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Improving cost estimation in construction projects

Article in International Journal of Construction Management · December 2020

DOI: 10.1080/15623599.2020.1853657

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 International Journal of Construction Management

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Improving cost estimation in construction projects

Mohamed Sayed , Mohamed Abdel-Hamid & Karim El-Dash

To cite this article: Mohamed Sayed , Mohamed Abdel-Hamid & Karim El-Dash (2020): Improving
cost estimation in construction projects, International Journal of Construction Management, DOI:
10.1080/15623599.2020.1853657

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INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT
https://doi.org/10.1080/15623599.2020.1853657

Improving cost estimation in construction projects

Mohamed Sayed, Mohamed Abdel-Hamid and Karim El-Dash
Civil Engineering Department, Faculty of Engineering at Shobra, Benha University, Egypt

ABSTRACT KEYWORDS
The accurate cost estimate is one of the success keys to construction projects. The influence of inaccurate Cost estimation;
cost estimation on construction projects is critical. There is no consensus among researchers about the questionnaire;
most important factors influencing the cost estimate accuracy. The study’s objective is to get an accurate Pareto technique
cost estimate because the precise cost estimate keeps all parties focused on delivering the project within
the budget. This objective is achieved by collecting the influential factors from the literature review and
creating a powerful arithmetical model of cost estimation. Twenty-nine factors were collected by review-
ing many researches. A questionnaire was prepared and then was examined by fourteen project manag-
ers. Pareto technique was conducted to get the foremost influential factors. Based on the Pareto
technique, the 29 factors were reduced to nine. Then, a powerful arithmetical model was created in this
study to get an accurate cost estimate. Finally, fourteen finished projects were selected to be case stud-
ies. The cost variance percentages were between 1% and 15% for each case study. By using the model,
the estimated contract value of each case study was recalculated and, the cost variance percentages
were between 0.5% and 0.8% for each case study.

Introduction Some researchers have clarified the importance of the cost

estimate accuracy. Qinghua (2019) stated that the precise cost
The construction industry is essential within any state’s eco- estimate helps the decision-makers to finance the projects.
nomic development (Avinash et al. 2018). In Dec 2019, the con- Agyekum (2018) said that the accurate cost estimate depends on
struction industry represented about 8% of Egypt’s total gross adequate cost information. The cost estimate could also be
domestic product. The construction projects are unique because improved if the client identifies the project scope accurately
they are priced before being constructed (Arif et al. 2015). The from the beginning. Hatamleh et al. (2018) explained that the
cost estimation process predicts the value of implementing activ- cost estimate is essential to the construction project’s success and
ities to accomplish the construction project’s set objectives within should be considered from the beginning of the project. Enshassi
a specific period (Hatamleh et al. 2018). Cost estimation is a et al. (2013) clarified that the construction project’s success
meaningful process in the construction industry’s success because depends on the cost estimate’s accuracy. According to Matel
the cost estimation process is the one sure-fire way to ensure the et al. (2019), accurate cost estimates allow the project manager
projects stay on-budget (Alumbugu et al. 2014). to control costs effectively. Avinash et al. (2018) stated that a
This study’s main concept is to improve the cost estimation pro- precise cost estimate has a crucial influence on the contractor’s
cess in construction projects because this process helps the owners profit. Akintoye (2000) mentioned that the cost estimate’s accur-
to make the right decisions towards financing their projects. acy might significantly affect the contractor’s ability to compete
The main problem is the influence of inaccurate cost estima- successfully with other contractors. Also, the cost estimate’s
tion on construction projects because the erroneous estimate accuracy should be based on the detailed project information.
would lead to project failure in terms of time, cost (Hatamleh et This study discusses the most influential factors affecting the
al. 2018). The overestimated cost results in an extreme tender cost estimation process and provides a powerful arithmetical
price by the contractor, making the tender unacceptable to the model to calculate the total project’s accurate cost estimate.
client (Enshassi et al. 2013). On the other hand, the underesti-
mated cost leads to a situation where a contractor incurs losses
and exposes the owner to several problems depending on the Research methodology
contract type (Avinash et al. 2018). The study’s objective is to get an accurate cost estimate, and the
There are many gaps in the cost estimation process, such as main problem is the influence of inaccurate cost estimation on
there is no consensus among researchers about the most import- construction projects. Hence, this section presents the research
ant factors influencing the cost estimate accuracy. Also, there is methodology employed in the clarification and execution of
no exact model to get an accurate cost estimate in the construc- this study.
tion projects. Many previous researches were reviewed to collect cost
The main objective and the importance of this study is to get estimation methodologies and collect twenty-nine factors that
an accurate cost estimate because the precise cost estimate plays affect the cost estimation process’s accuracy. The questionnaire
a vital role in the construction project’s success. technique was selected to gather opinions about the foremost

CONTACT Mohamed Sayed [email protected]

ß 2020 Informa UK Limited, trading as Taylor & Francis Group
2 M. SAYED ET AL.

important cost estimation factors from twenty-nine factors. The clarified that the cost information’s accuracy and reliability play
questionnaire form’s contents were based on the previous litera- an essential role in increasing the cost estimate precision.
ture review and consisted of twenty-nine factors investigated by On the other hand, cost estimating methodologies will be dis-
researchers. Then, the questionnaire was sent to 280 participants, cussed in detail to get the best methodology. That’s to use it in
and the total respondents are about 265. The respondents are civil the arithmetical model. The list of factors that affect the cost
engineers who consist of consultant and contractor engineers. estimation process will also be discussed in detail in the follow-
The Pareto technique is used to analyse all the collected data, ing sections.
allows seeing which 20% of factors cause 80% of the problems
and where efforts should be focused to get the most significant
improvement. This technique shows the foremost influential fac-
tors, which are reduced from twenty-nine to nine. The first three Cost estimating methodologies
factors are the market’s state, the estimating team’s experience
level, and site conditions. There are two cost estimating methodologies; conceptual and
The study provides a powerful arithmetical model, which is detailed. As the project definition level increases, the estimat-
created to estimate the construction project cost. This model is ing method will progress from conceptual methods to
developed by merging the nine factors inside the model and detailed methods.
selecting all techniques and procedures to get an accurate Early-stage cost estimation plays a vital role in backing up the
cost estimate. owners’ decision making (Zhi et al. 2014). When the project is
Fourteen finished construction projects were selected to be feasible, the owner proceeds by engagement of design firm to
case studies to validate the nine factors’ importance and the describe the project’s unique requirements and quality of con-
model’s effectiveness. These case studies had cost variance struction. The design team will prepare an approximate estimate
between the estimated cost and final actual contract value. There of the project at this stage (Akintoye 2000). This type of estima-
is a significant relationship between the nine factors and the cost tion is known as a conceptual estimation. After the owner has
variance reasons for each case study. That’s clarified the import- invited contractors to bid, the contractors make their detailed
ance of the nine factors, and the cost estimator must consider bid estimate. The contractor should present the lowest and the
the nine factors while conducting the cost estimation process. most accurate estimate because he aims to gain the project. The
On the other hand, the cost variance percentages were between contractor should use the detailed cost estimation methodology
1% and 15% for each case study, but after using the arithmetical because it is the most precise methodology to get a precise cost
model, the case studies’ cost variance percentages are between estimate. The detailed estimation aims to establish the real cost
0.5% and 0.8%. That’s clarified the model’s effectiveness. Hence, of executing the project (Phuwadol 2010). Detailed cost estimat-
the cost estimators should use the study’s model to get the most ing consists of the following seven steps:
accurate cost estimate for the construction projects.
The study’s results are the nine factors deduced from the
Separating the project into individual work items.
Pareto technique and the powerful arithmetical model. That’s to
Determining labor, equipment, and material that are
get an accurate cost estimate. required to execute all work items.
The research methodology was chosen with the previous
Defining the production rate.
sequence to show how the study’s objective is achieved and to
Determining the cost of labor, equipment, and material.
provide more clarification for the reader. All the previous points
Calculating the total cost for each work item by summing
will be discussed in detail in the following sections. all work item costs.

Determining taxes, overhead cost, and profit complete
the estimate.
Literature review
Reviewing by the estimator is also required to determine if
This study is needed to get an accurate cost estimate for con- the assembly’s price seems reasonable for the amount of
struction projects. Previous studies and several researches have work that has to be completed (Phuwadol 2010).
been done to discuss the cost estimate’s precision and the influ- The estimators should depend on the detailed cost estimation
ential factors that affect the cost estimate’s accuracy in the con- methodology to get an accurate cost estimate, and also, this
struction projects. Azman et al. (2013) presented research to methodology is used in the study’s model.
enhance the cost estimate accuracy in Malaysia, selected eighty-
three projects as case studies and then, deduced that site condi-
tions and cost data are essential factors in preparing accurate
estimates. Mahamid (2015) determined forty-one factors affect List of factors
the accuracy of cost estimation for construction projects in the
West Bank in Palestine. He deduced that the estimating team’s Many studies were performed on the factors influencing the
experience level is an essential factor in improving construction accuracy of construction projects cost estimate. The researchers
projects’ cost estimate. Odusami and Onukwube (2008) discussed used different procedures to define the most influential factors
the factors that influenced the cost estimation process and identi- on the cost estimate’s accuracy. Table 1 shows some factors
fied the most influential factors. These factors are the estimating which were mentioned in previous literature.
team’s experience level and market condition. Hatamleh et al. Table 1 includes some factors affecting the cost estimate’s
(2018) mentioned that the equipment’s cost change affects the accuracy, the researcher names, and the published research year.
cost estimate’s accuracy in the construction projects. Qinghua Based on that, twenty-nine factors are collected in Table 3
(2019) stated that the estimator must consider the site conditions and are divided into three groups. The groups are project char-
because they cost overcharge, which might be missed while con- acteristics, financial issues, and estimation process. That will be
ducting the cost estimation process. Avinash et al. (2018) clarified in the questionnaire section.
 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 3

Table 1. Some factors affecting construction projects listed in the literature review.
No. Author Year Factors
1 Neufville et al, 1977 a. Level of competition
2 Taylor, 1977 a. Availability of productivity standards
b. Site conditions
3 Strandell, 1978 a. Productivity of labor & equipment
4 Smith and Jolly, 1985 a. Productivity of labor & equipment
b. Weather conditions
5 Skitmore, 1985 a. Experience of estimators
6 Koehn and Brown, 1985 a. Weather conditions
7 Azzaro et al, 1987 a. Estimating method
b. Available database
c. Market conditions
d. Site conditions
8 Loannou, 1988 a. Site condition
9 Akintoye, 2000 a. Project team requirement
b. Contract requirement
c. Project duration
d. Market requirement
10 Elhag et al, 2005 1-Location of the project
11 Odusami and Onukwube, 2008 a. Project team’s experience of the construction type
b. The tender period
c. Market condition
12 Aftab et al, 2010 a. Availability of management and finance plans
13 Enshassi et al, 2013 a. Location of the project
14 Alumbugu et al, 2014 a. Project teams experience on the
b. Specification
15 Arif et al, 2015 a. Inflation
b. Market condition
c. Location
16 Hatamleh et al, 2018 a. Market condition
b. Equipment (performance/cost)
17 Avinash et al, 2018 a. Inflation
18 Agyekum, 2018 a. Market condition
b. Site location and condition

Questionnaire N ¼ N0=ð1 þ ðN0=PopulationÞÞ (2)

The questionnaire was selected from all data gathering techni- The questionnaire was sent to 280 participants, and the total
ques to get opinions from participants who include consultant respondents are about 265, they are civil engineers who consist
and contractor engineers. The twenty-nine factors are used as a of consultant and contractor engineers.
base for a questionnaire. This questionnaire is to collect opinions Respondents have different experience years and various par-
for the foremost factors influencing the cost estimation proc- ticipation types in project implementation, which are clarified in
ess’s accuracy. Table 2.
Table 2 includes respondents’ occupation and shows that the
percentage of contractor engineers is more than that of consult-
Population and sample ant engineers. That’s because the contractor engineers have more
The target population is civil engineers who consist of consultant knowledge than consultant engineers in the cost variance reasons
and contractor engineers; they are working in Egypt’s construc- and all factors which affect the accuracy of cost estimate in con-
tion industry. The civil engineers include the site engineers, cost struction projects. Also, it includes diversity in the respondents’
estimator engineers, contract engineers, quantity surveying engi- years of experience in the construction industry. The largest per-
neers, planning engineers, cost control engineers, construction centage of participated engineers who have 20 years of experi-
managers, and project managers. In Egypt, the civil engineers’ ence. That increases the results’ reliability.
work scope is included cost estimation and other fields. Also,
most of the cost estimator engineers and quantity surveying
engineers are civil engineers in Egypt, so they were taken the Pilot study
population of this study. A pilot study was conducted with fourteen project managers and
Based on Barlett et al. (2001), the target population is deter- thirteen respondents to reduce misunderstandings from the ques-
mined by using Equation (1):
tionnaire and improve the questionnaire format.
N0 ¼ ðt2 xs2 Þ=ðd2 Þ (1)
where t ¼ value of the selected a level of 0.025 in each tail Questionnaire steps
¼1.96; s ¼ estimate of standard deviation in the population
¼1.25; d ¼ acceptable margin of error for mean being estimated The questionnaire is one of the most common techniques to col-
¼ 0.15; N0 ¼ 265. lect data. There are steps to create the questionnaire, and these
According to Barlett et al. (2001), the correction shall be steps are clarified in the following paragraphs:
made using Equation no. (2): Preparing and formatting the questionnaire, which consists of
two parts. The first part consists of general questions about the
4 M. SAYED ET AL.

respondent’s name, e-mail, experience years, and job occupied. measure assesses the intended concept of the study (Roberts
The second part includes the twenty-nine factors, which are split et al. 2006).
into three main areas. These areas are project characteristics, Cronbach’s a coefficient test is used for appraisal of the reli-
financial issues, and estimation process. The respondents have ability. The measure is considered to be reliable if the value of
five options for each factor. These are ‘very major effects’, ‘major Cronbach’s a coefficient equals or exceeds 70 percent (Cronbach
effects’, ‘minor effects’, ‘very minor effects’ and ‘no effect’. and Shavelson 2004). In this study, the values of Cronbach’s a
Choosing the participators who are participating in the ques- Coefficient for each group ranged from 0.75 to 0.90. Since these
tionnaire. Hence, sending the questionnaire to them and then values were more than 0.7, the instrument of the questionnaire
collecting all questionnaires after filling them out to get opinions. was stable and reliable.
Finally, putting all opinions in Table 3, which contains all Two statistical tests were conducted to ensure the question-
respondents’ selections. naire’s validity. The first Spearman test was conducted to ensure
The questionnaire’s main objective is to get opinions in the last criterion validity. Thus, the Spearman coefficient and p-value
column from Table 3 and then conduct the Pareto technique. were calculated between each item in one group and the whole
Table 3 includes all respondents’ opinions for each factor, and group. The obtained results of the p-values are less than 0.05.
each respondent has five choices for selecting between them in Therefore, the correlation coefficients of the trait are statistically
each factor. significant, which means that the tools used are valid to measure
what is intended to be measured.
Reliability and validity The second Spearman test is conducted for validity. The
Spearman coefficient and p-value are calculated for each of the
The tool’s reliability means that the study’s findings are stable three groups. The p-values are less than 0.05. Therefore, the cor-
and can be replicated for another case; validity implies that the relation coefficients of the trait are statistically significant; this
means that the tools used are valid.
Table 2. Respondents’ information.
Respondents’ information Frequency Percent %
A) Type of respondents’ occupation
Consultant engineers 60 22.6
Pareto technique
Contractors’ engineers 205 77.4
Pareto technique is a statistical technique in decision-making
B) Respondents’ experience years in the construction industry
<2 years 35 13 used to choose a limited number of tasks that produce a signifi-
2 to 5 years 55 21 cant overall effect. After collecting all respondents’ opinions in
5 to 10 years 40 15 the previous section, the Pareto technique is selected to deduce
10 to 20 years 65 24.5
>20 years 70 26.5 the most influencing factors from the twenty-nine factors; the
Pareto technique is used to sort the factors in descending order.

Table 3. The results for factors influencing the accuracy of cost estimation.
No Very minor Minor Major Very major
No. Factors effect (1) effect (2) effect (3) effect (4) effect (5)
A) Project characteristics
1 Weather conditions 14 88 74 52 37
2 Transportation problems 15 0 29 15 206
3 Availability of power & Water in site 22 0 29 15 199
4 Site conditions 0 0 15 29 221
5 Vandalism and site security 44 81 118 7 15
6 Project schedule and shelf-life 15 7 22 44 177
7 Type of contract 45 81 88 29 22
8 Specification 44 37 140 29 15
9 Experience of field staff 0 51 103 74 37
10 Labor and equipment required 7 8 22 15 213
11 Use old equipment 7 37 74 37 110
12 Equipment maintenance 30 7 0 37 191
13 Productivity of labor and Equipment (the effect of learning theory) 37 74 147 7 0
14 Adoption of material from the owner 15 14 15 52 169
15 Control the wastage 29 59 96 52 29
B) Financial Issues
16 State of market 0 1 7 29 228
17 Currency exchange fluctuation average 52 51 133 29 0
18 Uncertainty of taxes 52 0 147 66 0
19 Inflation factor 7 133 37 59 29
20 Availability of management and finance plans 29 0 22 15 199
21 periodical payments 0 15 15 29 206
22 Insurance required 36 59 133 37 0
C) Estimation Process
23 Method used in determining contingency 30 140 59 29 7
24 Availability of productivity standards 15 7 0 37 206
25 Availability of cost indexes average 16 66 29 110 44
26 Experience of estimating team 1 0 7 29 228
27 Estimate notes and (questions & answers) 66 140 59 0 0
28 Time between project announcement and bid opening average 37 81 59 81 7
29 Number of competitors 15 81 140 29 0
 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 5

Table 4. Pareto technique.

No. Factors Frequency (Very major effect (5)) Cumulative Frequency Cumulative Frequency (%)
1 State of market 228 228 8%
2 Experience of estimating 228 456 16%
Team
3 Site conditions 221 677 24%
4 Labor and equipment 213 891 32%
Required
5 Transportation problems 206 1,097 39%
6 periodical payments 206 1,303 47%
7 Availability of productivity standards 206 1,509 54%
8 Availability of power & 199 1,708 61%
water in site
9 Availability of management 199 1,907 68%
and finance plans
10 Equipment maintenance 191 2,098 75%
11 Project schedule and 177 2,275 81%
shelf-life
12 Adoption of material from 169 2,444 87%
the owner
13 Use old equipment 110 2,554 91%
14 Availability of cost indexes average 44 2,598 93%
15 Weather 37 2,635 94%
16 Experience of field staff 37 2,672 96%
17 Control the wastage 29 2,702 97%
18 Inflation factor 29 2,731 98%
19 Type of contract 22 2,753 98%
20 vandalism and site security 15 2,768 99%
21 Specification 15 2,783 99%
22 Method used in determining contingency 7 2,790 100%
23 Time between project announcement and 7 2,797 100%
bid opening average
24 Productivity (the effect of learning theory) 0 2,797 100%
25 Currency exchange 0 2,797 100%
fluctuation average
26 Uncertainty of taxes 0 2,797 100%
27 Insurance required 0 2,797 100%
28 Estimate notes and 0 2,797 100%
(questions & answers)
29 Number of competitors 0 2,797 100%
Total 2,797

Pareto calculations Figure 1 shows the most significant factors, which are the first
nine factors in the chart. The foremost influential factors are: the
The last column in Table 3 is rearranged in descending order
market’s state, the estimating team’s experience level, site condi-
and then put in Table 4, then calculates the cumulative fre-
tions, labor and equipment required, transportation problems,
quency for each factor and then gets the percentage of cumula- periodical payments, availability of productivity standards, avail-
tive frequency by dividing each the cumulative frequency value ability of power & water in site, and availability of management
by the total. and finance plans.
Table 4 shows the cumulative calculation for each factor and
the cumulative percentage by dividing each the cumulative num-
ber by the total (2,797) for each factor. Analytical model
An analytical model is provided in this study. This model’s main
Pareto chart objective is to get an accurate cost estimate and reduce the vari-
ance between the estimated cost and final cost in the construc-
The value of the Pareto Principle is that it reminds us to focus tion projects. This model consists of inputs and outputs. All
on 20% of the issues that matter. Identify, and focus on those inputs consist of three parts that will be clarified in the inputs
things first, but don’t entirely ignore the remaining 80%. section. This model introduces many reports, which are the
model’s outputs. Reports are the sheets that present information
Results from the Pareto technique in an organized format for the users. The content of these
reports will be clarified in the outputs section. There are some
As a result of the Pareto technique in Figure 1, the authors constraints in this model, such as the project type is the con-
deduce issues: the first nine factors in Figure 1. Not taking the struction project, and the measured quantities of all items in the
nine factors into account during the cost estimation process project must be specific and precise.
leads to inaccuracy of this process’s results and causing a vari- On the other hand, this model is developed by merging the
ance between the estimated cost and the project’s final cost. nine factors inside it and also, selecting all techniques and proce-
Then, the impact of these factors will be verified through a dures are led to the most accurate cost estimation. That’s clari-
review of case studies. fied in the following points:
6 M. SAYED ET AL.

Figure 1. Pareto chart for factors affecting the accuracy of cost estimation.

Three costs estimated probability for each activity (pessimis- merge the market state factor into the model. Typical out-
tic, most likely, and optimistic) are calculated in the report puts include a histogram that shows the number of itera-
of ‘Monte Carlo simulation for estimated cost’. That’s to tions where a particular outcome resulted from the
 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 7

Table 5. All information for case studies.

Type of
Estimated Actual Cost original cost
contract contract variance Type of estimation
No. Project Name value (EGP) value (EGP) value (EGP) CV% contract approaches
1 Bank of Housing and Development Branch of Burj Al Arab 63,000,000 64,247,400 1,247,400 2% Fixed price Bottom-UP
2 Villa Ghazal 23,277,997 23,776,146 498,149 2% Fixed price Parametric
3 Beltone Financial New Head Office Smart Village 88,999,332 89,889,326 889,994 1% Fixed price Bottom-UP
4 Al Bustan Mall 224,759,440 237,235,384 12,475,944 6% Unit price Analogous
5 Core & Shell Offices - Smart Village 38,034,000 41,076,720 3,042,720 8% Unit price Analogous
6 Local Popular Council in Luxor 4,500,000 4,734,000 234,000 5% Fixed price Bottom-UP
7 Al-Rehab Building 57,788,945 60,747,739 2,958,794 5% Fixed Price Analogous
8 Bloom Bank Head Quarter 121,530,978 136,053,930 14,522,952 12% Unit price Parametric
9 Madkour quotas primary School in Dakahlyah 1,824,409 2,098,070 273,661 15% Fixed price Parametric
10 Odeer Al Hadydy secondary industrial school in Dakahlyah 5,409,552 6,172,840 763,288 14% Unit price Parametric
11 Rayah building Smart Village 49,000,000 53,998,000 4,998,000 10% Unit price Analogous
12 EFG Hermes New Headquarter - Smart Village 190,687,009 193,547,314 2,860,305 1% Fixed price Bottom-UP
13 Piraeus Bank Egypt, Smart Village 190,212,739 198,019,228 7,806,489 4% Fixed price Bottom-UP
14 Ekhnatoon School-New Cairo 65,700,000 70,824,600 5,124,600 8% Fixed price Analogous

simulation or a cumulative probability distribution (S-curve)
‘Aggregate demand plan for the material report’. Using this
that shows the probability of achieving any specific product report, the user can know monthly quantities and monthly
or less. estimated costs for every project’s material.

In the wages & salaries calculation sheet, transportation cost
‘Detailed cost estimation for mobilization, excavation, and
is calculated as a part of the indirect cost. backfilling works report’; ‘detailed direct cost estimation for

In a detailed calculation sheet for mobilization cost, all site concrete works report’; ‘detailed direct cost estimation for
requirements are calculated. finishing & MEP works report’; and ‘detailed indirect cost

The model includes productivity standards, which is an estimation report’. These reports produced all detailed esti-
input in this model. mated costs and expected working hours for each item and

This model contains a monthly allocating cost estimate to all projects. These reports help in making control during the
know what financial value should be provided each month project life cycle and decreasing cost variance.
to complete the project. This model also includes the esti-
‘Estimated cash flow & net cash flow report’. From this
mated cash flow and net cash flow for the project that pro- report, the user can know monthly and cumulative esti-
vides more effective management and financial plans. mated cash flow. That will help the user to determine
finance plans for the project.
Based on the previous, the merging of the nine factors into
‘Equipment ownership cost report’. This report’s outputs are
the arithmetical model and using Mont Carlo simulation techni- salvage value after the end of the default age of equipment,
ques help decrease the cost variance between the estimated cost book value every year, and total depreciation cost.
and final project cost. The next two sections clarify the inputs
‘Break-even point report’. This report for comparison
and the outputs of this model. between owned & rental equipment. (3) Results from the
Pareto technique.

Inputs The model’s accuracy and effectiveness will be validated by

recalculation of the cost estimate for each case study, and that
Inputs consist of three parts. The first part is the measured will be discussed in the following section.
quantities of the work items identified by the tender documenta-
tion’s drawings and specifications. All quantities required are put
in identified cells in the model. The second part is the unit price Case studies
of the needed materials, supplies, and equipment. All unit price This section aims to validate the importance of the nine factors
is placed in identified cells in the model. The third part is the and the model’s effectiveness. This study needs finished con-
monthly wages and salaries for all workers and engineers. All struction projects as case studies that have cost variance between
these are put in identified cells in the model. After putting all the estimated cost and the actual contract values. So, more
inputs, all calculations will be conducted automatically. searching was led to select compatible case studies. Fourteen
projects were chosen to be consistent with this study. These proj-
ects’ characteristics were different in terms of duration, type of
Outputs contract, original cost estimation technique, and the actual cost.
The outputs of the model consist of many reports, which are: By communicating with the project managers and the construc-
tion companies that carried out the projects, the lessons learned

‘Bar chart & allocated for estimated cost report’. Using this registers from these projects were collected to get the cost vari-
report, the user can get a monthly estimated cost for all ance reasons for each case study. These projects were finished
activities this month. without any change in scope or any change order related to the

‘Cost estimation & weight% for all item report’. Using this project cost. These cases are shown in Table 5.
report, the user can get more details in the direct cost sec- Table 5 contains fourteen case studies, estimated contract
tion, indirect cost section, and mark-up section. Also, the value, actual contract value, cost variance value, cost variance
user can get the percentage for each item in the project. percentage, type of project contract, and original cost estimations
8 M. SAYED ET AL.

Table 6. Cost variance reasons after reviewing case studies.

No. Project name Cost variance reasons
1 Bank of Housing and Development Branch of Burj Al Arab a. Equipment maintenance costs weren’t estimated correctly.
b. Labor transportation cost wasn’t estimated by the accurate value
2 Villa Ghazal a. Power and water cost on site weren’t taken into consideration.
3 Beltone Financial New Head Office Smart Village a. Bad site conditions weren’t taken into consideration such as (bad road
to the site and no services around the site).
4 Al Bustan Mall a. Unstable site condition during the project life cycle which wasn’t taken
into consideration during the estimation process.
5 Core & Shell Offices - Smart Village a. Using the incorrect production rate in the estimation process.
6 Local Popular Council in Luxor a. More mistakes from the cost estimation team during the calculation.
7 Al-Rehab Building a. Difference between estimated periodic payment and actual periodic payment.
8 Bloom Bank Head Quarter a. Bad site management.
9 Madkour quotas primary School in Dakahlyah a. Bad comparison between rented equipment and owned equipment.
10 Odeer Al Hadydy secondary industrial school in Dakahlyah a. The mistake in calculation labor number.
11 Rayah building Smart Village a. Labor transportation cost wasn’t estimated by the accurate value
12 EFG Hermes New Headquarter - Smart Village a. Increasing equipment number from equipment number in the estimated calculation.
13 Piraeus Bank Egypt, Smart Village a. Unstable site condition during the project life cycle which wasn’t taken
into consideration during the estimation process.
14 Ekhnatoon School-New Cairo a. Equipment maintenance costs weren’t estimated correctly.
b. Using the incorrect production rate in the estimation process.

Table 7. Cost variance percentage without using the model and with using model.
Estimated contract Estimated contract Actual CV% without CV% with
value without using value with using contract using the using the
No. Project name the model (EGP) the model (EGP) value (EGP) model model
1 Bank of Housing and Development Branch of Burj Al Arab 63,000,000 63,917,320 64,247,400 2% 0.5%
2 Villa Ghazal 23,277,997 23,610,046 23,776,146 2% 0.7%
3 Belt one Financial New Head Office Smart Village 88,999,332 89,410,116 89,889,326 1% 0.5%
4 Al Bustan Mall 224,759,440 236,035,124 237,235,384 6% 0.5%
5 Core & Shell Offices - Smart Village 38,034,000 40,816,020 41,076,720 8% 0.6%
6 Local Popular Council in Luxor 4,500,000 4,703,000 4,734,000 5% 0.7%
7 Al-Rehab Building 57,788,945 60,317,111 60,747,739 5% 0.7%
8 Bloom Bank Head Quarter 121,530,978 135,153,580 136,053,930 12% 0.7%
9 Madkour quotas primary School in Dakahlyah 1,824,409 2,081,285 2,098,070 15% 0.8%
10 Odeer Al Hadydy secondary industrial school in Dakahlyah 5,409,552 6,127,161 6,172,840 14% 0.7%
11 Rayah building Smart Village 49,000,000 53,706,411 53,998,000 10% 0.5%
12 EFG Hermes New Headquarter - Smart Village 190,687,009 192,018,290 193,547,314 1% 0.8%
13 Piraeus Bank Egypt, Smart Village 190,212,739 196,831,113 198,019,228 4% 0.6%
14 Ekhnatoon School-New Cairo 65,700,000 70,328,828 70,824,600 8% 0.7%

approach for every case study. This table’s information was col- studies’ cost variance percentage is between 0.5% and 0.8% after
lected from communication with project managers and lessons using the model. All these values are in Table 7.
learned registers for every project. Table 7 contains fourteen case studies, estimated contract
The cost variance is the difference between the actual project value without using the model, estimated contract value with
contract value and the estimated project cost. Also, the cost vari- using the model, cost variance percentage without using the
ance percentage (% CV) is considered an indicator of the cost model, and cost variance percentage with using the model.
estimating accuracy. The cost variance reasons show in Table 6
for each case study. All cost variance reasons were collected to
clarify all inaccurate cost estimates reasons. Results of case studies
Table 6 contains the cost variance reasons for each case study. There is a significant similarity between the cost variance reasons,
This table’s information is collected from communication with
which were mentioned in Table 6 for each case study, and the
project managers, from the lesson learned registers, and issue
nine factors deduced from the Pareto chart. That’s clarified
logs for every project.
the nine factors’ importance. The cost estimator must consider the
There is a significant similarity between these cost variance
nine factors while conducting cost estimation calculations. If the
reasons, which were mentioned in Table 6, and the previously
nine factors are considered, the cost variance reasons will decrease.
mentioned nine factors that were deduced from the Pareto chart.
On the other hand, after using the model in all case studies,
That’s clarified the nine factors’ importance. Based on that, the
cost estimator must consider the nine factors while conducting the cost variance percentage decreased, as showed in Table 7.
cost estimation calculations. That proves the model’s accuracy and effectiveness. Hence, the
On the other hand, that’s important to validate the arithmet- estimators should use the study’s model.
ical model’s accuracy and effectiveness. Without using the model,
case studies’ cost variance percentages were between 1% and Summary and conclusions
15%. The estimated contract value for each case study is recalcu-
lated by using the model. The bill of quantity for each case study Estimating the cost of construction projects is highly complex
is the input in the mathematical model, and the new estimated and challenging for construction companies. This study’s sum-
contract value of each case study is the output. Hence, all case mary and conclusions are shown in the following paragraphs:
 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 9

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