Monte Carlo simulation of construction costs using subjective data

Kwok‐wing Chau

68 citations0/0 files storedConstruction Management and Economics

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Construction Project Management and Performance BIM and Construction Integration Capital Investment and Risk Analysis

Abstract

This paper critically examines the problems arising from the assumptions of independence and triangular distribution in the risk analysis of construction costs. These two assumptions have been widely adopted by researchers and practitioners alike. However, they lead to bias in the analysis. With the aid of a spreadsheet and a risk analysis add-on program, the nature of the resulting bias can be illustrated using both empirical and simulated data. Various possible solutions which seek to reduce the bias are explored. Their practicality under real life constraints is examined. A tentative practical solution is proposed and evaluated against the existing approach. The method and logic of the solution are also discussed. The approach is applied to two sets of data to illustrate its use and to test the reasonableness of the approach.

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References

1993Risk Management and Construction 1992Statistical Properties of Construction Duration Data 1992Monte Carlo Technique with Correlated Random Variables 1970Network analysis for planning and scheduling 1991Visual Interactive Fitting of Beta Distributions 1993Probabilistic Cost Estimating with Subjective Correlations 1995The validity of the triangular distribution assumption in Monte Carlo simulation of construction costs: empirical evidence from Hong Kong 1990Quantity Surveying Techniques: New Directions

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