Shifting the focus of discussion: from cost (under)estimation to cost reduction

Lauri Koskela, Glenn Ballard

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

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.
Original languageEnglish
Title of host publicationProceedings of 29th Annual Conference of the International Group for Lean Construction (IGLC29
Subtitle of host publicationLean Construction in Crisis Times: Responding to the Post-Pandemic AEC Industry Challenges
EditorsL.F. Alarcon, V.A. Gonzalez
PublisherThe International Group for Lean Construction
Pages43-52
Number of pages10
Publication statusE-pub ahead of print - 9 Jul 2021
Event29th Annual Conference of the International Group for Lean Construction - Virtual
Duration: 14 Jul 202117 Jul 2021
Conference number: 29
https://www.iglc.net/Home/ActiveConference

Publication series

NameProceedings of the Annual Conference of the International Group for Lean Construction
PublisherInternational Group for Lean Construction (IGLC)
ISSN (Print)2309-0979

Conference

Conference29th Annual Conference of the International Group for Lean Construction
Abbreviated titleIGLC2021
CityVirtual
Period14/07/2117/07/21
Internet address

Fingerprint

Dive into the research topics of 'Shifting the focus of discussion: from cost (under)estimation to cost reduction'. Together they form a unique fingerprint.

Cite this