Document Type
Article
Publication Date
2022
Keywords
actuarial credibility, transport infrastructure investment, cost overruns, risk accounting, regression analysis, LASSO
Abstract
This paper presents a novel methodology based on the modified actuarial credibility approach. It allows for the adjustment of initial cost estimates of public infrastructure projects by accounting for the additional risk/uncertainty factor. Hence, it offers an interesting alternative to other existing forecasting methods. We test our approach by applying data for over 300 major infrastructure projects implemented in Poland between 2004 and 2020. We prove that, despite its simplicity, the actuarial credibility approach can deliver accurate cost estimates compared to more complex methods such as regression analysis (OLS) or machine learning (LASSO). In particular, we show that, although the forecasting accuracy varies among different project categories, actuarial credibility outperforms other forecasting approaches in the majority of cases. As a result, we argue that actuarial credibility should be considered as a relatively simple tool with very modest data requirements that can be easily applied by investors and policy makers in order to improve project planning and avoid cost overruns.
Funding Source
Financial support from the Polish National Science Centre under the grant UMO-2016/22/E/HS4/00464.
Recommended Citation
Rokicki, Bartłomiej and Ostaszewski, Krzysztof, "Actuarial Credibility Approach in Adjusting Initial Cost Estimates of Transport Infrastructure Projects" (2022). Faculty Publications – Mathematics. 2.
https://ir.library.illinoisstate.edu/fpmath/2
Comments
First published in Sustainability 2022, 14, 13371. https://doi.org/10.3390/ su142013371.
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).