Every capital-intensive constructions project goes through various challenges throughout their project life cycle. However, one crucial challenge is to understand and trace cost development over-time at planning phase. The research aim is threefold: firstly, to identify the critical factors of cost development in the planning phase. Secondly, to investigate empirically a dyadic relationship of cost deviation over time and quantitatively chart their developments. Thirdly, to analyze the construction cost data, discuss their cost developments and identify critical projects based on their actual financial impacts. The research considers 110 projects and analyze them using qualitative and quantitative research methods. The results showed higher cost escalation in the planning phase. The research identified critical factors for cost escalations at the planning phase. The average cost escalation of 110 projects (<5%) seems good, but some projects showed large cost deviations with lower financial impacts and vice versa.
Purpose -The purpose of this paper is to describe the transfer of experiences to improve the basis for overcoming the dilemma of trying to achieve analyses and systems that are both good and simple. The quality of decisions relating to projects depends on how well the assumed basis for the project actually fit the reality of the situation in which the consequences occur. Good value and cost estimations support good decisions about projects insofar as the assumptions on which they are based mirror the reality, and the decision makers can understand the analysis. Design/methodology/approach -The paper uses a longitudinal case study and qualitative analysis. Data relating to a large number of cases have become available to the authors through many years of research and consulting activities. Through joint experience and discussion the patterns are analysed. This paper is descriptive with respect to the challenges and empirical examples. The analysis itself ends with a rather normative conclusion. Findings -There is a dilemma embedded in the processes used to analyse uncertainty and risks associated with projects. On the one hand, an important task is to reduce the complexity of a given situation to render the issues sufficiently simple for them to be understood and assessed. On the other hand, the models and assumptions upon which an analysis is based have to be sufficiently precise and detailed in order to make sense. The same dilemma is found when considering actions to address risks and uncertainties, as well as in designing management systems. It is concluded that the dilemma is real. Solutions have to be found among both good and simple options.Research limitations/implications -The paper does not answer questions on "how to" and does not dig deep into theoretical perspectives on the current dilemma. More research to understand all aspects of the issue is needed. Practical implications -Uncertainty analysis and management systems have to be good (precise enough) and at the same time simple (practical). There is no value unless it is used. Practical examples in the paper are intended to help practitioners identify alternative options. Originality/value -The dilemma of good and simple has not been explicitly addressed before in light of practical experience and theory. The value added is increased awareness of an important problem in analytical processes.
Abstract:Cost estimation is an important part of project planning. Over the years different approaches have developed, taking uncertainty into account in the cost estimation processes in order to tackle the dynamic nature of projects. However, when implementing these approaches, some challenges have been revealed. The aim in a cost estimation process is to establish a realistic overview of the total project costs and its uncertainties. Even though tools and methods for taking uncertainty into account are implemented, projects with cost overruns are often seen. In this paper we look into some challenges with the practice in cost estimation processes and identify possible improvements to overcome them. The purpose of this paper is to illustrate better solutions to some of the major weaknesses identified in current cost estimation practice. We use a case study of decommissioning of Barsebäck Nuclear Power Plant to illustrate how to overcome these challenges. First of all, this is an interesting case with challenges related to the project and the cost estimation process, given the complexity in the situation and that very few have experiences related to decommission of nuclear power plants. Second, we applied an approach that is not yet commonly used to develop cost estimates for this kind of projects. The paper concludes that it is possible to improve the results of uncertainty analysis of cost estimates. A well prepared process, with a suitable group of experts that go through a well-structured process, focusing both on risks and opportunities and using a top-down approach can compensate for some of the challenges related to cost estimation under uncertainty.
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