Discriminant Analysis for Predicting Ranges of Cost Variance in International Construction Projects
Publication: Journal of Construction Engineering and Management
Volume 134, Issue 6
Abstract
Unanticipated market conditions as well as project-related risks can easily lead to cost overruns in international construction projects. For a contractor to be financially successful in international projects, a careful examination of the project is a prerequisite to understanding the cost variance characteristics. Based on the reasonably accurate characterization of the cost performance, the markup or contingency amount is determined to ensure both a decent level of profit and a good chance of winning the contract. This paper presents a classification model to categorize international construction projects, particularly faced by Korean contractors, into five cost-variation classes: extreme cost overrun, moderate cost overrun, neutral, moderate cost saving, and extreme cost saving. The model is able to characterize an international project for its cost performance prediction in comparison to the contractor’s initial cost estimate. A linear discriminant analysis is utilized to develop the predictive classification model with the support of the bootstrap method. Tests show that the proposed model is able to help cost estimators determine a proper level of cost contingency before bidding on an international project.
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Acknowledgments
The writers would like to thank the Korea Ministry of Construction and Transportation for funding (Contract No. UNSPECIFIED06 CIT A03) that made this research possible and the anonymous survey respondents for their valuable contribution to our study.
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Information & Authors
Information
Published In
Journal of Construction Engineering and Management
Volume 134 • Issue 6 • June 2008
Pages: 398 - 410
Copyright
© 2008 ASCE.
History
Received: Mar 1, 2007
Accepted: Nov 7, 2007
Published online: Jun 1, 2008
Published in print: Jun 2008
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