Cost estimate classification and accuracy for Major Industrial Plant Projects (MIPP) versus building construction in Germany

Anita Erbe

No 2014/01, Freiberg Working Papers from TU Bergakademie Freiberg, Faculty of Economics and Business Administration

Abstract: Ongoing pressure on prices for construction projects adds to the significance of cost estimation accuracy in building construction. Due to competition from Asian entrants, main contractors in the plant engineering industry are starting to face a similar situation. In the present paper, the cost estimation standards for Major Industrial Plant Projects (MIPP) are analyzed and compared with the cost estimation standards for Building Construction (BC). The research method uses a literature and standards review, comparing MIPP cost estimation guidelines by the Association for the Advancement of Cost Engineering (AACE) with a guideline known as the 'cone of cost' following the Official Scale of Fees for Services by Architects and Engineers (German: HOAI) for comparable phases of performance. It is shown that MIPP industry cost estimation guidelines are much more tolerant in terms of accuracy than for Building Construction in Germany, especially in the early phases. With the help of examples (Hot-Briquetted-Iron plant projects versus residential housing projects), a set of possible reasons is identified and categorized by (1) competition intensity incl. technology impact and frequency of project occurrence, (2) demands on cost estimation professionals, (3) materials and supplies used, (4) duration of project execution, (5) Certainty of projected Cash Flows. Finally, the study marks starting points for further research: First, comparing MIPP cost estimation guidelines to non-German Building Construction standards, and second empirically validating and possibly extending the set of explanations.

Keywords: major industrial plant projects; building construction; cost estimation; Großanlagenbau; Hochbau; Kalkulation (search for similar items in EconPapers)
JEL-codes: F21 G31 L60 L70 L74 Y80 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ppm
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tufwps:201401

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