Improving the accuracy and operational predictability of project cost forecasts

an adaptive combination approach

Byung-cheol Kim, Young Hoon Kwak

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

Conducting an early warning forecast to detect potential cost overrun is essential for timely and effective decision-making in project control. This paper presents a forecast combination model that adaptively identifies the best forecast and optimises various combinations of commonly used project cost forecasting models. To do so, a forecast error simulator is formulated to visualise and quantify likely error profiles of forecast models and their combinations. The adaptive cost combination (ACC) model was applied to a pilot project for numerical illustration as well as to real world projects for practical implementation. The results provide three valuable insights into more effective project control and forecasting. First, the best forecasting model may change in individual projects according to the project progress and the management priority (i.e. accuracy, outperformance or large errors). Second, adaptive combination of simple, index-based forecasts tends to improve forecast accuracy, while mitigating the risk of large errors. Third, a post-mortem analysis of seven real projects indicated that the simple average of two most commonly used cost forecasts can be 31.2% more accurate, on average, than the most accurate alternative forecasts.

Original languageEnglish (US)
Pages (from-to)743-760
Number of pages18
JournalProduction Planning and Control
Volume29
Issue number9
DOIs
StatePublished - Jul 4 2018

Fingerprint

Costs
Simulators
Decision making
Predictability
Project control
Cost overrun
Forecast accuracy
Forecast error
Early warning
Forecast combination

All Science Journal Classification (ASJC) codes

  • Computer Science Applications
  • Strategy and Management
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

Cite this

@article{c3915e35fbad4993b3c9cee19cc9d59d,
title = "Improving the accuracy and operational predictability of project cost forecasts: an adaptive combination approach",
abstract = "Conducting an early warning forecast to detect potential cost overrun is essential for timely and effective decision-making in project control. This paper presents a forecast combination model that adaptively identifies the best forecast and optimises various combinations of commonly used project cost forecasting models. To do so, a forecast error simulator is formulated to visualise and quantify likely error profiles of forecast models and their combinations. The adaptive cost combination (ACC) model was applied to a pilot project for numerical illustration as well as to real world projects for practical implementation. The results provide three valuable insights into more effective project control and forecasting. First, the best forecasting model may change in individual projects according to the project progress and the management priority (i.e. accuracy, outperformance or large errors). Second, adaptive combination of simple, index-based forecasts tends to improve forecast accuracy, while mitigating the risk of large errors. Third, a post-mortem analysis of seven real projects indicated that the simple average of two most commonly used cost forecasts can be 31.2{\%} more accurate, on average, than the most accurate alternative forecasts.",
author = "Byung-cheol Kim and Kwak, {Young Hoon}",
year = "2018",
month = "7",
day = "4",
doi = "10.1080/09537287.2018.1467511",
language = "English (US)",
volume = "29",
pages = "743--760",
journal = "Production Planning and Control",
issn = "0953-7287",
publisher = "Taylor and Francis Ltd.",
number = "9",

}

Improving the accuracy and operational predictability of project cost forecasts : an adaptive combination approach. / Kim, Byung-cheol; Kwak, Young Hoon.

In: Production Planning and Control, Vol. 29, No. 9, 04.07.2018, p. 743-760.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Improving the accuracy and operational predictability of project cost forecasts

T2 - an adaptive combination approach

AU - Kim, Byung-cheol

AU - Kwak, Young Hoon

PY - 2018/7/4

Y1 - 2018/7/4

N2 - Conducting an early warning forecast to detect potential cost overrun is essential for timely and effective decision-making in project control. This paper presents a forecast combination model that adaptively identifies the best forecast and optimises various combinations of commonly used project cost forecasting models. To do so, a forecast error simulator is formulated to visualise and quantify likely error profiles of forecast models and their combinations. The adaptive cost combination (ACC) model was applied to a pilot project for numerical illustration as well as to real world projects for practical implementation. The results provide three valuable insights into more effective project control and forecasting. First, the best forecasting model may change in individual projects according to the project progress and the management priority (i.e. accuracy, outperformance or large errors). Second, adaptive combination of simple, index-based forecasts tends to improve forecast accuracy, while mitigating the risk of large errors. Third, a post-mortem analysis of seven real projects indicated that the simple average of two most commonly used cost forecasts can be 31.2% more accurate, on average, than the most accurate alternative forecasts.

AB - Conducting an early warning forecast to detect potential cost overrun is essential for timely and effective decision-making in project control. This paper presents a forecast combination model that adaptively identifies the best forecast and optimises various combinations of commonly used project cost forecasting models. To do so, a forecast error simulator is formulated to visualise and quantify likely error profiles of forecast models and their combinations. The adaptive cost combination (ACC) model was applied to a pilot project for numerical illustration as well as to real world projects for practical implementation. The results provide three valuable insights into more effective project control and forecasting. First, the best forecasting model may change in individual projects according to the project progress and the management priority (i.e. accuracy, outperformance or large errors). Second, adaptive combination of simple, index-based forecasts tends to improve forecast accuracy, while mitigating the risk of large errors. Third, a post-mortem analysis of seven real projects indicated that the simple average of two most commonly used cost forecasts can be 31.2% more accurate, on average, than the most accurate alternative forecasts.

UR - http://www.scopus.com/inward/record.url?scp=85046420259&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85046420259&partnerID=8YFLogxK

U2 - 10.1080/09537287.2018.1467511

DO - 10.1080/09537287.2018.1467511

M3 - Article

VL - 29

SP - 743

EP - 760

JO - Production Planning and Control

JF - Production Planning and Control

SN - 0953-7287

IS - 9

ER -