Cost Modeling in Target Value Delivery

Cost modeling plays a vital role in target value delivery. In the project definition phase, the economic feasibility of the project is evaluated based on the gap between the client’s allowable cost and an expected market cost, estimated prior to design. The accuracy of that market cost estimate is important for the quality of decision making. If the gap is larger than estimated, the project may appear to be feasible, but be infeasible in reality. If the gap is smaller than estimated, capital may be reserved unnecessarily. Further cost models serve as means for steering to targets in design and in construction. Indeed, the accuracy of conceptual cost models is hypothesized to be a function of how the models are constructed, and the utility of those models in both setting targets that align customer value with customer constraints and their utility in steering to targets during project execution. Accuracy of cost models is measured by the standard deviation between estimated and actual costs. Models with standard deviations near 5% have been identified and will be evaluated for:

  • Their utility in facilitating definition of project targets, such that what’s wanted is consistent with customer constraints of time, money, location, etc.
  • Their utility in facilitating steering of design and construction to project targets.

We will attempt to explain why one process and cost model performs better or worse than others.

Additional research objectives:

  • Test the hypothesis that design quality and project cost are not statistically correlated over the entire range of parameters. [The truth of this hypothesis is an essential presupposition for steering to targets.]
  • Measure and compare relative building costs in Austria, Finland, Norway, and California.
  • Identify cost drivers and build parametric data sets.