Cost simulation in an item-based project involving construction engineering and management

Despite the extensive use of simulation in management, the continuous simulation model for cost estimation remains unexploited, especially for construction engineering and management. This study introduces streamlining Monte Carlo simulation procedures with evaluation of stochastic processes and input probability distribution selection via hypothesis testing, and specification of correlations between simulated variates. By using self-developed algorithms and a spreadsheet-add-on program, this investigation uses historical construction projects as case study data to create an early-stage cost distribution for budget allocation. While establishing the applicability of the proposed simulation procedures, this study demonstrates that the simulated cost results present superior simulation accuracy in addition to separating the principal work items and unit price component model. Generally, the precision and absolute error rates fall into acceptable ranges when the proposed systematic simulation procedures are adopted. The cost simulation approach offers a simplified decision tool for fairly assessing construction cost and uncertainties based on the experienced judgment of project managers.