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(EST-1841) The Impact of Cost Estimation Methodologies on Cost Overruns

Primary Author: Mr Morten Welde
Co-Author(s): Mr James Odeck; Mr Geir Saxebol

Audience Focus: Basic
Application Type: Research
Venue: 2015 AACE International Annual Meeting, Las Vegas, NV, USA

Abstract: This article discusses the impact of cost estimation methodologies on the accuracy of cost estimates. Cost overrun is a source of risk in project appraisal and there is an extensive literature that documents the extent of the problem. However, there is very little evidence to suggest what have and should be done to curb overruns.

There are large variations between how projects perform in different countries. Several studies have demonstrated that the average final cost in Norwegian public infrastructure differs very little from the expected costs. The paper investigates the planning framework and the methodologies employed for the estimation of costs in Norway and the other Scandinavian countries Sweden and Denmark. The purpose of the paper is to assess if differences in planning procedures and estimation methodologies could explain the differences in cost overruns.