https://doi.org/10.24928/2021/0177

Shifting the Focus of Discussion: From Cost (Under)Estimation to Cost Reduction

Lauri Koskela1 & Glenn Ballard2

1Professor, School of Art, Design and Architecture, University of Huddersfield, UK, [email protected], orcid.org/0000-0003-4449-2281
2Research Associate, Project Production Systems Laboratory, University of California, Berkeley, CA 94720-1712, USA, [email protected], orcid.org/0000-0002-0948-8861

Abstract

In the last five years, two fierce academic debates have emerged in connection to cost planning in infrastructure projects – a domain which usually is not known as raising passions. The topic debated is alleged – or recommended – underestimation of project costs. Flyvbjerg has promoted the view that cost overruns in transport infrastructure projects are caused by initial cost underestimation, due intentional strategic misrepresentation on the part of project promoters. Love and his co-authors have attacked on Flyvbjerg’s views, claiming that such cost overruns are primarily caused by natural, evolutionary scope changes. In turn, Flyvbjerg has objected the earlier suggestion of Hirschman to underestimate project costs, for getting the project started and for unleashing the creativity needed achieve the budget. Both debates have created several rounds of papers. In this presentation, we contend that in these debates, the focus is partially misplaced, and the conceptualisation of cost planning too narrow. We argue that the primary focus of cost management should be on cost reduction, rather than on cost estimation. We contend that cost formation is a process controlled by man: costs inflate if they are allowed to do so; costs are reduced with will, effort and apt conceptual and methodological knowledge. For justifying this argument, it is helpful to consider the underlying inferences in cost management. Deduction of total costs from the costs of components is a common inference in cost management. Induction of cost estimates from prior cost data is likewise very common. Reasoning backwards, in terms of regressive or abductive reasoning, is also used. Regressive reasoning answers to the question: How much can we get when using a given sum of money? Abductive reasoning answers to the question: How can we creatively reduce the costs? The common conceptualization of cost management as cost estimation leads to a situation where deduction and induction are given a privileged or exclusive role as types of reasoning, thus overlooking regressive and abductive reasoning. We recommend applying regressive and abductive reasoning actively as means towards controlling and reducing costs

Keywords

Cost estimation, cost management, inference type

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Reference

Koskela, L. & Ballard, G. 2021, 'Shifting the Focus of Discussion: From Cost (Under)Estimation to Cost Reduction' In:, Proc. 29th Annual Conference of the International Group for Lean Construction (IGLC). Lima, Peru, 14-16 Jul 2021. pp 43-52

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