Volume: 2 | Issue: 5

Inaccuracy in Pipeline-Compressor-Station Construction-Cost Estimation

Topics

Summary

The intent of this paper is to investigate installed cost overruns of pipeline-compressor-station projects. A total of 220 pipeline-compressor-station projects constructed between 1992 and 2008 have been collected, including material, labor, and miscellaneous, land, and total installed costs; and compressor-station capacity; location; and year of completion. Statistical methods are applied to identify the distribution of cost overruns and overrun causes. Overall average overruns of pipeline-compressor-station material, labor, miscellaneous, land, and total costs are 3, 60, 2, –14, and 11%, respectively. Cost estimations of compressor-station construction components are biased except for the material cost. In addition, the cost-estimation errors of underestimated compressor-station-construction components are generally larger than those of overestimated components. Results of the analysis show that compressor-station project size, capacity, location, and year of completion have different impacts on individual construction component cost overruns.

Introduction

Cost-estimating error is the tendency for actual costs to deviate from estimated cost. Bias is the tendency for that error to have a nonzero mean (Bertisen and Davis 2008). Project cost-estimation errors and bias are common and a global problem in cost estimating (Flyvbjerg et al. 2003). Project cost-estimation errors and bias have been mentioned and studied in numerous papers. Cost overruns of all Indiana department of transportation (INDOT) projects were 4.5%, while 55% of INDOT projects experienced cost overruns (Bordat et al. 2004). Jacoby (2001) found that 74 projects with a minimum cost of USD10 million had 25% cost overruns. Rui et al. (2011a, 2011b, 2012a, 2012b) investigated the cost overruns of 412 pipeline projects between 1992 and 2008, finding an average of 4.9% cost overrun for material, 22.4% for labor, -0.9% for miscel­laneous, 9.1% for right of way (ROW), and 6.5% for total installed costs. In addition, literature reviewed also showed that cost over­runs exist over time.
 

Read or download the full SPE paper 160119-PA.