Cost Performance and Cost Contingency during Project Execution

Cost Performance and Cost Contingency during Project Execution: Comparing Client and Contractor Perspectives

Hoseini, E. (TU Delft Integral Design & Management)
Van Veen, Pim (Dura Vermeer Infra)
Bosch-Rekveldt, M.G.C. (TU Delft Integral Design & Management)
Hertogh, M.J.C.M. (TU Delft Integral Design & Management)

2020

Current literature shows that poor cost performance in projects has become routine. Research on cost performance has mostly focused on one of the involved parties, either the client or the contractor. Not many research efforts discuss the cost contingency performance of projects. This research discusses the cost performance and cost contingency of projects in the execution phase from the perspective of a client as well as a contractor. Using a case study approach, 95 projects are investigated: 44 client projects and 51 contractor projects. The results show that depending on the perspective, projects can have cost overruns or cost underruns. Comparing the total realized and estimated costs, projects experienced on average about 16% underrun from a client perspective. From a contractor perspective, projects experienced on average up to 2% overrun. The estimated cost contingency in the client's projects was on average 2.64% more than the required cost contingency. The estimated cost contingency in the contractor's projects was on average 5.41% less than the required cost contingency. These differences are explained by pessimism bias and technical reasons on the client's side. On the contractor side, optimism bias and technical and political reasons play a role, resulting in opportunistic behavior. The findings help practitioners to enhance their cost estimates by avoiding both pessimistic bias and optimism bias behavior - for example, by using historical data from earlier projects. Further investigation into the influence of market conditions on cost estimates is suggested.

Construction projects
Contingency reserve
Cost estimate
Cost performance
Risk management

http://resolver.tudelft.nl/uuid:e7971974-40c6-42d8-9778-be6d7e7347f6

https://doi.org/10.1061/(ASCE)ME.1943-5479.0000772

2020-10-01

0742-597X

Journal of Management in Engineering, 36 (4)

Green Open Access added to TU Delft Institutional Repository ‘You share, we take care!’ – Taverne project https://www.openaccess.nl/en/you-share-we-take-care Otherwise as indicated in the copyright section: the publisher is the copyright holder of this work and the author uses the Dutch legislation to make this work public.

Institutional Repository

journal article

© 2020 E. Hoseini, Pim Van Veen, M.G.C. Bosch-Rekveldt, M.J.C.M. Hertogh