Showing papers on "Cost overrun published in 1996"

Accuracy of Traffic Forecasts and Cost Estimates on Large Transportation Projects

Abstract: Little research has been carried out on before-and-after studies of traffic and construction costs in large transportation infrastructure projects. The few studies that do exist show that forecasts of construction costs tend to be underestimated and those of traffic, overestimated. An examination of construction costs and traffic in seven large Danish bridge and tunnel projects indicates that, on average, construction costs were underestimated and traffic was overestimated in the initial phases of planning. This pattern is also found for similar projects in other countries. When the results of all the projects are pooled, it is seen that cost overruns of 50 to 100 percent are common and that overruns above 100 percent are not uncommon. Traffic forecasts that are off by 20 to 60 percent when compared with actual development are frequent in large transportation infrastructure projects. The result of this overoptimism in the initial planning phases is that decisions are based on misleading forecasts that may...

Construction cost prediction for public school buildings in Jordan

Abstract: An empirical model for predicting the construction costs for public school buildings is presented. Observations of 125 school projects were carried out in Jordan for the period 1984–1994. The results indicate that by the time a project is completed, the actual cost exceeds the original contract price by 30% while change orders result in an 8.3% cost overrun. Capital expenditure on school projects over the next 5 years is anticipated at 695.9 million JD. Out of this disbursement 208 million JD will be cost overrun and 57.7 million JD will result from issuing change orders. These figures highlight the need to improve current practices. A cooperative effort between concerned agencies is required to alleviate construction problems and could lead to new major innovations to meet the challenges ahead.

Systems integration via software risk management

Abstract: This paper addresses an evolutionary process currently taking place in software engineering: the shift from hardware to software, where the role of software engineering is increasing and is becoming more central in systems integration. This shift also markedly affects the sources of risk that are introduced throughout the life cycle of a system's development-its requirements, specifications, architecture, process, testing, and end product. Risk is commonly defined as a measure of the probability and severity of adverse effects. Software technical risk is defined as a measure of the probability and severity of adverse effects inherent in the development of software. Consequently, risk assessment and management, as a process, will more and more assume the role of an overall cross-functional system integration agent. Evaluating the changes that ought to take place in response to this shift in the overall pattern leads to two challenges. One is the need to reassess the role of a new breed of software systems engineers/systems integrators. The other is the need to develop new and appropriate metrics for measuring software technical risk. Effective systems integration necessitates that all functions, aspects, and components of the system must be accounted for along with an assessment of most risks associated with the system. Furthermore, for software-intensive systems, systems integration is not only the integration of components, but is also; an understanding of the functionality that emerges from the integration. Indeed, when two or more software components are integrated, they often deliver more than the sum of what each was intended to deliver; this integration adds synergy and enhances functionality. In particular, the thesis advanced in this paper is that the process of risk assessment and management is an imperative requirement for successful systems integration; this is especially true for software-intensive systems. In addition, this paper advances the premise that the process of risk assessment and management is also the sine qua non requirement for ensuring against unwarranted time delay in a project's completion schedule, cost overrun, and failure to meet performance criteria. To achieve the aspired goal of systems integration a hierarchical holographic modeling (HHM) framework, which builds on previous works of the authors, has been developed. This HHM framework constitutes seven major considerations, perspectives, venues, or decompositions, each of which identifies the sources of risk in systems integration from a different, albeit with some overlap, viewpoint: software development, temporal perspective, leadership, the environment, the acquisition process, quality, and technology.

Incomplete Contracting and Target-Cost Pricing

Abstract: Target-cost pricing has been a widely applied formula in defence contracting. If this type of pricing arrangement is chosen, the seller's ex-post profit consists of a fixed payment plus some share of the cost overrun, that is the difference between an ex--ante agreed estimation of the production costs and the actual production costs. In an incomplete--contract setting, where relationship-- specific investments have to be made prior to the production stage, the cost-reimbursement properties of target-cost pricing work against a first best. However, since costs are verifiable, the ex-- ante contract allows to condition the initial contract on costs, that is, to stipulate a separate trade price for each cost observation, plus a special price for the no--trade case. (If costs are non--verifiable, it is only possible to fix one price for trade and one price for non--trade.) This increase in the number of instruments available to the agents works in favour of a first best. The paper shows that the positive properties of target-cost pricing outweigh the negative ones: it is possible to find prices which induce the agents to invest efficiently into relationship-specific investments, thus avoiding Williamson's hold-up problem. This result is particularly important because fixed-price contracts a la Hart-- Moore (1988) fail to achieve the first best if they are applied in the same environment in which target-cost prices succeed in attaining the first best. Since any contract, which implies full cost-reimbursement, also fails to achieve the first best, this paper shows that the first best requires just that middle-of-the-road approach which is offered by target-cost pricing.