Wang, P; Wang, K; Huang, Y and Fenn, P (2025) Probability, formation, and prediction of large-size construction cost overruns governed by a power-law distribution. Journal of Construction Engineering and Management, 151(6): 04025062, ISSN 0733-9364
Abstract
Cost overruns persist in the current construction industry. Large-size cost overruns are especially detrimental to projects, but the literature has treated such overruns no differently from regular ones. This paper argues that strategies should be specifically developed to address large-size cost overruns because their occurrence is higher than perceived and their impact is more severe. To get a full picture of these events, the authors collected cost overrun data from 30,950 UK construction projects and plotted them into a probability distribution curve, which featured a bell-shaped major part representing regular cost overruns and a long right tail representing the large-size ones. Taking a bootstrap method based on the minimum Kolmogorov-Smirnov method, the authors demonstrated that the bell and the tail were governed by different laws. This suggested that large-size overruns should not be considered an extension of regular ones, and management strategies for large-size overruns should be specifically tailored. To this end, the authors further investigated 368 construction projects to understand the specific formation mechanism for large-size cost overruns, based on which a Bayesian classifier was established. The classifier was then tested by 431 real construction projects, showing the model achieved an accuracy rate of 97.2% and F1 score of 72.0% in practice. For general management strategies, improvements in plans and specifications and risk identification during project initiation and enhancement of communication throughout the project were suggested. For project-specific avoidance strategies, the Bayesian classifier could predict the occurrence of large-size cost overruns and simulate the effect of available improvements to assist in identifying the optimal avoidance strategy. This paper corrects the general perception of the severity of construction cost overruns, completes the understanding of the formation mechanism of large-size cost overruns, and provides a predictive model to help avoid large-scale cost overruns on a case-by-case basis.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | Bayesian classifier; formation mechanism; large-size cost overruns; power-law distribution; prediction; structural equation modeling |
| Index terms: | construction project, risk identification, accuracy, overrun, strategy, structural equation modelling, specification, construction industry, distribution cost, probability distribution, cost overrun, construction cost, management strategy |
| Subjects: | financial risk, production management, professional development, contractual condition, management, cost management, statistical analysis, industry analysis, project controls, financial and cost management |
| Topics: | Project Management, Procurement, Business Strategy, Cost Management, Information Management, Research Practice, Time Control, Contract Administration |
| Descriptive scope: | 4 PCTA |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here