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Explorations in specifying construction price forecast loss functions

Skitmore, Martin & Cheung, Franco K.T. (2007) Explorations in specifying construction price forecast loss functions. Construction Management and Economics, 25(5), pp. 449-465.

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Abstract

Typical measures of goodness of construction price forecasts are the mean and standard deviation, coefficient of variation and root mean square of the deviations between forecasted and actual values. This can only be valid, however, if the pain, or loss, incurred as a result of such deviations is directly proportional to the square of their value.

Two approaches are used to test this. The first of these analyses ten sets of data collected from around the world, while the second explores the use of a postal questionnaire survey to elicit construction industry client disutilities. The results of the first analysis mitigate against any general view that projects tend to be overestimated but do clearly suggest asymmetric under/overestimates for the measures used. The second analysis results in an approximated loss function although in ordinal terms only. This also suggests that the functional form varies between building types, with Commercial and Residential being the most asymmetric and Schools and Industrial being less asymmetric.

The work to date indicates that, for construction price forecasting, the loss functions involved are asymmetric, with the degree of asymmetry increasing according to the level of commercial financial viability at stake.

Impact and interest:

3 citations in Scopus
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ID Code: 4235
Item Type: Journal Article
Additional Information: Author contact details: rm.skitmore@qut.edu.au
Keywords: Loss functions, construction, price, forecasts, forecasting, specification, estimate errors
DOI: 10.1080/01446190600794571
ISSN: 1466-433X
Subjects: Australian and New Zealand Standard Research Classification > BUILT ENVIRONMENT AND DESIGN (120000) > BUILDING (120200) > Quantity Surveying (120203)
Divisions: Past > QUT Faculties & Divisions > Faculty of Built Environment and Engineering
Past > Schools > School of Urban Development
Copyright Owner: Copyright 2007 Taylor & Francis
Copyright Statement: First published in Construction Management and Economics 25(5):pp. 449-465.
Deposited On: 19 May 2006
Last Modified: 29 Feb 2012 23:35

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