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Risk Consideration and Cost Estimation in Construction Projects Using Monte Carlo Simulation

Author

Listed:
  • Claudius A. Peleskei

    (Universitatea Tehnica din Cluj-Napoca, Romania)

  • Vasile Dorca

    (Universitatea Tehnica din Cluj-Napoca, Romania)

  • Radu A. Munteanu

    (Universitatea Tehnica din Cluj-Napoca, Romania)

  • Radu Munteanu

    (Universitatea Tehnica din Cluj-Napoca, Romania)

Abstract

Construction projects usually involve high investments. It is, therefore, a risky adventure for companies as actual costs of construction projects nearly always exceed the planed scenario. This is due to the various risks and the large uncertainty existing within this industry. Determination and quantification of risks and their impact on project costs within the construction industry is described to be one of the most difficult areas. This paper analyses how the cost of construction projects can be estimated using Monte Carlo Simulation. It investigates if the different cost elements in a construction project follow a specific probability distribution. The research examines the effect of correlation between different project costs on the result of the Monte Carlo Simulation. The paper finds out that Monte Carlo Simulation can be a helpful tool for risk managers and can be used for cost estimation of construction projects. The research has shown that cost distributions are positively skewed and cost elements seem to have some interdependent relationships.

Suggested Citation

  • Claudius A. Peleskei & Vasile Dorca & Radu A. Munteanu & Radu Munteanu, 2015. "Risk Consideration and Cost Estimation in Construction Projects Using Monte Carlo Simulation," Management, University of Primorska, Faculty of Management Koper, vol. 10(2), pages 163-176.
    • Handle: RePEc:mgt:youmng:v:10:y:2015:i:2:p:163-176
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    References listed on IDEAS

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    1. Pavlos Loizou & Nick French, 2012. "Risk and uncertainty in development," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 30(2), pages 198-210, March.
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    Cited by:

    1. Mohammed A. Al-Ghamdi & Khalid S. Al-Gahtani, 2022. "Integrated Value Engineering and Life Cycle Cost Modeling for HVAC System Selection," Sustainability, MDPI, vol. 14(4), pages 1-30, February.
    2. Janne Harkonen & Arto Tolonen & Harri Haapasalo, 2018. "Modelling of Construction Products and Services for Effective Productisation," Management, University of Primorska, Faculty of Management Koper, vol. 13(4), pages 335-353.

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