Cost Contingency and Cost Evolvement of Construction Projects in the Preconstruction Phase

Abstract

The current literature discusses the methods to estimate the costs and cost contingency. The literature also distinguishes “known unknowns” and “unknown unknowns” contingencies. Little is written, however, about the evolvement of total project cost estimates during the preconstruction phase of construction projects. Moreover, not many studies are investigating the “known unknowns” and “unknown unknowns” contingencies in real construction projects. Practice expressed the need for getting more insight into the development of the estimated costs of the projects in the preconstruction phase. This paper, therefore, discusses the estimate of the total project costs (and cost contingency) in the preconstruction phases of 29 Dutch flood defense projects using a case study approach. Altogether, the projects have experienced an 11.51% increase in the estimated costs compared to the initial estimates, which is low compared to previous studies. This increase in the cost estimates of the flood defense projects can be explained by “technical” reasons. The investigation of “known unknowns” and “unknown unknowns” contingencies shows that the percentage of the “unknown unknowns” contingency has increased in the preconstruction phase while a reduction was expected. This increase suggests that the projects were not confident about their estimates and the increase can be explained by a lack of experience, organizations’ culture, or the phenomenon of “pessimistic bias.” Practitioners can avoid “pessimistic bias” behavior by asking for opinions about their estimates and using historical project data. Further research is suggested into realized cost contingency after project execution.