IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v295y2021i3p1161-1179.html
   My bibliography  Save this article

Practical application of reference class forecasting for cost and time estimations: Identifying the properties of similarity

Author

Listed:
  • Servranckx, Tom
  • Vanhoucke, Mario
  • Aouam, Tarik

Abstract

Many project managers underestimate that todays projects are subject to various risks, which might lead to enormous cost overruns and project delays. In the domain of project forecasting, Reference Class Forecasting has been introduced as a method to bypass human judgement by applying an uplift that is based on the forecast errors of similar historical projects. In this research study, we aim to identify the possible drivers of project similarity based on interviews with 76 project managers. Also, we evaluate the performance of Reference Class Forecasting as a project forecasting technique from both a cost and time perspective. Based on an empirical study of 52 real projects, the accuracy of Reference Class Forecasting is successfully demonstrated by implementing a method that considers both the intra- and inter-accuracy of reference classes. The accuracy increases when more project properties are considered, however, a higher number of project properties decreases the size of the reference classes and thus reduces the reliability of the results.

Suggested Citation

  • Servranckx, Tom & Vanhoucke, Mario & Aouam, Tarik, 2021. "Practical application of reference class forecasting for cost and time estimations: Identifying the properties of similarity," European Journal of Operational Research, Elsevier, vol. 295(3), pages 1161-1179.
    • Handle: RePEc:eee:ejores:v:295:y:2021:i:3:p:1161-1179
    DOI: 10.1016/j.ejor.2021.03.063
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221721002939
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2021.03.063?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Cui, Nanfang & Demeulemeester, Erik & Bie, Li, 2016. "Incorporation of activity sensitivity measures into buffer management to manage project schedule riskAuthor-Name: Hu, Xuejun," European Journal of Operational Research, Elsevier, vol. 249(2), pages 717-727.
    2. Daniel Kahneman & Dan Lovallo, 1993. "Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking," Management Science, INFORMS, vol. 39(1), pages 17-31, January.
    3. Cantarelli, C.C. & Flyvbjerg, B. & Buhl, S.L., 2012. "Geographical variation in project cost performance: the Netherlands versus worldwide," Journal of Transport Geography, Elsevier, vol. 24(C), pages 324-331.
    4. Cantarelli, C.C. & van Wee, B. & Molin, E.J.E. & Flyvbjerg, B., 2012. "Different cost performance: different determinants?," Transport Policy, Elsevier, vol. 22(C), pages 88-95.
    5. Wauters, Mathieu & Vanhoucke, Mario, 2017. "A Nearest Neighbour extension to project duration forecasting with Artificial Intelligence," European Journal of Operational Research, Elsevier, vol. 259(3), pages 1097-1111.
    6. Odeck, James, 2004. "Cost overruns in road construction--what are their sizes and determinants?," Transport Policy, Elsevier, vol. 11(1), pages 43-53, January.
    7. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    8. Bent Flyvbjerg, 2007. "Policy and Planning for Large-Infrastructure Projects: Problems, Causes, Cures," Environment and Planning B, , vol. 34(4), pages 578-597, August.
    9. Cantarelli, C.C. & Molin, E.J.E. & van Wee, B. & Flyvbjerg, B., 2012. "Characteristics of cost overruns for Dutch transport infrastructure projects and the importance of the decision to build and project phases," Transport Policy, Elsevier, vol. 22(C), pages 49-56.
    10. Ravi Kumar, P. & Ravi, V., 2007. "Bankruptcy prediction in banks and firms via statistical and intelligent techniques - A review," European Journal of Operational Research, Elsevier, vol. 180(1), pages 1-28, July.
    11. Renata Walczak & Tomasz Majchrzak, 2018. "Implementation Of The Reference Class Forecasting Method For Projects Implemented In A Chemical Industry Company," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2018(1), pages 25-33.
    12. Vanhoucke, Mario & Coelho, Jose & Debels, Dieter & Maenhout, Broos & Tavares, Luis V., 2008. "An evaluation of the adequacy of project network generators with systematically sampled networks," European Journal of Operational Research, Elsevier, vol. 187(2), pages 511-524, June.
    13. Nikolopoulos, K. & Goodwin, P. & Patelis, A. & Assimakopoulos, V., 2007. "Forecasting with cue information: A comparison of multiple regression with alternative forecasting approaches," European Journal of Operational Research, Elsevier, vol. 180(1), pages 354-368, July.
    14. Noreen, Eric, 1988. "The economics of ethics: A new perspective on agency theory," Accounting, Organizations and Society, Elsevier, vol. 13(4), pages 359-369, June.
    15. Valadares Tavares, L. & Antunes Ferreira, J. & Silva Coelho, J., 1999. "The risk of delay of a project in terms of the morphology of its network," European Journal of Operational Research, Elsevier, vol. 119(2), pages 510-537, December.
    16. Madadi, M. & Iranmanesh, H., 2012. "A management oriented approach to reduce a project duration and its risk (variability)," European Journal of Operational Research, Elsevier, vol. 219(3), pages 751-761.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ünsal-Altuncan, Izel & Vanhoucke, Mario, 2024. "A hybrid forecasting model to predict the duration and cost performance of projects with Bayesian Networks," European Journal of Operational Research, Elsevier, vol. 315(2), pages 511-527.
    2. Lordan-Perret, Rebecca & Bärenbold, Rebekka & Weigt, Hannes & Rosner, Robert, 2023. "An ex-ante method to verify commercial U.S. nuclear power plant decommissioning cost estimates," Energy Economics, Elsevier, vol. 127(PB).
    3. Dorota Kuchta & Paolo Canonico & Vincenza Capone & Guido Capaldo, 2023. "Uncertainty in the Planning Phase of Public Projects—Its Scope, Consequences, and Possible Remedies," Administrative Sciences, MDPI, vol. 13(6), pages 1-17, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cavalieri, Marina & Cristaudo, Rossana & Guccio, Calogero, 2019. "On the magnitude of cost overruns throughout the project life-cycle: An assessment for the Italian transport infrastructure projects," Transport Policy, Elsevier, vol. 79(C), pages 21-36.
    2. Dejan Makovšek & Marian Moszoro, 2018. "Risk pricing inefficiency in public–private partnerships," Transport Reviews, Taylor & Francis Journals, vol. 38(3), pages 298-321, May.
    3. Steininger, Bertram & Groth, Martin & Weber, Birgitte, 2020. "Cost overruns and delays in infrastructure projects: the case of Stuttgart 21," Working Paper Series 20/11, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    4. Verweij, Stefan & van Meerkerk, Ingmar & Korthagen, Iris A., 2015. "Reasons for contract changes in implementing Dutch transportation infrastructure projects: An empirical exploration," Transport Policy, Elsevier, vol. 37(C), pages 195-202.
    5. Love, Peter E.D. & Ahiaga-Dagbui, Dominic D. & Irani, Zahir, 2016. "Cost overruns in transportation infrastructure projects: Sowing the seeds for a probabilistic theory of causation," Transportation Research Part A: Policy and Practice, Elsevier, vol. 92(C), pages 184-194.
    6. Miranda Sarmento, J.J., 2014. "Public private partnerships," Other publications TiSEM c7d4c978-234c-4f88-83ed-1, Tilburg University, School of Economics and Management.
    7. Makovšek, Dejan, 2014. "Systematic construction risk, cost estimation mechanism and unit price movements," Transport Policy, Elsevier, vol. 35(C), pages 135-145.
    8. Odeck, James, 2014. "Do reforms reduce the magnitudes of cost overruns in road projects? Statistical evidence from Norway," Transportation Research Part A: Policy and Practice, Elsevier, vol. 65(C), pages 68-79.
    9. Love, Peter E.D. & Zhou, Jingyang & Edwards, David J. & Irani, Zahir & Sing, Chun-Pong, 2017. "Off the rails: The cost performance of infrastructure rail projects," Transportation Research Part A: Policy and Practice, Elsevier, vol. 99(C), pages 14-29.
    10. Chong, Uven & Hopkins, Omar, 2016. "An international experience on the evolution of road costs during the project life cycle," Transport Policy, Elsevier, vol. 48(C), pages 60-66.
    11. Wasiu Olayinka FAWOLE & Burhan ÖZKAN, 2017. "Identifying the Drivers of Food Security Based on Perception among Households in South Western Nigeria," European Journal of Interdisciplinary Studies Articles, Revistia Research and Publishing, vol. 3, ejis_v3_i.
    12. Flyvbjerg, Bent & Ansar, Atif & Budzier, Alexander & Buhl, Søren & Cantarelli, Chantal & Garbuio, Massimo & Glenting, Carsten & Holm, Mette Skamris & Lovallo, Dan & Lunn, Daniel & Molin, Eric & Rønnes, 2018. "Five things you should know about cost overrun," Transportation Research Part A: Policy and Practice, Elsevier, vol. 118(C), pages 174-190.
    13. Love, Peter E.D. & Ahiaga-Dagbui, Dominic D., 2018. "Debunking fake news in a post-truth era: The plausible untruths of cost underestimation in transport infrastructure projects," Transportation Research Part A: Policy and Practice, Elsevier, vol. 113(C), pages 357-368.
    14. Hugo Priemus & Bert van Wee (ed.), 2013. "International Handbook on Mega-Projects," Books, Edward Elgar Publishing, number 14791.
    15. Petter Osmundsen & Kristin Helen Roll, 2016. "Rig Rates and Drilling Speed: Reinforcing Effects," CESifo Working Paper Series 5895, CESifo.
    16. Abeysekara, Baudhi & Perera, Piyaruwan & Chhipi Shrestha, Gyan Kumar & Gunaruwan, Lalithasiri & Kumarage, Amal & Sadiq, Rehan & Hewage, Kasun, 2021. "Improving the capital deployment efficiency: An infrastructure investment planning process in transportation project," Research in Transportation Economics, Elsevier, vol. 88(C).
    17. Awojobi, Omotola & Jenkins, Glenn P., 2016. "Managing the cost overrun risks of hydroelectric dams: An application of reference class forecasting techniques," Renewable and Sustainable Energy Reviews, Elsevier, vol. 63(C), pages 19-32.
    18. Wauters, Mathieu & Vanhoucke, Mario, 2017. "A Nearest Neighbour extension to project duration forecasting with Artificial Intelligence," European Journal of Operational Research, Elsevier, vol. 259(3), pages 1097-1111.
    19. Miranda Sarmento, J.J. & Renneboog, Luc, 2017. "Cost overruns in public sector investment projects," Other publications TiSEM 51799a3e-4c78-4dbd-b330-b, Tilburg University, School of Economics and Management.
    20. Francisco Pinheiro Catalão & Carlos Oliveira Cruz & Joaquim Miranda Sarmento, 2023. "The entanglement of time and cost deviations in public projects," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 94(1), pages 241-272, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:295:y:2021:i:3:p:1161-1179. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.