How Cost Estimators Develop Estimates: Experiences from the Indian Context

Cost estimates in construction projects are often incorrect, leading to the well-known phenomenon of cost overruns. The literature suggests that estimation is a process that is mildly chaotic, infused with randomness, and not completely organized. While a number of behavioral, cognitive, and structural explanations are given for cost estimates not matching up to final project costs, the voice of estimators is rarely heard. Our goal is to understand the underlying micro-dynamics of construction cost estimating in the developing country context as well as to understand how we might restructure and eliminate biases that lead to incorrect estimates that then contribute to cost overruns. This chapter describes how project costs are estimated in the context of construction projects in India — one of the world’s largest developing economies — through studying the experiences of the people involved in estimating projects. We find that several practices of estimation are pursued by different stakeholders who occupy different positions in the project value chain. While we did not find evidence of strategic misrepresentation, we did find some evidence of optimism bias in the estimates prepared. We conclude by recommending the creation of separate standards and practices for different types of firms and different levels of estimates.