Predicting Accuracy of Early Cost Estimates Using Factor Analysis and Multivariate Regression
Publication: Journal of Construction Engineering and Management
Volume 129, Issue 2
Abstract
The importance of accurate estimates during the early stages of capital projects has been widely recognized for many years. Early project estimates represent a key ingredient in business unit decisions and often become the basis for a project’s ultimate funding. However, a stark contrast arises when comparing the importance of early estimates with the amount of information typically available during the preparation of an early estimate. Such limited scope definition often leads to questionable estimate accuracy. Even so, very few quantitative methods are available that enable estimators and business managers to objectively evaluate the accuracy of early estimates. The primary objective of this study was to establish such a model. To accomplish this objective, quantitative data were collected from completed construction projects in the process industry. Each of the respondents was asked to assign a one-to-five rating for each of 45 potential drivers of estimate accuracy for a given estimate. The data were analyzed using factor analysis and multivariate regression analysis. The factor analysis was used to group the 45 elements into 11 orthogonal factors. Multivariate regression analysis was performed on the 11 factors to determine a suitable model for predicting estimate accuracy. The resulting model, known as the estimate score procedure, allows the project team to score an estimate and then predict its accuracy based on the estimate score. In addition, a computer software tool, the Estimate Score Program, was developed to automate the estimate score procedure. The multivariate regression analysis identified 5 of the 11 factors that were significant at the level. The five factors, in order of significance, were basic process design, team experience and cost information, time allowed to prepare the estimate, site requirements, and bidding and labor climate.
Get full access to this article
View all available purchase options and get full access to this article.
References
Gibson Jr., G. E., and Dumont, P. R. (1995). “Project definition rating index for industrial projects.” Research Rep. 113-11, Construction Industry Institute, Austin, Texas.
Gibson Jr., G. E., and Hamilton, M. R. (1994). “Analysis of pre-project planning effort and success variables for capital facility projects.” Source document 105, Construction Industry Institute, Austin, Texas.
Gibson Jr., G. E. Kaczmarowski, J. H., and Lore Jr., H. E. (1993). “Modeling pre-project planning for the construction of capital facilities.” Source document 94, Construction Industry Institute, Austin, Texas.
Hackney, J. W. (1965). Control and management of capital projects, Wiley, New York.
Hackney, J. W. (1985). “Applied contingency analysis.” Transactions of the American Association of Cost Engineers, B.2.1–B.2.4.
Hackney, J. W. (1989). “Accuracy of hazardous waste project estimates.” Transactions of the American Association of Cost Engineers, O.1.1–O.1.7.
Merrow, E. K. (1978). Constraints on the commercialization of oil shale, Rand Corp., Santa Monica, Calif.
Merrow, E. K. (1981). Understanding cost growth and performance shortfalls in pioneer process plants, Rand Corp., Santa Monica, Calif.
Merrow, E. K., Chapel, S. W., and Worthing, C. (1979). A review of cost estimation in new technologies: Implications for energy process plants, Rand Corp., Santa Monica, Calif.
Morris, M. R. (1990). Improving the accuracy of early cost-estimates for federal construction projects, Building Research Board, National Research Council, Washington, D.C.
Oberlender, G. D., et al. (1998a). “Improving early estimates.” Research Summary 131-1, Construction Industry Institute, Austin, Texas.
Oberlender, G. D., et al. (1998b). “Improving early estimates—Best practices guide.” Implementation Resource 131-2, Construction Industry Institute, Austin, Texas.
Oberlender, G. D., et al. (1998c). “Improving early estimates source document.” Research Rep. 131-11, Construction Industry Institute, Austin, Texas.
Oberlander, G. D., and Trost, S. M.(2001). “Predicting accuracy of early cost estimates based on estimate quality.” J. Constr. Eng. Manage. 127, 173–182.
Stevens, G., and Davis, T. (1988). “How accurate are capital cost estimates?” Transactions of the American Association of Cost Engineers, B.4.1–B.4.5.
Stevenson Jr., J. J.(1984). “Determining meaningful estimate contingency.” Cost Eng., 26(1), 35–41.
Trost, S. M., et al. (1998) “Estimate score program (ESP) user’s guide.” Implementation Resource 131-3, Construction Industry Institute, Austin, Texas.
Wright, P. A., and Hill, T. V. (1986). “Cost estimating—Dealing with uncertainty.” Transactions of the American Association of Cost Engineers, E.5.1–E.5.7.
Information & Authors
Information
Published In
Journal of Construction Engineering and Management
Volume 129 • Issue 2 • April 2003
Pages: 198 - 204
Copyright
Copyright © 2003 American Society of Civil Engineers.
History
Received: Feb 6, 2001
Accepted: Dec 4, 2001
Published online: Mar 14, 2003
Published in print: Apr 2003
Authors
Metrics & Citations
Metrics
Citations
Download citation
If you have the appropriate software installed, you can download article citation data to the citation manager of your choice. Simply select your manager software from the list below and click Download.