forecasts in Public
Works Projects?: The Case of Transportation. Journal of the American Planning Association, 71(2),
131146.
Flyvbjerg, B., Landman, T., & Schram, S. (Eds.). (2012). Real Social Science: Applied Phronesis.
Cambridge: Cambridge University Press.
Foreman, R. D., & Beauvais, E. (1999). Scale Economies In Cellular Telephony: Size Matters. Journal of
Regulatory Economics, 16(3), 297306.
Gao, J., Buldyrev, S. V., Stanley, H. E., & Havlin, S. (2012). Networks Formed from Interdependent
Networks. Nature Physics, 8(1), 4048.
Garud, R., Kumaraswamy, A., & Langlois, R. N. (2003). Managing in the Modular Age: Architectures,
Networks, and Organizations. Oxford: Blackwell Publishers.
Ghemawat, P. (1991). Commitment: Dynamic of Strategy (2nd Edition.). New York, NY: The Free Press.
Ghemawat, P., & Del Sol, P. (1998). Commitment Versus Flexibility? California Management Review,
40(4), 26.
Goldstein, D., & Taleb, N. (2007). We Dont Quite Know What We Are Talking About When We Talk
About Volatility. Journal of Portfolio Management, 33(4). Retrieved from
http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=970480
Grabher, G., Ibert, O., & Flohr, S. (2008). The Neglected King: The Customer in the New Knowledge
Ecology of Innovation. Economic Geography, 84(3), 253280.
Gunther, N. (2007). Guerrilla Capacity Planning: A Tactical Approach to Planning for Highly Scalable
Applications and Services. Berlin: Springer. Retrieved from http://link.springer.com/10.1007/978-3-
540-31010-5
Hayes, R. H., & Garvin, D. A. (1982). Managing as if tomorrow mattered. Harvard Business Review, 60(3),
7079.
Hayes, R. H., & Wheelwright, S. C. (1979a, February 1). Link Manufacturing Process and Product Life
Cycles. Harvard Business Review, 57(1), 133140.
Hayes, R. H., & Wheelwright, S. G. (1979b, April 3). The Dynamics of Process-Product Life Cycles.
Harvard Business Review, 57(2), 127136.
Heifetz, R., Grashow, A., & Linsky, M. (2009). The Practice of Adaptive Leadership. Boston, MA: Harvard
Business Press. Retrieved from
http://www.leadersthatlast.org/pdfs/the_practice_of_adaptive_leadership_review.pdf
Hill, L., & Stecker, E. A. (2010). Systems Infrastructure at Google (A) (HBS Case #9-410-110). Cambridge,
MA: Harvard Business School.
Hill, M. D. (1990). What Is Scalability? ACM SIGARCH Computer Architecture News, 18(4), 1821.
Hodgkinson, G. P., & Starbuck, W. H. (2012). The Oxford Handbook of Organizational Decision Making
(Reprint edition). Oxford: Oxford University Press.
Issacharoff, S. (2007). Fragile Democracies. Harvard Law Review, 120(6), 14051467.
Kahneman, D. (1994). New Challenges to the Rationality Assumption. Journal of Institutional and
Theoretical Economics, 150, 1836.
Kahneman, D. (2011). Thinking, Fast and Slow (1st ed.). New York, NY: Farrar, Straus and Giroux.
Kahneman, D., & Riepe, M. W. (1998). Aspects of Investor Psychology. The Journal of Portfolio
Management, 24(4), 5265. http://doi.org/10.3905/jpm.1998.409643
Kahneman, D., & Tversky, A. (1979). Intuitive Prediction: Biases and Corrective Procedures. In S.
Makridakis & S. C. Wheelwright (Eds.), A Discounting Framework for Choice With Delayed and
Probabilistic Rewards. Amsterdam: North Holland.
Keil, M., & Montealegre, R. (2000). Cutting Your Losses: Extricating Your Organization When a Big Project
Goes Awry. Sloan Management Review, 41(3). Retrieved from
http://sloanreview.mit.edu/article/cutting-your-losses-extricating-your-organization-when-a-big-
project-goes-awry/
Kerzner, H. (2009). Project Management Case Studies. New York, NY: John Wiley & Sons.
Kilburn, C. R., & Petley, D. N. (2003). Forecasting giant, catastrophic slope collapse: lessons from Vajont,
Northern Italy. Geomorphology, 54(1), 2132.
Klemkosky, R. C. (2013). Financial System Fragility. Business Horizons, 56(6), 675683.
http://doi.org/10.1016/j.bushor.2013.07.005

34
Klingebiel, R., & Adner, R. (2015). Real Options Logic Revisited: The Performance Effects of Alternative
Resource Allocation Regimes. Academy of Management Journal, 58(1), 221241.
http://doi.org/10.5465/amj.2012.0703
Kwoka, J. E. (2002). Vertical Economies in Electric Power: Evidence on Integration and Its Alternatives.
International Journal of Industrial Organization, 20(5), 653671.
Lambrecht, B. M. (2004). The Timing and Terms of Mergers Motivated by Economies of Scale. Journal of
Financial Economics, 72(1), 4162.
La Rovere, E. L., & Mendes, F. E. (2000). Tucuru Hydropower Complex, Brazil. Cape Town: World
Commission on Dams.
Lavigne, P. M. (2005). Dam(n) how times have changed... William & Mary Environmental Law and Policy
Review, 29, 451.
Levinson, M. (2006). The Box: How the Shipping Container Made the World Smaller and the World
Economy Bigger. Princeton, N.J.: Princeton University Press.
Levy, S. (2012, October 17). Google Throws Open Doors to Its Top-Secret Data Center. Retrieved August
14, 2015, from http://www.wired.com/2012/10/ff-inside-google-data-center/
Lindblom, C. E. (1959). The Science of Muddling Through. Public Administration Review, 7988.
Lindblom, C. E. (1979). Still Muddling, Not Yet Through. Public Administration Review, 39(6), 517526.
http://doi.org/10.2307/976178
Liu, J., Dietz, T., Carpenter, S. R., Alberti, M., Folke, C., Moran, E., others. (2007). Complexity of
Coupled Human and Natural Systems. Science, 317(5844), 15131516.
Luino, F., & De Graff, J. V. (2012). The Stava Mudflow of 19 July 1985 (Northern Italy): A Disaster That
Effective Regulation Might Have Prevented. Nat. Hazards Earth Syst. Sci., 12(4), 10291044.
http://doi.org/10.5194/nhess-12-1029-2012
Majumdar, S. K., & Venkataraman, S. (1998). Network Effects and the Adoption of New Technology:
Evidence from the U. S. Telecommunications Industry. Strategic Management Journal, 19(11), 1045
1062.
Makadok, R. (2011). Invited Editorial: The Four Theories of Profit and Their Joint Effects. Journal of
Management, 37(5), 13161334. http://doi.org/10.1177/0149206310385697
Mandelbrot, B. B. (1967). How Long Is the Coast of Britain. Science, 156(3775), 636638.
Mandelbrot, B. B., & Hudson, R. L. (2008). The (Mis)Behaviour of Markets: A Fractal View of Risk, Ruin
and Reward. London: Profile Books.
Marco, D. R. (2012). Decision Making Errors and Socio-Political Disputes Over the Vajont Dam Disaster.
Disaster Advances, 5(3), 144152.
Martha C. Nussbaum-The Fragility of Goodness_ Luck and Ethics in Greek Tragedy and Philosophy -
Cambridge University Press (2001).pdf. (n.d.).
Martinez-Garcia, J. C., Rzoska, S. J., Drozd-Rzoska, A., Starzonek, S., & Mauro, J. C. (2015). Fragility and
Basic Process Energies in Vitrifying Systems. Scientific Reports, 5. http://doi.org/10.1038/srep08314
Mauro, N. A., Blodgett, M., Johnson, M. L., Vogt, A. J., & Kelton, K. F. (2014). A Structural Signature of
Liquid Fragility. Nature Communications, 5. http://doi.org/10.1038/ncomms5616
McCully, P. (2001). Silenced Rivers: The Ecology and Politics of Large Dams. London: Zed Books.
McCurdy, H. E. (2001). Faster, Better, Cheaper: Low-Cost Innovation in the U.S. Space Program.
Baltimore, MD: Johns Hopkins University Press.
McNamara, G., Moon, H., & Bromiley, P. (2002). Banking on Commitment: Intended and Unintended
Consequences of an Organizations Attempt to Attenuate Escalation of Commitment. The Academy of
Management Journal, 45(2), 443452. http://doi.org/10.2307/3069358
Measuring fragility: Indicators and methods for rating state performance | Land Potential. (n.d.). Retrieved
from http://landpotential.org/node/238
MeasuringStateFragilityUSAID.pdf. (n.d.).
Milbourn, T. T., Boot, A. W. A., & Thakor, A. V. (1999). Megamergers and Expanded Scope: Theories of
Bank Size and Activity Diversity. Journal of Banking & Finance, 23(2-4), 195214.
http://doi.org/10.1016/S0378-4266(98)00079-X
Mill, J. S. (1848). The Principles of Political Economy: With Some of Their Applications to Social
Philosophy. London: John W. Parker.
Mitchell, J. (1999). The Fragility of Freedom: Tocqueville on Religion, Democracy, and the American
Future. Chicago, IL: University Of Chicago Press.
Moggridge, B. (2007). Designing Interactions. Cambridge, MA: MIT Press.
Morris, R. G., & Barthelemy, M. (2013). Interdependent Networks: The Fragility of Control. Scientific
Reports, 3. http://doi.org/10.1038/srep02764
Mosca, M. (2008). On the Origins of the Concept of Natural Monopoly: Economies of Scale and
Competition. The European Journal of the History of Economic Thought, 15(2), 317353.

35
Motte, A. (1934). Sir Isaac Newtons Mathematical Principles of Natural Philosophy; and, His System of the
World. Cambridge: Cambridge University Press.
National Audit Office. (2014). Lessons from Major Rail Infrastructure Programmes (No. HC: 267, 14-15) (p.
40). London: National Audit Office. Retrieved from http://naodigitalchannels.polldaddy.com/s/site-
feedback?st=1&iframe=1
Newman, M., Barabsi, A.-L., & Watts, D. J. (2006). The Structure and Dynamics of Networks: Princeton,
NJ: Princeton University Press.
Niezen, C., & Weller, W. (2006). Procurement as Strategy. Harvard Business Review, 84(9), 2425.
Nilsson, C., & Grelsson, G. (1995). The Fragility of Ecosystems: A Review. Journal of Applied Ecology,
32(4), 677692. http://doi.org/10.2307/2404808
Nilsson, C., Reidy, C. A., Dynesius, M., & Revenga, C. (2005). Fragmentation and Flow Regulation of the
Worlds Large River Systems. Science, 308(5720), 405408.
Nussbaum, M. C. (2001). The Fragility of Goodness: Luck and Ethics in Greek Tragedy and Philosophy (2
edition). Cambridge: Cambridge University Press.
Nutt, P. C. (1999). Surprising but True: Half the Decisions in Organizations Fail. The Academy of
Management Executive (1993-2005), 13(4), 7590. http://doi.org/10.2307/4165588
Nutt, P. C. (2002). Why Decisions Fail: Avoiding the Blunders and Traps That Lead to Debacles. Oakland,
CA: Berrett-Koehler Publishers. Retrieved from
http://books.google.com/books?hl=en&lr=&id=GTUN6V5rppQC&oi=fnd&pg=PR9&dq=Why+Decisi
ons+Fail:+The+Blunders+and+Traps+that+Lead+to+Decision+Debacles&ots=hiPK-
TPUn9&sig=UQT-l4SH5asBh3CZsy05lhBO9Xw
Offer, A. (2003). Why Has the Public Sector Grown so Large in Market Societies? Oxford: Oxford
University Press.
Offer, A. (2006). The Challenge of Affluence: Self-Control and Well-Being in the United States and Britain
Since 1950. Oxford University Press.
Opie, I. A., & Opie, P. (1997). The Oxford Dictionary of Nursery Rhymes. Oxford: University Press Oxford.
Parshani, R., Buldyrev, S. V., & Havlin, S. (2011). Critical Effect of Dependency Groups on the Function of
Networks. Proceedings of the National Academy of Sciences, 108(3), 10071010.
http://doi.org/10.1073/pnas.1008404108
Penrose, E. (2009). The Theory of the Growth of the Firm (4th ed.). Oxford: Oxford University Press.
Petley, D. N. (2008, December 11). The Vaiont (Vajont) Landslide of 1963. Retrieved from
http://www.landslideblog.org/2008/12/vaiont-vajont-landslide-of-1963.html
Pettigrew, A. M. (1990). Longitudinal Field Research on Change: Theory and Practice. Organization
Science, 1(3), 267292. http://doi.org/10.1287/orsc.1.3.267
Porter, M. E. (1980). Competitive strategy: techniques for analyzing industries and competitors. New York:
Free Press.
Priemus, H., Flyvbjerg, B., & van Wee, B. (Eds.). (2008). Decision-Making on Mega-Projects: Cost-Benefit
Analysis, Planning and Innovation. Cheltenham, UK: Edward Elgar.
Qiu, J. (2011). China admits problems with Three Gorges Dam. Nature News.
http://doi.org/10.1038/news.2011.315
Quinn, J. B. (1978). Strategic Change: Logical Incrementalism.. Sloan Management Review, 20(1), 719.
Reichhardt, T. (1999). NASA reworks its sums after Mars fiasco. Nature, 401(6753), 517517.
http://doi.org/10.1038/43974
Royer, I. (2003). Why Bad Projects Are So Hard to Kill. Harvard Business Review, 81(2), 4856.
Sachs, J. D. (2006). The End of Poverty: Economic Possibilities for Our Time. New York: Penguin.
Samuelson, P. A. (1948). Economics. New York: McGraw-Hill.
Schumacher, E. F. (1973). Small Is Beautiful: A Study of Economics as if People Mattered (New edition).
London: Vintage.
Scopigno, T., Ruocco, G., Sette, F., & Monaco, G. (2003). Is the Fragility of a Liquid Embedded in the
Properties of Its Glass? Science, 302(5646), 849852. http://doi.org/10.1126/science.1089446
Scudder, T. (1973). The Human Ecology of Big Projects: River Basin Development and Resettlement.
Annual Review of Anthropology, 2, 4555.
Semenza, E., & Ghirotti, M. (2000). History of the 1963 Vaiont slide: the importance of geological factors.
Bulletin of Engineering Geology and the Environment, 59(2), 8797.
http://doi.org/10.1007/s100640000067
Seref-Ferlengez, Z., Kennedy, O. D., & Schaffler, M. B. (2015). Bone Microdamage, Remodeling and Bone
Fragility: How Much Damage Is Too Much Damage? BoneKEy Reports, 4.
http://doi.org/10.1038/bonekey.2015.11
Shinozuka, M., Feng, M. Q., Lee, J., & Naganuma, T. (2000). Statistical Analysis of Fragility Curves.
Journal of Engineering Mechanics, 126(12), 12241231.

36
Sidak, J. G., & Spulber, D. F. (1997). Deregulatory Takings and the Regulatory Contract: The Competitive
Transformation of Network Industries in the United States. Cambridge: Cambridge University Press.
Silberston, A. (1972). Economies of Scale in Theory and Practice. The Economic Journal, 82(325), 369391.
http://doi.org/10.2307/2229943
Simon, H. A. (1962). The Architecture of Complexity. Proceedings of the American Philosophical Society,
106(6), 467482.
Snapshot. (n.d.). Retrieved from http://www.sciencedirect.com/science/article/pii/S0141029603002177
Sole, R. V., & Montoya, M. (2001). Complexity and Fragility in Ecological Networks. Proceedings of the
Royal Society of London B: Biological Sciences, 268(1480), 20392045.
Sorkin, A. R. (2010). Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save
the FinancialSystemand Themselves. London: Penguin.
Souder, D., & Shaver, J. M. (2010). Constraints and Incentives for Making Long Horizon Corporate
Investments. Strategic Management Journal, 31(12), 13161336. http://doi.org/10.1002/smj.862
Starr, S. (2013). Costs and Consequences of the Fukushima Daiichi Disaster. Retrieved from
http://www.psr.org/environment-and-health/environmental-health-policy-institute/responses/costs-and-
consequences-of-fukushima.html#_edn4
Stigler, G. J. (1958). The Economies of Scale. Journal of Law & Economics, 1, 54.
Stone, R. (2008). Three Gorges Dam: Into the Unknown. Science, 321(5889), 628 632.
http://doi.org/10.1126/science.321.5889.628
Stone, R. (2011). The Legacy of the Three Gorges Dam. Science, 333(6044), 817.
http://doi.org/10.1126/science.333.6044.817
Sullivan, G. (1998). Hope is Not a Method. New York: Broadway Books.
Sutton, Robert I. and Huggy Rao, 2014, Scaling Up Excellence: Getting to More Without Settling for
Less (New York and London: Random House).
Taleb, N. N. (2010). The Black Swan: The Impact of the Highly Improbable with a new section: On
Robustness and Fragility (2nd ed.). Random House Trade Paperbacks.
Taleb, N. N. (2012). Antifragile: Things That Gain from Disorder. London: Allen Lane.
Taleb, N. N., Canetti, E. R., Kinda, T., Loukoianova, E., & Schmieder, C. (2012). A New Heuristic Measure
of Fragility and Tail Risks: Application to Stress Testing (No. WP/12/216). Washington D.C.:
International Monetary Fund. Retrieved from
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2156095
Taleb, N. N., & Douady, R. (2012). A Map and Simple Heuristic to Detect Fragility, Antifragility, and Model
Error, 121.
Taleb, N. N., & Douady, R. (2013). Mathematical Definition, Mapping, and Detection of (anti)fragility.
Quantitative Finance, 13(11), 16771689. http://doi.org/10.1080/14697688.2013.800219
Titman, S., Wei, K. C. J., & Xie, F. (2004). Capital Investments and Stock Returns. The Journal of Financial
and Quantitative Analysis, 39(4), 677700. http://doi.org/10.2307/30031881
Turner, B. A., & Pidgeon, N. F. (1997). Man-made disasters. Butterworth-Heinemann.
USAID. (2005). Measuring Fragility: Indicators and Methods for Rating State Performance.
U.S. Department of Energy. (2009). Center for Energy, Environmental, and Economic Systems Analysis
(CEEESA). Retrieved September 13, 2009, from
http://www.dis.anl.gov/projects/PowerAnalysisTools.html
Van Oorschot, K. E., Akkermans, H., Sengupta, K., & Van Wassenhove, L. N. (2013). Anatomy of a
Decision Trap in Complex New Product Development Projects. Academy of Management Journal,
56(1), 285307. http://doi.org/10.5465/amj.2010.0742
Vespignani, A. (2010). Complex Networks: The Fragility of Interdependency. Nature, 464(7291), 984985.
Weinstock, C. B., & Goodenough, J. B. (2006). On System Scalability. DTIC Document. Retrieved from
http://oai.dtic.mil/oai/oai?verb=getRecord&metadataPrefix=html&identifier=ADA457003
Wernerfelt, B., & Karnani, A. (1987). Competitive strategy under uncertainty. Strategic Management
Journal, 8(2), 187194. http://doi.org/10.1002/smj.4250080209
Wiens, J. A. (1989). Spatial Scaling in Ecology. Functional Ecology, 3(4), 385397.
http://doi.org/10.2307/2389612
Williams, T. (2005). Assessing and Moving on from the Dominant Project Management Discourse in the
Light of Project Overruns. IEEE Transactions on Engineering Management, 52(4), 497508.
http://doi.org/10.1109/TEM.2005.856572
World Bank. (1956). Appraisal of the Kariba Hydroelectric Project in the Federation of Rhodesia and
Nyasaland (No. T.O. 116-a). Washington, DC: The World Bank.
World Bank. (1967). Study of the Water and Power Resources of West Pakistan (No. UNN42 Vol. 1).
Washington, DC: The World Bank.

37
World Bank. (1968). Report and Recommendation of the President to the Executive Directors on a Proposed
Loan for the Tarbela Project and on Proposed Extension of Closing Dates of Loan 266-Pak (Indus
Basin Project), Pakistan (No. P-616). Washington, DC: The World Bank.
World Bank. (1981). Staff Appraisal Report. Colombia Guavio Hydro Power Project (No. 3408-CO).
Washington, DC: The World Bank.
World Bank. (1983). Project Performance Audit Report. Zambia: Kariba North Hydroelectric Project (Loan
701-ZA) (No. 4661). Washington, DC: The World Bank.

World Bank. (1985). Project Performance Audit Report. Nigeria: Fourth Power Project (Loan 847-UNI)
(No. 5936). Washington, DC: The World Bank.
World Bank. (1986). Project Completion Report. Pakistan Tarbela Dam Project (Loan 548-PAK, and
Credits 581- and 771-PAK) (No. 6398). Washington, DC: The World Bank.
World Bank. (1996a). Implementation Completion Report. Colombia Guavio Hydro Power Report (Loan
2008-CO) (No. 15691). Washington, DC: The World Bank.
World Bank. (1996b). Performance Audit Report Argentina Yacyreta Hydroelectric Project (Loan 1761-AR)
Electric Power Sector Project (Loan 2998-AR) (No. 15801). Washington, DC: The World Bank.
World Bank. (2001). Implementation Completion Report (CPL-35200; SCL-3520A; SCPD-3520S) on a Loan
in the Amount of 300 US$ Million to the Republic of Argentina for the Yacyreta Hydroelectric Project
II (No. 22489). Washington, DC: The World Bank.
World Bank. (2014). Environmental and Social Impact Assessment: Terms of Reference (No. E4648) (pp. 1
29). The World Bank. Retrieved from
http://documents.worldbank.org/curated/en/2014/09/20248277/zambia-kariba-dam-rehabilitation-
project-environmental-assessment-environmental-social-impact-assessment-terms-reference
World Commission on Dams (WCD). (2000a). Cross-Check Survey: Final Report. Cape Town, South
Africa. Retrieved from www.dams.org
World Commission on Dams (WCD). (2000b). Kariba Dam Zambia and Zimbabwe--WCD Case Study.
Wu, J., & David, J. (2002). A Spatially Explicit Hierarchical Approach to Modeling Complex Ecological
Systems: Theory and Applications. Ecological Modelling, 153(1-2), 726.
Ziaja_2012_What_do_fragility_indices_measure_--_manuscript.pdf. (n.d.).
Ziaja, S. (2012). What Do Fragility Indices Measure? Zeitschrift Fr Vergleichende Politikwissenschaft, 6(1),
3964. http://doi.org/10.1007/s12286-012-0123-8

ENDNOTES
iFuture efforts may require drawing more careful distinctions among the members of the
disorder family (also see Goldstein & Taleb, 2007 on volatility).
iiBuldyrev et al. (2010, p. 1025) report, For an isolated single network, a significant number
of the network nodes must be randomly removed before the network breaks down. However,
when taking into account the dependencies between the networks, removal of only a small
fraction of nodes can result in the complete fragmentation of the entire system.
Not all things fit neatly in the proposed 2 X 2 matrix in Figure 1. Although it is possible to
iii

glue back together a broken antique porcelain cup to restore the function of drinking tea, it is
aesthetically displeasing. Similarly, Humpty the cannon could have been restored to its
defensive function. But that proved unachievable in the time available despite the effort of
all the kings horses and all the kings men. The temporary fragility of the cannon, however,
irreversibly spread to the Royalists forces. Thus even where a broken system is highly
recoverable three questions still remain relevant: i) What effort (e.g., cost or time) will the
recovery take? ii) What harm might occur to other things (i.e. inherited fragility) during the
down time in which the recovery takes place? iii) Will the recovery yield a functional inferior?
What this suggests is that to make a system that has a high fragility threshold and is easily
restored to its original function is incredibly difficult.
ivIn Greek mythology, when Achilles was a baby, it was foretold that he would die young. To
prevent his death, his mother Thetis took Achilles to the River Styx, which was supposed to
offer powers of invulnerability, and dipped his body into the water. But as Thetis held
Achilles by the heel, his heel was not washed over by the water of the magical river.

38
vOther academic fields such as geography and ecology have also taken a keen interest in
scale and typically use similar languagee.g., finer or coarse/broader scaleas Mandelbrot
(Wiens, 1989; Wu & David, 2002). Perhaps the noteworthy difference is that whereas
geometry tends to treat scale as a continuum, scholars in geography or ecology have
preferred to conceptualize scale as a nested hierarchical structure such as Russian dolls. For
example, a street, block, neighborhood, borough, city, province, country, region, continent,
the planet, the solar system etc. are a nested spatial structure. Although, the nested
hierarchical structure conceptualization a blunt approximation, as long as the zoomed-out
scales in a nested structure are not conflated with bigger we are not against the use of such an
approximation to aid understanding.
vi Our definition of scalability differs from the more popular conceptualizations, represented,
for example, by Weinstock and Goodenough (2006). The differences are that Weinstock and
Goodenough (2006) mainly focus on (1) First, relational scale concerns such as number of
users or user driven performance metric, whereas space and time cannot be ignored; (2)
Second, they focus almost entirely on the ability to scale up. Effortless scaling down is equally
important, particularly when previous capacity becomes obsolete and needs to be removed.
Thus it is not just important to meet increasing incremental demand but to know what to do
if the demand disappears.
Actual outturn costs (also called actual CAPEX) are defined as real, accounted construction
vii

costs determined at the time of project completion. Estimated costs are defined as budgeted,
or forecasted, construction costs at the time of decision to build. The actual outturn costs
comprise the following elements: right-of-way acquisition and resettlement; design
engineering and project management services; construction of all civil works and facilities
related to completing a dam project; equipment purchases.
Cost underrun or overrun is the actual outturn costs expressed as a ratio of estimated costs.
The year of the date of the decision to build a project is the base year of prices in which all
estimated and actual constant costs have been expressed in real (i.e. with the effects of
inflation removed) local currency terms of the country in which the project is located. Cost
overruns can also be expressed as the actual outturn costs minus estimated costs in percent of
estimated costs.
Actual implementation schedule of the project in months. The implementation start date
viii

(also known as the final decision to build) is the date of project approval by the main
financiers and the key decision makers. The implementation completion date is the date of
full commercial operation. Schedule slippage or schedule underrun or overrun is the actual
implementation months express as a ratio of the estimated implementation schedule.
ixAccording to the New York Times (22 July 1985), The Montecatini Company had built the
mine and Stava dam complex in the early 1960's. It was taken over by the Italian state energy
company, Enil, in 1979 and sold to Prealpi in 1981. Disaster struck in 1985.
xDiscussion of the Kariba case here benefited from personal communication with Jacques
Leslie.
xiAs part of its cumulative fragility, it is worth noting Kariba dams large and continuing
negative social and environmental impacts, which were poorly mitigated. Thayer Scudder
(2005, p. 1) writes, initially considered a successful project even by affected people based on
cost benefit analysis, Kariba also involved unacceptable environmental and social impacts.
The involuntary resettlement of 57,000 people within the reservoir basin and immediately
downstream from the dam was responsible for serious environmental degradation which was
one of a number of factors that left a majority of those resettled impoverished. Moreover, as
an important aside, the Phase 2 of the Kariba built 1970-1977, constituting a 600 MW
powerhouse, suffered a cost overrun 2.5 times its estimate badly damaging the overall
programs BCR (see World Ban, 1983; WCD, 2000b, pp. 12-14).

39