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Uncertainty analysis – 5 challenges with today's practice

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Uncertainty analysis – 5 challenges with todays practice

Authors: Agnar Johansen, Bettina Sandvin, Olav Torp, Andreas Økland.

Presented at the 27th IPMA World Congress 2013, Dubrovnik, Croatia.


As pointed out by Venkataraman and Pinto (2010), the importance of estimating project costs arises as the estimates become the benchmarks of which future costs are compared and evaluated. Although estimates become more accurate as decisions are made and uncertainties resolved, they are also chief means for assessing project feasibility, as a comparison of cost estimates with estimates of revenues and other benefits that are crucial in determining whether the project is worthwhile to carry out or not. In this paper we will discuss whether or not the uncertainty analysis is a reliable tool for supporting the cost estimation process.  We present 5 challenges in connection with the way uncertainty analyses of cost estimates are done today and present findings that indicate a need to rethink the uncertainty analyses of the projects that have a high degree of uncertainty. This paper is a product of collective reflection, experience and the knowledge of the authors. It is of a qualitative nature as we do not present any quantitative or statistical evidence or methods in our approach.  It is understood, due to the diverse contextual backgrounds of the projects involved, that the explanations for differences may be equally diverse. The paper is divided into five parts; The introduction – explaining the importance of the topic; part two provides a short introduction to the applied research methods; part three explain what we mean by cost estimation under uncertainty; part four presents the five identified challenges in cost estimation under uncertainty; part five presents a conclusion and proposes potential areas of further research.