The final publication for this project is now available through the Transportation Research Board.

Guidance for Cost Estimation and Management for Highway Projects During Planning, Programming, and Preconstruction, NCHRP Report 574.

Over the time span between the initiation of a project and the completion of construction many factors influence a project’s final costs. This time span is normally several years in duration but for highly complex and technologically challenging projects, project duration can easily exceed 10 years. Over that period, changes to the project scope and its definition occur.

Project cost escalation is a major problem for Departments of Transportation (DOT). During the early stages of a project, many factors, such as insufficient knowledge about right-of-way costs and project location, environmental mitigation requirements, traffic control requirements, or work-hour restrictions, influence project costs. Moreover, there are other process type factors that often drive project cost estimate increases. These factors can include, for example, unforeseen engineering complexities and constructability issues, changes in economic and market conditions, changes in regulatory requirements, local governmental and stakeholder pressures, and a transformation of community expectations. Some researchers state that there are systemic problems in the estimating process, even to the point that purposeful underestimation of projects is common to gain project funding. (Flyvbjerg, et al, 2002, Hammer 1976, Hufschmidt and Gerin 1970, Pickrell 1992) The impact of all of these issues is compounded if there is a lack of human resources with appropriate training in cost estimation or an institutional lack of cost estimation management processes.

The factors just cited create distinct challenges related to cost estimation management and development of early project estimates. These challenges are:

· Difficulty in evaluating the quality and completeness of early project cost estimates.

· Difficulty in describing scope solutions for all issues early in project development.

· Difficulty in identifying major areas of variability and uncertainty in project scope and costs.

· Difficulty in tracking the cost impact of design development that occurs between major cost estimates

State highway agencies need guidelines that comprehensively describe strategies, methods, and tools to develop and document realistic cost estimates during each phase of the process and to track cost throughout a project’s life. Inadequate estimating invariably leads to misallocation of scarce resources. If estimates are consistently high, compared to bid costs and ultimately final costs, fewer projects will be authorized than could have been performed with the resources available, resulting in loss of benefits. If estimates are consistently low, more projects can be authorized than can be fully funded, resulting in project slowdowns, scope changes, and performance shortfalls, and generally higher costs and lower benefits. If estimates are neither consistently high nor low, but still inaccurate, the estimated benefit/cost ratios will not be correct and the most beneficial projects may not be authorized, while less beneficial projects are authorized. All of these conditions result in misallocation of funds and a loss in benefits to the public.

Managing large capital construction projects requires the coordination of a multitude of human, organizational, technical, and natural resources. Quite often, the engineering and construction complexities of such projects are overshadowed by economic, societal, and political challenges. Within the transportation industry, project cost escalation has attracted management and stakeholder attention at federal, state, regional, and local levels. News reports of project cost escalation additionally cause the public to lose confidence in the ability of transportation agencies to effectively perform their responsibilities. Cost increases cause a disruption in priority programs where other projects have to be delayed or removed in order to accommodate higher cost estimates. This issue was cited as the number one factor that resulted in changes in statewide highway letting programs (Anderson and Blaschke 2003).

The cost escalation problem is faced by every state highway agency, transit agency, and metropolitan planning organization in the country as projects evolve from concept in the long-range planning process, are prioritized for programming, and are subject to detailed development prior to construction. Cost escalation or increases over the course of project development constitutes the major research problem that this project is addressing. This problem is manifested in cost management approaches and cost estimate processes that do not promote consistency and accuracy of costs over the project development process.