Professional Documents
Culture Documents
Article information:
To cite this document:
Martin SkitmoreDerek Drew, (2003),"The analysis of pre-tender building price forecasting performance: a case study",
Engineering, Construction and Architectural Management, Vol. 10 Iss 1 pp. 36 - 42
Permanent link to this document:
http://dx.doi.org/10.1108/09699980310466532
Downloaded on: 20 October 2015, At: 11:27 (PT)
References: this document contains references to 6 other documents.
To copy this document: permissions@emeraldinsight.com
The fulltext of this document has been downloaded 1413 times since 2006*
Access to this document was granted through an Emerald subscription provided by emerald-srm:373614 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service
information about how to choose which publication to write for and submission guidelines are available for all. Please
visit www.emeraldinsight.com/authors for more information.
Introduction
The analysis of
pre-tender building
price forecasting
performance:
a case study
The authors
Martin Skitmore is a Professor in the School of
Construction Management and Property, Queensland
University of Technology, Brisbane, Australia.
Derek Drew is an Associate Professor in the
Department of Building and Real Estate, The Hong Kong
Polytechnic University, Kowloon, Hong Kong.
Keywords
Tendering, Estimating, Performance, Prices,
Construction industry, Hong Kong
Abstract
The financial management of the construction procurement
process is dependent on the performance of the managers
involved. This paper describes an analysis of pre-tender
building price forecasts (estimates) made by a Hong Kong
consulting organisation for a series of 89 building projects
from 1995 to 1997 to identify factors influencing the
accuracy of the forecasts made for possible improvement in
performance. This involved the consideration of two
distinct sets of models, the purpose of which was: (1) to
identify and explain the underlying systematic causes of
errors; and (2) to assist in improving the predictive ability of
the forecasts. The analysis for (1) used ANOVA to detect
significant differences between the errors grouped
according to building size (value), building size (floor area),
forecasting (estimating) method (approximate quantities
and superficial), nature of the work (new build and
alteration work), type of client and type of project. This was
followed by a Gunner-Skitmore price intensity theoretic
analysis. For (2), MRA was used by using cross-validation
analysis to simulate the ex-post errors.
Electronic access
The Emerald Research Register for this journal is
available at
http://www.emeraldinsight.com/researchregister
The current issue and full text archive of this journal is
available at
http://www.emeraldinsight.com/0969-9988.htm
36
Analysis
Data
Pretender forecasting (estimating) data for a
complete set of 89 building projects for the
period January 1995 to October 1998 were
collected from a Hong Kong private quantity
surveying consultant (see Appendix). For
each of the projects, the forecasting
(estimating) method (approximate quantities
or superficial), tender date, gross floor area,
forecast price, lowest bid, type of client, type
of project and nature of the work (new build
or alterations) were recorded. For comparison
purposes, all the monetary values were
deflated to a common base date of March
1999 by means of the Levett and Bailey
(1999) local tender price index. The floor
areas of three projects were not known.
All the projects were carried out in
Hong Kong and, therefore, as Hong Kong
building prices are known to be homogeneous
(Drew and Skitmore, 1997), no adjustment
was made for geographical price differences.
All of the forecasts were carried out by
professional, certified trained, surveyors.
All significance tests were made at the 5 per
cent level.
Variable
Mean
error (%)
Standard
deviation
Coefficient
of
variation
Total
89
1.78
12.95
13.19
Method
Approx Q
Superficial
46
43
1.25
5.04
14.45
10.32
14.27
10.87
Project type
Commercial
Health
Apartment
Education
Other
20
18
21
12
18
1.24
4.07
3.95
7.20
2.13
14.90
13.29
11.00
12.89
11.39
15.09
12.77
11.45
13.89
11.64
18
23
26
22
0.50
1.80
1.39
4.12
13.39
12.92
14.37
11.25
12.75
13.15
14.57
11.73
17
23
27
19
5.40
0.43
0.55
1.76
12.86
13.29
12.66
13.42
13.59
13.34
12.73
13.80
Nature
New work
Alterations
74
15
1.64
2.51
12.42
15.79
12.63
16.20
Client type
Private, experienced
Private, inexperienced
Public, primary
Public, secondary
29
33
18
9
5.60
1.39
3.46
1.49
10.57
14.35
10.84
16.24
11.20
14.55
10.47
16.49
Explanatory models
Conventional analysis
Table I summarises the results of the
conventional analysis. Column 1 describes
the grouping variable, with sub-groups inset;
column 2 gives the number of relevant
projects involved; column 3 gives the mean
37
Predictive models
Introduction
PI theory, while accounting for all significant
systematic forecasting errors, has relatively
little to offer as a predictive theory. Clearly, it
is one thing to know that expensive projects,
in terms of price intensity, are systematically
underestimated and inexpensive projects are
systematically overestimated (Figure 1) but
quite another to be able to predict expensive
and inexpensive projects in advance.
Inspection of the regression equation of
percentage error on price intensity indicates
why this is the case both dependent and
independent variables contain what is in
predictive mode the unknown value of the
lowest bid. The obvious solution to this is just
to replace the unknown true value of the
lowest bid with the forecaster's estimated
value of the lowest bid. However, a moment's
reflection will show why this is not
appropriate. The forecaster's estimated value
of the lowest bid is, as illustrated in Figure 1,
biased towards the mean price intensity of all
the projects and, as this bias is a major aspect
that we are trying to correct (we would also
like to reduce the spread or standard
deviation of the errors), it is unlikely to be of
much use in identifying the nature of the
correction.
It is also clear that, assuming PI theory is
correct, whenever the price intensity error is
removed only purely random ``noise'' can
remain. It follows, therefore, that the only
correction needed is to the price intensity
forecast. This suggests the need for a model
that either has:
(1) the actual price intensity as the dependent
variable with the forecasted price
PI analysis
Gunner and Skitmore's (1999) approach to
PI analysis was to conduct a series of trivariate
regression analyses of the ratio error (forecast/
low bid value) on price intensity ratios (low
bid value/gross floor area) plus a further
independent variable. As the theory holds that
price intensity, and price intensity alone,
correlates with forecasting error (bias), the
expectation is that the price intensity variable
will always be significant, irrespective of the
additional independent variable and that the
additional independent variable will never be
significant. Trivariate regression, however,
estimates the partial coefficients of the price
intensity variable and the additional variable
simultaneously, with each allowing for the
influence of the other. This rather contradicts
the theory itself, which maintains that the
additional variable can have no such
influence. In other words, the theory implies
that whatever correlation is detected by the
regression for the additional variable must be
spurious. To avoid this contradiction, the
regressions were instead approached in
hierarchical manner by first regressing the
error variable on the price intensity variable
38
Beta
0.381222
8.381499
0.000772
2.977280
0.000204
2.81515
3.77936
p-level
0.006073
0.000293
Notes: PCTERR R = 0.38122202, R2 = 0.14533023, Adjusted R2 = 0.13515559, F(1,84) = 14.284, p < 0.00029,
Standard error of estimate: 12.039
Independent variable
None
Raw forecast price
Log forecast price
Inverse forecast price
Raw floor area
Log floor area
Inverse floor area
Forecasted price intensity
Nature
Method
Private, experienced
Private, inexperienced
Public, primary
Commercial
Health
Apartment
Dependent variable
(SD deleted residual)
Percentage Difference
12.95
12.99
13.33
15.96
12.91
13.33
13.43
13.17
13.35
12.89
12.95
13.26
12.95
13.25
12.92
13.16
2,030.7
2,025.1
2,065.3
2,381.1
2,084.1
2,088.9
2,090.9
2,029.6
2,079.1
2,051.9
2,057.8
2,085.3
2,022.9
2,077.4
2,019.8
2,065.3
References
Ashworth, A. and Skitmore, M. (1983), ``Accuracy in
estimating'', Occasional Paper, 27, The Chartered
Institute of Building, Ascot.
Drew, D. and Skitmore, M. (1997), ``The effect of contract
type and contract size on competitiveness in
construction contract bidding'', Construction
Management and Economics, Vol. 15 No. 5,
pp. 469-89.
Gunner, J. and Skitmore, M. (1999), ``Building contract
price forecasting: price intensity theory'',
Engineering, Construction and Architectural
Management, Vol. 6 No. 3, pp. 267-75.
James, W. (1954), ``A new approach to single price-rate
approximate estimating'', The Chartered Surveyor,
May.
Levett & Bailey (1999), Tender Price Indices and Cost
Trends, June 1998, Levett & Bailey Quantity
Surveyors, Hong Kong.
Skitmore, M., Stradling, S.G., Tuohy, A.P. and
Mkwezalamba, H. (1990), ``The accuracy of
construction price forecasts: a study of quantity
surveyors' performance in early stage estimating'',
University of Salford, Salford.
Conclusions
The work described in this paper was aimed
at developing a statistical method for
improving pre-contract price forecasting
accuracy. This was demonstrated via the
analysis of a set of forecasts from a
Hong Kong firm of consultants for 89
building projects. Using a modified PI
theoretic approach, the significant findings of
40
Appendix
Table AI
Project
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Forecast
Lowest bid
79,241,250
82,888,103
43,471,015
41,618,240
80,,493,383
89,250,034
183,939,361
214,178,580
11,628,199
13,268,606
42,960,772
40,726,449
4,058,621,825 5,274,295,620
29,569,708
31,339,221
129,290,146
135,400,955
69,903,285
77,979,898
88,273,179
80,922,259
107,814,107
87,754,775
106,748,679
104,342,104
91,408,929
87,171,429
273,016,071
231,894,093
90,004,500
89,981,696
131,096,143
130,389,206
143,663,357
119,127,192
91,893,214
89,981,696
581,506,071
617,222,143
1,240,431,818 1,146,066,545
298,201,469
276,770,979
188,642,832
224,336,213
169,179,965
167,282,039
79,605,734
73,008,626
2,821,048,951 3,761,003,497
35,879,476
28,053,749
1,153,311,189
998,245,766
1,124,863,636
994,479,021
159,424,826
184,302,210
574,344,231
581,259,165
150,666,667
118,659,657
619,787,879
668,167,744
253,393,939
281,472,727
128,671,616
124,642,424
902,858,586
836,329,546
67,434,747
81,993,798
31,149,192
32,020,059
196,505,859
216,027,465
100,395,296
98,575,559
45,720,395
52,231,029
84,192,434
80,289,474
132,867,928
211,053,148
98,321,151
96,104,570
1,148,586
1,417,245
9,179,905
9,347,925
213,623,810
204,515,505
13,377,048
12,825,850
171,996,762
142,815,443
201,247,619
204,515,605
Method
GFA
Sec
Type
Nature
2
1
2
1
2
1
1
1
2
2
1
1
1
2
1
2
1
1
1
2
2
2
1
1
1
1
1
2
1
2
1
1
2
2
1
1
1
2
1
1
1
2
2
1
2
2
2
1
1
2
8,760
4,390
5,195
19,985
915
5,288
295,417
1,950
20,000
4,100
8,940
8,070
7,590
5,720
20,233
7,956
9,770
13,416
6,519
33,490
63,000
31,072
10,753
16,350
12,893
175,400
158,900
134,468
148,090
21,930
47,882
17,535
6,200
31,096
7,168
61,370
3,705
31,096
20,889
10,876
6,975
5,710
8,864
7,500
1,550
470
19,350
800
18,756
13,155
3
3
1
1
2
2
1
3
1
3
3
3
3
3
1
1
3
3
1
1
3
1
2
3
1
1
4
2
4
2
1
2
3
2
1
1
1
2
2
2
1
3
2
2
1
2
2
2
3
2
32
721
721
816
816
442
32
412
32
721
442
442
852
852
816
32
442
442
32
816
852
713
713
721
282
32
981
981
816
816
816
981
721
522
32
816
816
522
713
442
447
412
713
412
816
543
852
852
412
852
1
1
1
1
1
1
2
2
1
2
1
1
1
1
1
1
1
1
2
1
1
1
1
1
1
2
2
1
1
1
1
1
2
2
1
1
1
1
1
1
1
1
1
1
1
1
2
1
1
1
(continued)
41
Table AI
Project
Forecast
Lowest bid
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
519,800,000
768,432,286
353,905,238
81,446,095
224,364,190
258,522,476
118,079,619
319,079,714
25,290,476
113,107,619
99,805,905
163,139,714
280,675,663
22,463,855
63,051,958
11,970,938
18,876,136
62,599,432
66,615,426
92,550,852
62,599,432
7,242,273
65,552,486
86,847,680
638,359,475
125,636,022
73,390,691
7,988,039
188,987,818
263,408,619
468,232,044
51,791,667
172,861,190
148,238,074
657,400,000
41,900,000
650,000,000
515,460,000
170,000,000
570,447,434
858,800,000
328,572,439
91,956,294
213,085,714
247,590,291
131,994,762
328,572,439
27,709,752
131,437,924
99,975,480
147,438,095
311,747,946
23,374,229
68,964,095
10,900,744
23,820,698
79,200,725
69,804,935
69,804,935
57,898,118
7,121,754
69,200,538
86,995,238
747,298,343
157,379,841
89,900,552
6,261,316
181,013,465
271,229,594
496,383,817
64,076,323
189,310,974
141,997,658
658,550,000
39,188,000
658,550,000
658,550,000
197,129,126
Method
GFA
Sec
Type
Nature
1
2
1
2
1
2
2
1
1
2
2
2
1
2
2
1
2
1
1
1
2
2
1
2
2
1
2
1
1
1
1
1
2
2
2
2
2
2
2
28,002
102,440
45,480
5,080
11,760
23,227
9,760
45,5400
238,500
7,828
9,860
29,488
43,710
1,441
4,130
1
1
2
4
3
4
2
2
4
1
2
4
1
2
2
2
2
4
2
2
2
2
1
2
4
2
2
2
3
1
1
3
1
1
2
1
1
1
4
816
816
981
412
412
713
442
981
114
32
442
32
282
534
154
816
32
114
442
442
816
342
816
442
816
442
852
534
721
32
816
721
816
816
32
816
32
32
816
1
1
1
1
1
1
1
1
1
1
1
1
1
2
1
2
2
1
1
1
1
2
2
1
1
1
1
2
1
1
1
1
1
1
1
1
1
1
1
3,650
8,050
7,100
2,400
5,000
8,140
93,452
16,620
2,132
470
18,756
27,594
28,000
4,440
12,750
9,325
28,350
2,527
28,240
28,610
11,700
42
1. Mohd Azrai Azman, Zulkiflee Abdul-Samad, Suraya Ismail. 2013. The accuracy of preliminary cost estimates in Public
Works Department (PWD) of Peninsular Malaysia. International Journal of Project Management 31, 994-1005. [CrossRef]
2. Ajibade Ayodeji Aibinu, Thomas Pasco. 2008. The accuracy of pretender building cost estimates in Australia. Construction
Management and Economics 26, 1257-1269. [CrossRef]
3. Martin Skitmore, Franco K. T. Cheung. 2007. Explorations in specifying construction price forecast loss functions.
Construction Management and Economics 25, 449-465. [CrossRef]