A Decision Support System Specification for Cost Escalation in Heavy Engineering Industry

Abstract

The heavy civil engineering industry (railways, sewage‐treatment, chemical and pharmaceutical facilities, oil and gas facilities, etc.) is one of the major contributors to the British economy and generally involves a high level of investment. Clients in this industry are demanding accurate cost estimates, proper analysis of out‐turn cost and cost escalation, and a high quality risk analysis throughout the construction processes. Current practices in the industry have suggested that there is a lack of structured methodologies and systematic cost escalation approaches to achieve an appropriate cost analysis at the outset of projects and throughout the construction processes. In this context the prime objective of this research work is to develop a structured cost escalation methodology for improving estimating management and control in the heavy engineering industry construction processes. The methodology is composed of a forecasting model to predict cost indices of major items in industry and a risk knowledge‐base model for identifying and quantifying causes of cost escalations. This paper reviews and discusses a knowledge‐based model for applying a cost escalation factor. The cost escalation factor is made up of market variation, a risk element, and a component for bias. A knowledge elicitation strategy was employed to obtain the required knowledge for the model. The strategy included questionnaires, interviews, and workshops, and deliverables came in the form of influences and their effect on project cost escalation. From these deliverables, a decision support system and specifications for applying cost escalation to base estimates are presented.