New Method of Analyzing Cost Estimation by Integrating Monte-Carlo Simulation and Market Investigation

Abstract

AbstractNew method of analyzing cost estimation by integrating Monte-Carlo simulation and market investigation is proposed to consider both the uncertainties of cost estimate and their market drivers. Critical items which have big impact on cost estimation will be selected based on sensitivity analysis of Monte-Carlo simulation. By Likert scale, Relative Important Indices (RII) and Normalized Important Indices (NII), important critical items will be chosen from critical items based on both discipline experts' experience and procurement experts' experience. Important critical items will be re-enquired in details in the market. Eventually, the re-rankings of market drivers will be acted as guidelines for carrying out project cost re-simulation with inquired information of important critical items more efficiency. As one case, one petrochemical EPC contracting project in Saudi is illustrated to verify the validity of proposed method in practice. On the basis of the traditional cost risk analysis by Monte-Carlo simulation, the methodology of analyzing project cost estimates by integrating market-drivers, Monte-Carlo simulation and the Likert scale are proposed and obtain the following conclusions: (1) re-ranking of cost items are obtained by integrating sensitivity analysis of Monte-Carlo simulation with Likert scale in order to re-enquiry the prices of important critical items for adjusting cost estimates; (2) identifying market drivers affecting cost items and obtaining the re-ranking of market drivers for project management team to take effective and rational measures.