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Escalation and Cost Indices

Escalation refers to increases or decreases in construction costs over time due to changing prices. There are two main types of cost indices used for escalation - input-based indices that track changes in labor and material costs, and output-based indices that track changes in bid prices based on market conditions. Common indices include the Building Cost Index, Construction Cost Index, Wholesale Price Index, and Consumer Price Index. The Construction Cost Index specifically measures monthly cost changes for the Indian construction industry. Escalation indices allow conversion of historical costs to current costs and estimation of future costs for budgeting and planning purposes.

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214 views10 pages

Escalation and Cost Indices

Escalation refers to increases or decreases in construction costs over time due to changing prices. There are two main types of cost indices used for escalation - input-based indices that track changes in labor and material costs, and output-based indices that track changes in bid prices based on market conditions. Common indices include the Building Cost Index, Construction Cost Index, Wholesale Price Index, and Consumer Price Index. The Construction Cost Index specifically measures monthly cost changes for the Indian construction industry. Escalation indices allow conversion of historical costs to current costs and estimation of future costs for budgeting and planning purposes.

Uploaded by

jayendra singh
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ESCALATION AND COST INDICES

ESCALATION

• Escalation is the provision in a cost estimate for increases/decrease in the


cost of equipment, material, labour, etc., due to continuing price changes
over time.

• Escalation in cost estimating has two main uses:


1. to convert historical costs to current costs (historical escalation index) and
2. to escalate current costs into the future (predictive escalation index) for
planning and budgeting.
INPUT BASED INDICES
Input based indices are based on the change of the cost of inputs for selected
basket of construction labour and materials.

The Building Cost Index (BCI) and the Construction Cost Index (CCI)
published by Engineering News Record (ENR) are examples of input based
indices.
OUTPUT BASED INDICES
Output based indices are based on the change of price of the output and not
the cost of inputs. In construction, it is the movement in bid prices.

These indices are developed taking into account the market conditions,
construction business volume, fluctuations in contractor’s margins, etc.
• Wholesale Price Index (WPI) is the price of a representative basket
of wholesale goods, which are sold in bulk and traded between
organizations instead of consumers.

• Consumer Price Indices (CPI) measure changes over time in general


level of prices of goods and services that households acquire for the
purpose of consumption.

• Building Cost Index (BCI) is the percentage change in the average


building cost.
CONSTRUCTION COST INDEX

Construction Cost Index is an indicator of the average cost movement over time
of a fixed basket of representative goods and services related to Construction
Industry.

It is the monthly measure of Construction Cost movement for the Indian


Construction Industry released by CIDC (Construction Industry Development
Council).
BASE YEAR
 A year in which there are no abnormalities in the level of production, trade
and in the price level and price variations.

 A year for which production, price and other required data are available.
Future Cost Escalation Estimation for the Projects

PV = 0.85R*(U1-U0)/(U0)]

PV = Increase and decrease in the cost of work under consideration due


to change in indices
R = Value of work done for the completion of a stage
U1 = The Urban Infra CCI for Ahmedabad for the month three months
prior to the month to which IPC relates
U0 = CCI for the month of base date
THANK YOU

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