Construction cost estimation: A parametric approach for better estimates of expected cost and variation

As project planners continue to move towards frameworks such as probabilistic life-cycle cost analysis to evaluate competing transportation investments, there is a need to enhance the current cost-estimation approaches that underlie these models to enable improved project selection. This paper presents an approach for cost estimation that combines a maximum likelihood estimator for data transformations with least angle regression for dimensionality reduction. The authors apply the proposed method for 15 different pavement bid items across five states in the United States. The results from the study demonstrate that the proposed approach frequently leads to consistent parametric estimates that address the structural bias and heteroscedasticity that plague the current cost-estimation procedures. Both of these aspects are particularly important for large-scale construction projects, where traditional methods tend to systematically underestimate expected construction costs and overestimate the associated variance.