Euro Tunnel

Powerful Essays
Case Study:
Eurotunnel: “One of the world’s greatest engineering success stories”
Based on the case materials specifically identify the key judgemental errors made by the private parties involved with the project:

MANAGEMENT
During the period of 1987 to 2005 there are 3 changes of the Board of Directors of Eurotunnel. Most of the behavioural finance that listed below incurred during the first management period.
Overconfident
Overconfident behavioural is a well-established bias in which someone's subjective confidence in their judgments is reliably greater than their objective accuracy, especially when confidence is relatively high. Management’s overconfident seen through overestimate the chances of success and underestimate the associated risks of its decision. The management’s overconfidence reflected from following evidences: * Management overestimate the chance of project success as stated in Eurotunnel prospectus of 1987. The justification was that “Whilst the undertaking of a tunnelling project of this nature necessarily involves certain construction risks, the techniques to be used are well proven. The directors believe… that 10%... would be a reasonable allowance for the possible impact of unseen circumstances on construction costs.” In reality the tunnel project was delayed and cost double as much as estimated from £4.9bn in 1987 to £10.1bn in 1994. * The project estimated the tunnel to be opened in June 1993 but in reality it was delayed about 12 months due to construction problems and cost overruns, and finally opened in 6 May 1994. The tunnel full operation also delayed about 4/5 months due to safety regulation. * Management was underestimate their competitors hence the Eurotunnel unable to achieved its forecasted market share and revenues. * In the beginning, Eurotunnel thought that it will be the market leader soon after the tunnel operated and will gain 2/3 of market share. While the Tunnel was being built, the ferry

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