Improving Cost Estimates of Construction Projects Using.docx

Improving Cost Estimates of Construction Projects Using.docx

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ImprovingCostEstimatesofConstructionProjectsUsing

ImprovingCostEstimatesofConstructionProjectsUsing

PhasedCostFactors

LiLiu1andKaiZhu2

Abstract:

Centraltocost-basedcompetitionisthecapabilityto

accuratelypredictthecostofdeliveringaproject.Mostliteratureoncost

estimationfocusesonspecificestimationmethodsasgenerictechniquesandlittleattentionhasbeenpaidtotheuniquerequirementsateachprojectstage.Thisnoteattemptstoidentifythecriticalfactorsforeffectiveestimationatvariousstagesoftypicalconstructionprojects.Drawingfromorganizationcontroltheoryandcostestimatingliterature,thisnotedevelopsatheoreticalframeworkthatidentifiesthecriticalfactorsforeffectivecostestimationduringeachprojectphaseofaconventionalconstructionproject.Theunderlyinglogicisthatasacostestimatingeffortprogresses,bothtaskprogrammabilityandoutputmeasurabilityimprove.Asaresult,controleffortwillshiftfrominput-orientedcontroltoacombinationofoutputandbehaviorcontrol.

DOI:

10.1061（ASCE）0733-9364（2007）133:

1（91）

CEDatabasesubjectheadings:

Costcontrol;Estimation;Constructioncosts;Projectmanagement.

Introduction

Mostconstructioncontractsarefixedpricecontractswithincentives

forcostsavingandearlycompletionaswellaspenaltiesforcostoverrunanddelays.Centraltocost-basedcompetitionisthecapabilitytoaccuratelypredictthecostofdeliveringaproject.Overestimatedcostcouldresultinmisjudgmentforthefeasibilityofaprojectorlossofacontracttocompetitors.Ontheotherhand,thecontractorcouldincursignificantlossesfromunderestimatedcost.AssuccinctlystatedbyHicks（1992）,“withoutanaccuratecostestimate,nothingshortofanactofGodcanbedonetopreventaloss,regardlessofmanagementcompetence,financestrengthofthecontractor.”

Typically,estimationofprojecteffortneedstobemadeatvariousstagesofaproject.Attheconceptualstage,aballparkfigureisneededtoascertainwhetherthefeasibilityoftheprojectshouldbeinvestigated.Lateratthebiddingandconstructionstages,fairlyreliableestimatesareneededfortenderingandbudgetcontrolpurposes.Duetodifferencesatdifferentprojectstagesinestimationobjectivesandintheavailabilityofinformationrequiredforusingvariousestimationmethods,effectiveestimationatdifferentprojectstagesislikelytodependondifferentsetsoffactorsateachstage.Forexample,clearscopedefinitionandspecificationofaprojectcouldhavemoresignificanteffectonthelevelofestimateaccuracyintheearlystagethaninthelaterstages.

Althoughanyestimatingtechniquemayhaveinherenterrorsresultingfromtheestimationprocess（Morrison1984）,externalfactorsstillhavesignificantinfluenceontheaccuracyofestimation（AkintoyeandFitzgerald2000）.Itisthereforeimportanttoidentifycriticalfactorsforeffectiveestimationateachprojectstage.Mostcostestimationstudiesfocusonspecificestimationmethodsasgenerictechniquesandlittleattentionhasbeenpaidtotheuniquerequirementsateachprojectstage.Thisstudyattemptstoidentifythecriticalfactorsforeffectiveestimationatvariousstagesoftypicalconstructionprojects.

Thisnotestartswithareviewofcurrentcostestimationliteratureonconstructionprojects.Emphasisisonaccuracylevel,criticalfactors,andcharacteristicsofdifferentstages.Then,drawingfromorganizationalcontroltheory,aframeworkforgroupingcriticalfactorsatdifferentprojectstagesisproposed.Finally,conclusionsaredrawnandimplicationsforfurtherresearcharediscussed.

PriorResearch

Accuratepredictionofconstructioncostsisheavilydependentupontheavailabilityofqualityhistoricalcostdataandthelevelofprofessionalexpertiseamongotherthings.Thelimitedinformationavailableatanearlystageofaconstructionprojectmaymeanthatthequantitysurveyormustmakeassumptionsaboutthedesigndetailsofaproject,whichmaynoteventuateasthedesign,planning,andconstructionevolve.

Oneofthecriticalindicatorsofeffectiveestimationistheaccuracylevel.Reviewofstudiesoncostestimationaccuracyforconstructionprojectsdatingbacktothe1970sindicatesthattheestimationaccuracylevelforconstructionprojectshardlychangedoverthepast4decadesandremainsataround10%level（McCaffer1976;FlanaganandNorman1983;Morrison1984;

Cheong1991;GunnerandSkitmore1999;LingandBoo2001）.

Awiderangeoffactorsinfluencingcostestimationhasbeenidentifiedbyextantliteratureincludinggovernmentregulation,planchanges,qualityofthecontractormanagementteam,priorityonconstructiondeadlines,completenessandtimelinesofprojectinformation（Koehnetal.1978）,biddingsituations,projectcharacteristics,

experienceonsimilartypeofproject,theestimatingprocess（ShashandAl-Khaldi1992）,andtheexperienceoftheestimators（LoweandSkitmore1994;Al-HarbiandJohnston1994）.

Toimprovetheeffectivenessofmanagingtheestimationprocess,someresearchersattemptedtoclassifythelargenumberofcostfactorsintocategoriesoffactorswithsimilarattributes（Akintoye2000;TrostandOberlender2003）.Here,weregroupthecostfactorsidentifiedbyliteratureintoninecategories:

Projectinformation,teamexperience,costinformation,estimationprocess,teamalignment,estimationdesign,expectedaccuracy,reviewandacceptanceofestimateandidiosyncraticfactorsthatarebeyondthecontroloftheprojectteam.Thiscategorizationwillbeusedindevelopingtheframeworkforidentifyingfactorsinfluencingestimationaccuracy.

OrganizationalControlTheory

Inthisstudy,organizationalcontroltheoryisadoptedasthetheoreticalbasisforconstructingastage-by-stageestimationframework.Controlisconceptualizedinthisnoteasinfluencesexertedbyanorganizationusingvariousmechanismsthathelpaligntheactionsofitsemployeeswiththeinterestsoftheorganization（Tannenbaum1967）.Organizationalcontroltheoryidentifiesthreetypesormodesofcontrolthatcanbedirectedatachievingthebehaviornecessarytosecuredesiredperformance.

Behaviorcontrolseekstosecureaspecifiedtypeofbehaviorinthebeliefthatthebehaviordeliverstherightresults.Behaviorcontrolsareproceduresthatlaydownasequenceofoperationsthatmustbefollowed.Costestimationmethodsexemplifythisformofcontrol.

Outputcontrolspecifiesthescheduleofoutputsdesired.Theassumptionisthatpeople,whoknowwhattheirtargetsare,adoptappropriatebehaviorstoachievethem.Forexample,specifyingexpectedestimationaccuracyisaformofoutputcontrol.Anotherexampleofoutputcontrolistolinkperformance（output）topromotion.

Inputcontrolregulatestheinputintothetransformationprocesses.

Inthecaseofcostestimation,inputincludeshistoricalestimation,designinformation,experienceoftheestimators,andmaterialprice.Thismaybeachievedthroughmechanismssuchasselectingtherightpeople,improvingdataquality,andintegratingdesignwithcostestimation.Inputcontrolmayalsobeimplementedbydevelopingrelevantknowledge,skills,andvaluesinexistingorganizationalmembers.

FigpresentsOuchi’scontrolframework（Ouchi1979）whichsubsequentlyformsthebasisformanyempiricalstudiesusingcontroltheory.Taskprogrammabilityisdefinedasthedegreetowhichappropriatebehaviorscanbespecifiedinadvance（Eisenhardt1985）andoutputmeasurabilityisdefinedasthedegreetowhichoutputcanbereliablyandaccuratelymeasured（Ouchi1979）.Theframeworkshowsthatwhentaskprogrammabilityishigh,itispossibletospecifybehaviorsnecessarytoachievedesiredresults—behaviorcontrolisappropriate.Whenoutputmeasurabilityishigh,thenoutputcontrolcanbeemployedtoachievethedesiredresults.Whentaskprogrammabilityandoutputmeasurabilityarebothlow,then,inputcontrolistheappropriatecontrol

modetodeliverhighperformance.

Incostestimationprocess,theinfluencefactorscouldbegroupedintoinput,behavioral,andoutputcontroltypes.Then,throughapplicationofthecontrolframeworkasshowninFig.1,weproposeaframeworkthathelpsimprovecostestimatesateachoftheprojectphases.

TheFramework

Inthefollowing,thekeyinput,output,andprocessfactorsforcostestimationateachstageareidentifiedforconstructionprojectsundertheconventionalprocurementsystems.Wearguethatthelevelsoftaskprogrammabilityandoutputmeasurabilityincreaseasaprojectprogresses.Therefore,thelocusofcontrollingestimationtaskatdifferentstagesshouldbedependentontheleveloftaskprogrammabilityandoutputmeasurability.Then,thekeyinput,output,andbehavioralfactorsthatcouldbecontrolledforestimatingtaskateachprojectstageareidentified.

ProjectPhasesandControlModes

Theconventionalprocurementsystemanddesign-buildaretwowidelyadoptedprocurementsystemsintheconstructionindustry,accountingforabove80%ofconstructionprojectsintheUnitedKingdomin1998（Masterman2002）.Othersystemsincludemanagement-orientedsystemanddiscretionarysystem.Althoughthetypicalprojectphasesandactivitiesforeachphasearedifferentdependingonthetypeofprocurementsystem,theinformationavailabilityincreasesasaprojectprogresses.Similarly,themanagementobjectivesthatdriveforcostestimationatdifferentprojectphasesalsofollowasimilarpatternasaprojectprogresses.Informationavailabilityandmanagementobjectivesaretwocriticalfactorsthatinfluencethelevelsoftaskprogrammability

andoutcomemeasurabilitywhich,inturn,determinetheeffectivenessofdifferen