Avoiding Cost Overrun Through Stochastic Cost Estimation and External Quality Assurance

Cost overruns are a threat to project performance and continue to attract interest in both the popular media and the academic literature. Numerous studies from all continents have demonstrated that overruns remain prevalent in all industries. Although there are different suggestions as to what are t...

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Bibliographic Details
Published in:IEEE transactions on engineering management 2024, Vol.71, p.1984-1997
Main Authors: Welde, Morten, Klakegg, Ole Jonny
Format: Article
Language:English
Subjects:
Costs
Decisions under risk and uncertainty
Estimation
Government
Industries
Planning
Project evaluation
project evaluations
Project management
project planning
project success factors
Quality assurance
Quality control
Uncertainty
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Summary:Cost overruns are a threat to project performance and continue to attract interest in both the popular media and the academic literature. Numerous studies from all continents have demonstrated that overruns remain prevalent in all industries. Although there are different suggestions as to what are the main causes of this problem, few studies have demonstrated what can be done to improve cost performance. This article provides evidence that improved cost estimation methodologies combined with external quality assurance can significantly reduce the extent of cost overruns in projects. The authors use data from 96 government projects in Norway, which implemented a quality assurance regime for large investment projects in the year 2000. The results show that cost performance was reasonably good. Only c. 25% of the projects subject to the regime experienced cost overruns. This suggests that by using proper cost estimation methodologies that are embedded in a governance framework that ensures that projects are subject to external scrutiny, the risks of cost overruns can be significantly reduced. The results should be encouraging for project owners who may have the impression that overrun is an unavoidable part of project delivery.
ISSN:0018-9391
1558-0040
DOI:10.1109/TEM.2022.3173175