Modeling Correlations in Rail Line Construction

The total construction cost and time of projects are often overrun. It is known that when positive correlations between costs are disregarded, the range of possible total construction costs is underestimated. A model is needed to estimate the effect of correlations on the probability distributions of total cost and total time. Four cost–cost and one cost–time correlations in the construction of rail lines were identified, two of which were investigated in detail using a model applicable to the construction of any networked system. This paper presents the theoretical background of the model, the correlations occurring in rail line construction, and the analysis of the impact of such correlations in two case studies including several scenarios and one sensitivity analysis. The results clearly show that the standard deviation of the total cost increases with the magnitude of the correlation and, most importantly, it dramatically increases with the number of costs that are correlated; it also depends on the type of correlation matrix. Correlation between costs must be modeled to capture the wide range of the possible total cost; otherwise, the total construction cost of projects will continue being significantly underestimated.