Estimating project overheads rate in bidding_ DSS approach using neural networks

Estimating project overheads rate in bidding_ DSS approach using neural networks

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Construction Management and Economics ( March 2010) 28 , 287–299 Construction Management and Economics ISSN 0144-6193 print/ISSN 1466-433X online © 2010 Taylor & Francis http://www.informaworld.com DOI: 10.1080/01446190903473782 Estimating project overheads rate in bidding: DSS approach using neural networks LI-CHUNG CHAO * National Kaohsiung First University of Science and Technology, Taiwan Taylor and Francis Ltd Received 21 April 2009; accepted 9 November 2009 10.1080/014 6190903473782 Project overheads estimation by applying a selected rate as a percentage of direct cost is used widely in bidding in construction, but the rate is prone to inaccuracy if it is selected subjectively. An improved approach is developed, a decision support system (DSS) based on a construction firm’s cost data and using a neural network model for mapping of overheads rates from project attributes. The estimating ability of the proposed DSS is continually updated by retraining the neural networks with accumulated cost data in an expanding project database. An illustrative example is provided, in which the creation and updating of a prototype neural network model were simulated using cost data for projects spanning six years. The model explains the effects of duration and direct cost on overheads rates that the regression method fails to account for. The results also give empirical evidence that the DSS is capable of improving accuracy through annual model updating and may be used as a means for implementing organizational learning. The methods for assessing the loss risk for a bid incorporating an estimate from the DSS are provided. Keywords: Estimating, overheads, neural networks, statistical analysis, decision support systems. Introduction In construction, project overheads (also called general conditions or preliminaries) are the onsite costs borne by the contractor for production support in undertak- ing a project. Unlike direct costs, project overheads are not directly connected with the performance of any particular element of a project, but are required for running the project as a whole. Depending on the way of categorizing costs, project overheads may include supervision, office, utilities and services, insur- ances and bonds, safety, etc. The sum of direct costs and project overheads is project construction cost representing all expenses essential for completing a project according to specifications. On the other hand, the project’s share of the contractor’s home-office overheads and profit, i.e. the bid mark-up, is business oriented and external to the project, for which a higher or lower level may be charged as deemed appropriate. Since project overheads often constitute a greater part of the contract price than the mark-up, project overheads estimation deserves no less attention than mark-up determination.
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Estimating project overheads rate in bidding_ DSS approach using neural networks

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