Exogenous determinants of cost deviations and overruns in local infrastructure projects

Abstract

There is a significant concern about cost deviations and overruns in public projects, particularly by the local governments. The magnitude of expenditure on these infrastructure projects justifies the search for cost deviation reasons, particularly cost overruns. The existing literature also identifies a tendency towards cost overruns in infrastructure projects. However, the analysis of cost overruns determinants has mostly focused on endogenous project characteristics.

This research uses a dataset of 4,305 public infrastructure projects, of which 3,338 are local projects, carried out in Portugal between 1980 and 2012. Exogenous determinants (e.g. political, institutional and governance, and economic-related) are also considered in the analysis. An average cost overrun of 19% (9 billion Euros in volume, with a 1 billion Euros overrun) is identified. It is found that central governments incur on an average cost overrun of 23% and local governments on 6%. The analysis confirmed that projects developed by local governments tend to perform better regarding cost deviations and overruns and that exogenous determinants (particularly the political, institutional and governance environment ones) have a strong impact on cost deviations and overruns. These findings on exogenous factors can help local governments to make better management decisions, enhancing governance and institutional frameworks to improve the decision-making process when launching new infrastructure.     

Predicting construction cost overruns using text mining,numerical data and ensemble classifiers

This paper discusses how text describing a construction project can be combined with numerical data to produce a prediction of the level of cost overrun using data mining classification algorithms. Modeling results found that a stacking model that combined the results from several classifiers produced the best results. The stacking ensemble model had an average accuracy of 43.72% for five model runs. The model performed best in predicting projects completed with large cost overruns and projects near the original low bid amount. It was found that a stacking model that used only numerical data produced predictions with lower precision and recall. A potential application of this research is as an aid in budgeting sufficient funds to complete a construction project. Additionally, during the planning stages of a project the research can be used to identify a project that requires increased scrutiny during construction to avoid cost overruns.     

不同成本超支情境下资源补偿 PPP 项目投资收益模型研究

为预测社会资本方的参与决策,对社会资本方成本超支承受能力进行量化研究,基于已识别的项目风险,提出资源补偿 PPP 项目全生命周期的成本超支事件,构建政府和社会资本承担成本超支的博弈模型和不同成本超支情境下社会资本方的投资收益模型。结果表明,双方就成本超支事件博弈的纳什均衡是成本节约情境;社会资本方投资收益率受超支金额和股权比例的影响,其承受能力有一定范围。因此,在项目前期应充分识别成本超支事件,确定最优股权比例,以促进社会资本方积极参与资源补偿 PPP 项目。     

Predicting Cost Escalation Pathways and Deviation Severities of Infrastructure Projects Using Risk‐Based Econometric Models and Monte Carlo Simulation

In the past decade, infrastructure‐related legislation in the United States has consistently emphasized the need to measure the variation associated with infrastructure project cost estimates. Such cost variability is best viewed from the perspective of the project development phases and how the project cost estimate changes as it evolves across these phases. The article first identifies a few gaps in the cost overrun literature. Then it introduces a methodology that uses risk‐based multinomial models and Monte Carlo simulation involving random draws to predict the probability that a project will follow a particular cost escalation pathway across its development phases and that it will incur a given level of cost deviation severity. The article then uses historical data to demonstrate how infrastructure agencies could apply the proposed methodology. Statistical models are developed to estimate the probability that a highway project will follow any specific cost escalation pathway and ultimately, a given direction and severity of cost deviation. The case study results provided some interesting insights. For a given highway functional class, larger project sizes are associated with lower probability of underestimating the final cost; however, such a trend is not exhibited by very large projects (total cost exceeding $30M). For a given project size, higher class roads were generally observed to have a lower probability of underestimating the final cost, compared to lower class roads and this gap in probability narrows as the project size increases. It was determined that a project's most likely pathway of cost escalation is not a guarantee that it will yield any particular direction of cost deviation. The case study results also confirmed the findings of a few past studies that the probabilities of cost escalation pathways and the cost overruns differ significantly across highway districts, and attributed this to differences in administrative culture and work practices across the districts. Infrastructure managers can use the developed methodology to identify which projects are likely to experience a particular pathway of cost escalation, the direction and severity of cost deviation, and to develop more realistic project contingency estimates.     

Curbing rework in offshore projects: systemic classification of risks with dialogue and narratives

Rework arises in offshore projects due to errors and omissions, and this can significantly contribute to project cost and cause schedule overruns. Indeed, these additional and unnecessary costs can uncontrollably spiral to account for 25% of capital expenditure for offshore platform projects. Yet rework costs are frequently dismissed as isolated and rare instances of unfortunate circumstances and alien to normal practice. Original evidence stemming from this research indicates that cost and schedule overruns are a recurrent feature of offshore projects. Moreover, the risk of overruns are further exacerbated by increasingly complex commercial and contracting arrangements, technical challenges, changing local economic and regulatory conditions, and a shift towards projects being undertaken in peak oil frontier regions. To acquire new knowledge on the dynamics of offshore rework, the experiences of 23 oil and gas industry practitioners were captured using in-depth interviews. A risk classification matrix was subsequently developed in order to provide a frame of reference to mitigate future rework. Failing to give consideration to rework risks increases the potential for latent conditions to become embedded within organisational and project systems and processes. Consequently, the likelihood of failures, accidents or even catastrophes increases.     

基于ISM-BN 的工程项目人工成本超支预测研究

目标工程建设中存在部分企业成本意识单薄,忽略成本管理,成本超支情况普遍存在。为了深入研究工程成本控制手段,改进目前工程成本控制中普遍存在偏重预先控制、过度依赖专家经验的情况,深入研究了基于ISM-BN 组合模型的工程成本中人工成本超支预测,即通过对人工成本关键影响因素的识别和对他们之间逻辑关系的梳理,形成解释结构模型,并使用BN 在事前对人工成本概率进行推测,并以GWZX 项目为例对人工成本超支预测模型进行了验证,论证了模型的科学性、合理性,为工程施工成本控制提供指导依据,减少成本超支现象的发生。     

Material and equipment procurement delays in highway projects in Nepal

Delay in the delivery of materials and equipment to construction sites is often thought of as a contributory cause of cost overruns in construction projects in developing countries. A cursory examination of the environment in which projects are executed in developing countries appears to support this thinking. However, there does not seem to have been much research work conducted that investigates whether this is actually the case and also assesses the causes of these delays and magnitude of their impacts on project costs. This research was aimed at firstly ascertaining the occurrence of material and equipment procurement delays in highway projects in Nepal. An assessment of the causes of the delays and the magnitude of their impact on project costs was also made. The survey method was used in conducting this research involving 22 highway projects. The main causes of material and equipment procurement delay were found to be (in rank order) organizational weaknesses, suppliers' defaults, governmental regulations and transportation delays. However, the actual impact of these delays on project costs was found to be on average, only about 0.5% of the total budgeted cost of the projects. Among materials, delays in the supply of aggregates were found to occur most frequently while delays associated with pavers occurred most frequently among equipment.     

巴勒斯坦建设项目延期和超支分析--加沙地带案例

成功的项目管理来自于对费用、质量和进度计划的控制.项目管理是施工过程中的关键部分.没有项目管理,即使是经过周密计划的项目也很有可能会失败.反之,在适当的时候运用有效的建设管理技术,可能将一个蹒跚不前的项目挽救过来.加沙地区的建设项目的设计人员常常没有技术上、环境上、社会上和统计上的数据来支持设计,而外国的承包商和咨询公司可能既不熟悉这个国家的材料和人力的资源情况,也不了解国家和当地的与项目有关的规章制度.因为以上和其他的一些原因,加沙地区的项目常常会工期延长,费用超支,从而减少预期的收益.本研究的目标是调查和分析加沙地带建设项目中延期的特征、时间长短和花费.研究数据来自于加沙地区的35个建设项目.本文首先探讨了导致延期的环境,基于责任制的延期分类,以及它们对项目费用和进度计划的影响.文章搜集数据,进行分析,并得到结论.本研究所得出的最重要的结论是对于减小工期延长和费用超支,最重要的措施是在项目最开始的阶段就对项目有充分的规划.     

Assessing the construction cost of Greek transportation tunnel projects

Cost estimation is a crucial factor for the success of an engineering project. This element is even more important at the initial stages of design where decisions should be taken based on the more accurately available cost data. In underground construction projects especially, where the variability of the geotechnical conditions can change initial estimates, the accurate estimation of the construction cost from the preliminary phases of the project can minimize cost overrun issues as well construction claims and disputes. The purpose of this paper is to provide insight in cost estimation for underground projects focusing on tunnels. For this reason, the analysis of construction cost is undertaken, based on data from a set of 9 tunnels that have been constructed in Greece. The analysis presented focuses on the excavation and temporary support cost with respect to the geotechnical conditions encountered. Although the cost is influenced by many parameters, through the analysis of past data using the Case Base Reasoning approach, valuable lessons can be learned by decoding the effect of the ground conditions on the construction cost. The construction cost of the Greek tunnels is estimated for 2011 price levels and it is expressed though range estimation for 5 rock mass categories that were identified. Furthermore, a direct linkage between construction cost and the encountered geotechnical conditions, as expressed in GSI values, are made in an attempt to capture the general trend of construction cost in terms of €/m³ and €/m. The findings can be used as a first order assessment in order to have a representative estimation of the tunneling cost from the initial stages of project design.     

Understanding stakeholders' perspective of cost estimation in project management

Cost overrun is a chronic problem across most projects. While a significant research have been published on this topic, the understanding of the root causes and a clear direction towards improvement remained unexplored. The focus of the past research is mainly on the factors directly or indirectly associated with the project environment and their relative impacts on overall cost performance in projects. In contrast to such traditional approach, this research aimed to establish a conceptual model by identifying the underlying issues associated mainly with the perceptions of the board stakeholders involved over entire lifecycle of projects. Based on a structured interview with a few selective organisations, data was collected and a few rich pictures were developed over every phase of project development. By employing the soft system methodology, the rich pictures were later trasformed into the concept models for potential establishment of a new body of knowledge in the field. Among the findings, it has been revealed that at the project inception stage, political and legislative factors play significant roles in the business case development. Statutory compliance and environmental issues are perceived to be critical in influencing cost performance in projects. The resulting concept model on cost overrun is expected to fill a significant knowledge gap in cost estimation practice across all industry sectors.     

Analysis of the impact of craft labour availability on North American construction project productivity and schedule performance

The North American construction industry has experienced periods of craft shortages for decades. While this problem has received significant attention from researchers, less attention has been given to quantifying the impact of availability of craft labour on project performance. The primary contribution of the current work to the body of knowledge is the quantification of the relationship between craft labour availability and project performance, as measured by project productivity and schedule. Data from 97 construction projects completed in the U.S. and Canada between 2001 and 2014 were collected from two industry databases. The primary analysis shows that projects that experienced craft shortages underwent substantial and statistically lower productivity compared to projects that did not. The analysis also shows a significant growth in schedule overrun due to the craft labour shortages among the same population of projects. Further exploration by means of several regression analyses shows a statistically significant correlation between increased craft recruiting difficulty and lower project productivity and also higher schedule overruns in both project databases. The results are confirmed across both databases and serve as informative models that provide valuable insight for project management teams to perceive the risk that lack of skills poses on project productivity and time performance. Understanding the level of impact that craft shortages are having through robust statistical analyses is a first step in developing the motivation for industry leaders, communities and construction stakeholders to address this challenge.     

Comparative performance of healthcare and transport PFI projects: Empirical study on the influence of key factors

Private Finance Initiative (PFI) has been used on many projects in the UK in the delivery of public services. Cost, time and risk performance in public projects was anticipated to be improved by the superior skills of the private sector. So far, there are limited empirical studies on the life cycle performance of PFI projects, especially performance comparison between different sectors. This study investigated and compared variations in costs, time, and client requirements tracking it through the strategic business case stage to the operational phase in healthcare and transport sectors. It explored the influence of sector-specific factors, project size and maturity of the PFI on these variations. It used documentary analysis of full business cases of five PFI projects and a questionnaire survey of 44 PFI projects in the UK. The findings reveal that there are still considerable cost and time overruns and requirement changes in PFI projects in both sectors over the development of the project and its early use. The health sector was better than the transport sector for time overruns but was worse on costs. Smaller-value projects outperformed larger projects on cost variations but underperformed on time.     

Quantifying the causes and costs of rework in construction

Very few construction companies and consulting firms in Australia measure their costs of quality. Consequently, it is difficult for them to prove that systems for preventing quality failures are cost-effective. Although the direct costs of a quality system can be quantified with some accuracy (salaries, costs of documentation, audits, etc.), the corresponding benefits are far more difficult to assess. Indeed quality failures have become an endemic feature of the procurement process in construction and invariably lead to time and cost overruns in projects. Thus, in order to improve the performance of projects it is necessary to identify the causes and costs rework. The research presented in this paper quantifies the causes, magnitude and costs of rework experienced in two construction projects that were procured using different contractual arrangements. The causes and costs of rework projects are analysed and discussed. The findings reveal that the cost of rework for the case study projects was 3.15% and 2.40% of their project contract value. Changes initiated by the client and end-user together with errors and omissions in contract documentation were found to be the primary causes of rework. It is recommended that construction companies and consultant firms (particularly design consultants) implement quality management practices as well as place emphasis on coordinating project documentation during the design development process so that the amount of rework in projects can be reduced or even eliminated.     

Incorporating rework into construction schedule analysis

Rework has been a primary cause of cost and schedule overruns in large construction projects. While several research efforts have analyzed the causes and effects of rework and provided guidelines to reduce rework, almost no research exists to analyze the impact of rework timing and quantity on schedule delays and to support decisions on cost effective recovery. This research presents a quantitative mechanism for schedule analysis considering rework. The mechanism has three aspects: (1) a new schedule representation of rework magnitude as negative percentage complete for affected activities, documented on the specific date on which the rework is detected; (2) a modified daily-windows delay analysis to apportion project delays among the responsible parties; and (3) an optimization technique for determining the least costly corrective action strategy that recovers project delays. The proposed approach is applied to a case study to demonstrate its ability to consider rework impact, in combination with other progress events by other project parties. This research offers an innovative quantitative approach to consider rework timing and amount in delay analysis and corrective action optimization.     

Understanding project management performance using a comparative overrun measure

Project managers need support to diagnose project management performance problems. Diagnosis happens when managers learn about prior project management performance by using outside view information about past projects to situate focal projects within the context of past project management performance. No prior research has incorporated outside view information into performance measures. Hence, we propose a comparative performance measure that compares overrun of a focal project to overrun of past similar projects to promote an understanding of trends across projects. Traditional overrun measures that only compare performance to initial estimates fail to encourage learning from past performance. Our comparative measure can be used to evaluate how well lessons have been leveraged, addressing a lack of existing quantitative measures for learning from previous projects. Project managers need encouragement to use new comparative project performance measures, so they should be embedded in performance management systems with incentives for continuous improvement.     

Predicting final cost for competitively bid construction projects using regression models

This paper studies the relationship between the low bid and completed cost for competitively bid highway projects. Data are analyzed from several agencies managing highway and dredging projects. A natural log transformation of the low bid and final cost was found to produce regression models for each agency that had high R and R² values. These models can predict completed project cost using only the project low bid as input. A separate regression model was determined for each agency. Based on the form of the calculated models it appears that highway agencies construct projects where the final cost increases as an increasing percentage of the low bid price as the project magnitude increases. The dredging projects appear to follow different mechanisms of cost increase than the highway projects and were not predicted as well by the regression models. The regression models can also be used for budgeting purposes by submitting the sum of the low bids for a group of projects as input. The regression models output a prediction of the cost of the group of projects that was found to be highly accurate.     

Automated contract time determination system for highway projects

Contract time is the maximum time allowed for completion of all work described in the contract documents. An accurate forecast of contract time for highway projects is crucial to contract administration by State Departments of Transportation (DOTs) because the predicted duration and associated cost form the basis for budgeting, planning, monitoring and even litigation purposes. This paper discusses a framework for determining contract time for highway projects in Oklahoma and presents a stand-alone computer software package which automates the entire procedure. The system developed in this study can be used as a basis for better project planning for DOTs. It can also provide documentation for a stronger defense in possible contract time disputes and will allow less experienced personnel to gain confidence as they learn how to consistently estimate reasonable and realistic contract time for highway projects.     

国外EPC 总承包项目的工程费用控制

论述国外大型建设项目,在EPC总承包方式下,保证设计、采购、施工环节中的费用控制,避免项目超支,为同类项目建设提供有效的借鉴经验。