Risk and Uncertainty in the Cost Contingency of Transport Projects: Accommodating Bias or Heuristics, or Both?
Transport projects are regularly subjected to cost misperformance. The contingency set aside to cover any increases in cost due to risk and uncertainty issues is often insufficient. We review approaches that have been used to estimate a cost contingency. We show that some approaches such as referenc...
| Main Authors: | , , , |
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| Format: | Journal Article |
| Published: |
2021
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| Online Access: | http://purl.org/au-research/grants/arc/DP160102882 http://hdl.handle.net/20.500.11937/90130 |
| _version_ | 1848765333388656640 |
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| author | Love, Peter Ika, L.A. Matthews, Jane Fang, Weili |
| author_facet | Love, Peter Ika, L.A. Matthews, Jane Fang, Weili |
| author_sort | Love, Peter |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | Transport projects are regularly subjected to cost misperformance. The contingency set aside to cover any increases in cost due to risk and uncertainty issues is often insufficient. We review approaches that have been used to estimate a cost contingency. We show that some approaches such as reference class forecasting, which underpins the planning fallacy theory, take a biased view to formulate a contingency. Indeed, there is a perception that the risks and uncertainties that form the parts of a cost contingency cannot be accurately assessed using heuristics. The absence of an overarching theory to support the use of heuristics has resulted in them often being downplayed in a project's investment decision-making process. This article fills this void and provides the theoretical backdrop to support the use of heuristics to formulate a cost contingency. We make a clarion call to reconcile the duality of the bias and heuristic approaches, propose a balanced framework for developing a cost contingency, and suggest the use of uplifts to derisk cost estimates is redundant. We hope our advocacy for a balanced approach will stimulate debate and question the legitimacy of uplifts to solely debias cost estimates. |
| first_indexed | 2025-11-14T11:33:35Z |
| format | Journal Article |
| id | curtin-20.500.11937-90130 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T11:33:35Z |
| publishDate | 2021 |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-901302023-02-14T03:16:06Z Risk and Uncertainty in the Cost Contingency of Transport Projects: Accommodating Bias or Heuristics, or Both? Love, Peter Ika, L.A. Matthews, Jane Fang, Weili Transport projects are regularly subjected to cost misperformance. The contingency set aside to cover any increases in cost due to risk and uncertainty issues is often insufficient. We review approaches that have been used to estimate a cost contingency. We show that some approaches such as reference class forecasting, which underpins the planning fallacy theory, take a biased view to formulate a contingency. Indeed, there is a perception that the risks and uncertainties that form the parts of a cost contingency cannot be accurately assessed using heuristics. The absence of an overarching theory to support the use of heuristics has resulted in them often being downplayed in a project's investment decision-making process. This article fills this void and provides the theoretical backdrop to support the use of heuristics to formulate a cost contingency. We make a clarion call to reconcile the duality of the bias and heuristic approaches, propose a balanced framework for developing a cost contingency, and suggest the use of uplifts to derisk cost estimates is redundant. We hope our advocacy for a balanced approach will stimulate debate and question the legitimacy of uplifts to solely debias cost estimates. 2021 Journal Article http://hdl.handle.net/20.500.11937/90130 10.1109/TEM.2021.3119064 http://purl.org/au-research/grants/arc/DP160102882 http://purl.org/au-research/grants/arc/DP210101281 http://creativecommons.org/licenses/by/4.0/ fulltext |
| spellingShingle | Love, Peter Ika, L.A. Matthews, Jane Fang, Weili Risk and Uncertainty in the Cost Contingency of Transport Projects: Accommodating Bias or Heuristics, or Both? |
| title | Risk and Uncertainty in the Cost Contingency of Transport Projects: Accommodating Bias or Heuristics, or Both? |
| title_full | Risk and Uncertainty in the Cost Contingency of Transport Projects: Accommodating Bias or Heuristics, or Both? |
| title_fullStr | Risk and Uncertainty in the Cost Contingency of Transport Projects: Accommodating Bias or Heuristics, or Both? |
| title_full_unstemmed | Risk and Uncertainty in the Cost Contingency of Transport Projects: Accommodating Bias or Heuristics, or Both? |
| title_short | Risk and Uncertainty in the Cost Contingency of Transport Projects: Accommodating Bias or Heuristics, or Both? |
| title_sort | risk and uncertainty in the cost contingency of transport projects: accommodating bias or heuristics, or both? |
| url | http://purl.org/au-research/grants/arc/DP160102882 http://purl.org/au-research/grants/arc/DP160102882 http://hdl.handle.net/20.500.11937/90130 |