Rethinking construction cost overruns: cognition, learning and estimation

Abstract

Purpose

Drawing on mainstream arguments in the literature, the paper presents a coherent and holistic view on the causes of cost overruns, and the dynamics between cognitive dispositions, learning and estimation. A cost prediction model has also been developed using data mining for estimating final cost of projects. The paper aims to discuss these issues.

Design/methodology/approach

A mixed-method approach was adopted: a qualitative exploration of the causes of cost overrun followed by an empirical development of a final cost model using artificial neural networks.

Findings

A conceptual model to distinguish between the often conflated causes of underestimation and cost overruns on large publicly funded projects. The empirical model developed in this paper achieved an average absolute percentage error of 3.67 percent with 87 percent of the model predictions within a range of ±5 percent of the actual final cost.

Practical implications

The model developed can be converted to a desktop package for quick cost predictions and the generation of various alternative solutions for a construction project in a sort of what-if analysis for the purposes of comparison. The use of the model could also greatly reduce the time and resources spent on estimation.

Originality/value

A thorough discussion on the dynamics between cognitive dispositions, learning and cost estimation has been presented. It also presents a conceptual model for understanding two often conflated issues of cost overrun and under-estimation.

Citation

Ahiaga-Dagbui, D.D. and Smith, S.D. (2014), "Rethinking construction cost overruns: cognition, learning and estimation", Journal of Financial Management of Property and Construction, Vol. 19 No. 1, pp. 38-54. https://doi.org/10.1108/JFMPC-06-2013-0027