Learn how to escalate historical costs in the Project Comparisons report
Included in Join Forecasting
Within the Project Comparisons report, there is a section called Escalation that can be used to adjust historical costs based on location and time.
When comparing against projects located in different geographic areas it is essential to normalize the costs using a location escalation factor since the cost of construction varies based on location (e.g. It’s 38% more expensive to build in San Francisco, CA than Denver, CO). The location escalation factor is entered as a percentage.
A time escalation factor is also needed to normalize costs due to escalation and continually rising costs. The time escalation factor is entered as a percentage and is a total escalation for the entire duration, not a yearly rate.
Future Time Factor
If you’re using Gordian’s RSMeans Historical Cost Index to adjust the time factor, then you can add an additional future time factor to escalate projects to a future date since the RSMeans Index only adjusts costs to the prior quarter. When building conceptual estimates it is common to have to escalate to a future point in time when the work will actually be bid out. The future time escalation factor is entered as a percentage and is a total escalation from the latest RSMeans period to a future point in time, not a yearly rate.
Manually Escalating Costs
All three of the escalation factors can be entered manually as percentages for each comparison project. You should use this option if you have your own historical data or index that you rely on for escalating costs.
Tip: Enter a positive percentage to increase the costs of a project from a less expensive location and enter a negative percentage to decrease the costs of a project from a more expensive location.
Automatically Escalating Costs
Suppose you don’t have reliable historical data to escalate your historical projects manually. In that case, you can automatically escalate costs in the Project Comparisons report using Gordian’s RSMeans Historical and City Cost Indexes. To utilize these indexes follow these steps:
- Click either the Location Factor or Time Factor drop-down menu for a comparison project
- Select one of the following options:
- Update this location/time factor with RSMeans Index to apply a factor to only that comparison project
- Update all location/time factors with RSMeans Index to apply a factor to all comparison projects
Automatically Escalating by Location
When automatically escalating the location factor, the report will search Gordian’s RSMeans City Cost Index for the project location entered for both the comparison project and the current project and assign the correct factor. If an exact match is found for both locations, the location symbol will be blue. If an exact match is not found for both locations, the location will be determined by finding the closest city in the index based on latitude and longitude and the location symbol will be orange. If you don’t agree with the city that was automatically selected from the index it can manually be changed by clicking the name of the city and selecting a new location from the drop-down.
Automatically Escalating by Time
When automatically escalating the time factor, the report will search Gordian’s RSMeans Historical Cost Index for the currently selected milestone date and escalate it to the latest index period. You can choose to select a different date to escalate from by clicking the date and then entering or selecting a new date.
Note: Gordian’s RSMeans Construction Cost Indexes are updated quarterly.
After applying each escalation factor, the costs of the comparison project will automatically be recalculated. The three percentages are not added together and then multiplied by the original cost as a single percentage, they are all multiplied by the original cost as separate percentages.
Escalated Cost = Original Historical Cost x Location Factor x Time Factor x Future Time Factor
Note: Escalation factors are displayed to three decimal places, but use up to nine decimal places for more precise calculations. Hover over an escalation factor to see the full value.