Estimation of Cost Contingency for Air Force Construction Projects

• Published in: Journal of construction engineering and management Vol. 136; no. 11; pp. 1181 - 1188
• Main Authors: Thal, Alfred E, Cook, Jason J, White, Edward D
• Format: Journal Article
• Language: English
• Published: Reston, VA American Society of Civil Engineers 01-11-2010
• Subjects: Applied sciences; Building economics. Cost; Buildings. Public works; Exact sciences and technology; Project management. Process of design; TECHNICAL PAPERS; United States; North America; America; Construction cost; Project evaluation; Linear regression; Estimation; United States Air Force; Risk analysis; Contingency; Construction industry; Result; Construction costs; Contingency management; Regression model; Cost estimation; Performance; Construction management; Method study
• ISSN: 0733-9364; 1943-7862
• DOI: 10.1061/(ASCE)CO.1943-7862.0000227

Risk and associated cost overruns are critical problems for construction projects, yet the most common practice for dealing with them is the assignment of an arbitrary flat percentage of the construction budget as a contingency fund. Therefore, our goal was to identify significant variables that may influence, or serve as indicators of, potential cost overruns. We analyzed data from 203 Air Force construction projects over a full range of project types and scopes using multiple linear regression to develop a model to predict the amount of required contingency funds. The proposed model uses only data that would be available prior to the award of a construction contract. The variables in the model were categorized as project characteristics, design performance metrics, and contract award process influences. Based on the performance metric used, the model captures 44% of actual cost overruns versus the 20% captured by the current practice. Furthermore, application of the model reduces the average contingency budgeting error from 11.2 to only 0.3%.