Time and Location Adjustments

Time and Location Adjustments

It is often desirable when preparing conceptual estimates to utilize cost data from a different period of
time or from a different location. Costs vary with time and location, and it is, therefore, necessary to
adjust the conceptual estimate for the differences of time and location from the historical base. A
construction cost-indexing system is used to identify the relative differences and permit adjustment.

Cost Indexing

A cost index is a dimensionless number associated with a point in time and/or location that illustrates
the cost at that time or location relative to a base point in time or base location. The cost index provides
a comparison of cost or cost change from year to year and/or location to location for a fixed quantity of
services and commodities. The concept is to establish cost indices to avoid having to estimate all of the
unique features of every project, when it is reasonable to assume that the application of relative quantities
of resources is constant or will follow the use of historical data on a proportional basis without knowledge
of all of the design details. If the cost index is developed correctly, the following simple relationship will
exist:




An example of the way in which a cost index might be computed is given below. The cost elements
used for developing a cost index for concrete in 1982 are as follows:




C1 = four hours for a carpenter = $240
C2 = one cubic yard concrete = $60
C3 = three hours for laborer = $66
C4 = 100 fbm lumber (2 ¥ 10) = $49
C5 = 100 # rebar = $35
C6 = one hour from an ironworker = $50

Ca = 240 + 60 + 66 + 49 + 35 + 50 = 500

Calculating Cb similarly for another time or location involves the following steps



C1 = four hours for a carpenter = $200
C2 = one cubic yard concrete = $58
C3 = three hours for laborer = $90
C4 = 100 fbm lumber (2 ¥ 10) = $42
C5 = 100 # rebar = $36
C6 = one hour from an ironworker = $44

Ca= 200 + 58 + 90 + 42 + 36 + 44 = 470


Using the CIa as the base with an index equal to 100, the CIb index can be calculated as follows

CI C C b b a = ( ) ¥ 100 = (470 500) ¥ 100 = 94


The key to creating an accurate and valid cost index is not the computational approach but the correct
selection of the cost elements. If the index will be used for highway estimating, the cost elements should
include items such as asphalt, fuel oil, paving equipment, and equipment operators. Appropriately, a
housing cost index would include timber, concrete, carpenters, shingles, and other materials common
to residential construction.
Most of the cost indices are normalized periodically to a base of 100. This is done by setting the base
calculation of the cost for a location or time equal to 100 and converting all other indices to this base
with the same divisor or multiplier.
While it is possible to develop specialized indices for special purposes, numerous indices have been
published. These include several popular indices, such as the Engineering News Record building cost index
and construction cost index and the Means Building Construction Cost Data construction cost index and
historical cost index. These indices are developed using a wide range of cost elements. For example, the
Means’ construction cost index is composed of 84 construction materials, 24 building crafts’ labor hours,
and 9 different equipment rental charges that correspond to the labor and material items. These cost
indices are tabulated for the major metropolitan areas four times each year and for the 16 major UCI
construction divisions. Additionally, indices dating back to 1913 can be found to adjust costs from
different periods of time. These are referred to as historical cost indices.
Application of Cost Indices
These cost indices can have several uses:
• Comparing costs from city to city (construction cost indices)
• Comparing costs from time to time (historical cost indices)

• Modifying costs for various cities and times (both)
• Estimating replacement costs (both)
• Forecasting construction costs (historical cost indices)
The cost index is only a tool and must be applied with sound judgment and common sense.