Modelling Correlations in Highway Construction Projects

Abstract

The study examines the different types of correlations between the construction costs, times and cost/time of highway construction projects and quantified their impacts on the total cost and total time of different structures of highway construction projects to determine whether repetitions of activities amplify the impact of correlation on construction cost and time. Highway construction projects are often plagued by cost and time underestimation due to ignorance of costs and times correlation between the activities in highway projects when deterministic estimation techniques are employed. Therefore, a probabilistic model is adopted in estimating the effect of correlations on the probability distributions of total cost and total time. This study identified various types of correlations between the costs, times and cost/time in the construction of highway projects and modelled them using Gaussian copula and analyzed the impact of such correlations in the construction of a highway project using Monte Carlo simulation. The results show that the standard deviation of the total cost and total time increases with the magnitude of the correlation and type of correlation matrix and, most importantly, it increases considerably with the number of costs and times that are correlated. Based on these findings, the study concludes that the deterministic estimation technique in use does not capture the wide range of the possible total cost and time of highway projects resulting in significant overruns.KeywordsCorrelationCost and time underestimationCost and time overrunsDeterministic estimationHighway constructionRepeated activity