Determining the probability of project cost overruns
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The statistical characteristics of cost overruns experienced from contract award in 276 Australian construction and engineering projects were analyzed. The skewness and kurtosis values of the cost overruns are computed to determine if the empirical distribution of the data follows a normal distribution. The Kolmogorov-Smirnov, Anderson-Darling, and chi-squared nonparametric tests are used to determine the goodness of fit of the selected probability distributions. A three-parameter Frechet probability function is found to describe the behavior of cost overruns and provide the best overall distribution fit. The Frechet distribution is then used to calculate the probability of a cost overrun being experienced. The statistical characteristics of contract size and cost overruns were also analyzed. The Cauchy ([Math Processing Error]), Wakeby (A$1 to 10 million, [Math Processing Error]) and four-parameter Burr (A$11 to 50 million) tests were found to provide the best distribution fits and used to calculate cost overrun probabilities by contract size. Ascertaining the best fit probability distribution from an empirical distribution at contract award can produce realistic probabilities of cost overruns, which should then be incorporated into a construction cost contingency.
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Love, Peter; Sing, Michael; Wang, Xiangyu; Irani, Z.; Thwala, D. (2014)Transportation infrastructure projects are prone to cost and schedule overruns. At the time of contract award, a construction contingency budget is often used to accommodate for unplanned events such as scope changes. ...
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Love, Peter; Sing, Michael; Wang, Xiangyu; Yung, Ping (2012)The statistical characteristics of cost overruns experienced from contract award in 276 Australian construction and engineering projects were analysed. The skewness and kurtosis values of the cost overruns are computed ...