Developing cost response models for company-level cost flow forecasting of project-based corporations

The difficulty in applying the standard curve (S-curve) and cost-schedule integration (CSI) techniques for company-level cost flow forecasting in a project-based industry is the prerequisite of forecasting future unknown individual projects and contract classifications. By analyzing cost flows at the company level through a pool of macroeconomic and internal financial data, this paper proposes an innovative approach to firm-specific model estimation. First, a series of data transformations introduce linear relationships between cost, macroeconomic, and internal financial variables. Second, multivariate regression analysis is employed for initial model building. Third, for the purposes of model restructuring, a subsequent application of Yule-Walker estimates and incomplete principal component analysis is used. This paper uses a sample of four project-based construction firms to demonstrate model performance. Using this methodology, mean absolute percentage error (MAPE) values of the forecasting models range from 0.27 to 0.60%. As such, the transformed cost, macroeconomic, internal financial data could strongly predict company-level cost flow forecasting. While converting the predicted cumulative cost data to periodic cost flows, the MAPE values were augmented, ranging from 7.04 to 17.55%, thus, requiring future research.