How to keep your cost data up to date? 3 tips
A little effort to maintain your cost data can prevent cost overruns in the long run.
Say you are bidding on a big project. You use your cost data to perform an estimate on the amount of work and material cost. After several weeks, you receive information that you win the bid! During the execution of the project, the cost appears to be much higher than you estimated in the beginning. Your expected profit completely evaporates. After a thorough analysis of the possible causes, you find out that the cost data that you used to make the estimate was outdated.
This shows that having a knowledgebase with cost data is not enough. It is also important to keep the cost data up to date. We will discuss three tips that could help you keep your cost data up to date.
1. Indexation to keep your cost data up to date
Indexation is a technique used to adjust cost data by means of an index. The producer price index (PPI) is the most often used index for cost data. The PPI measures the average change over time in the selling price of a domestic producer of their products. Cost data is indexed with respect to a base year that is chosen as a reference. A range of different PPI is constructed for each industry.
The PPI is also location specific. For example, the selling price of aluminum may be very different when you are located near a production facility compared to a location without any of such facilities. The knowledgebases used by Cost Engineering Consultancy (CESK data) account for this fact. Currently, two sources are used for indexation: “Centraal Bureau van de Statistiek (CBS)” and “U.S. Bureau of Labour Statistics (BLS)”. These sources provide regular updates on the PPI for Western-Europe and the U.S. The CESK data Metric and Imperial knowledgebase are updated using the PPI of the CBS and BLS respectively.
2. Updating using historical project data
Going back to our example in the introduction, we can say that it is a painful experience but also a very valuable lesson and a great opportunity. By identifying the highly underestimated parts of your project and using the actual historical cost data to update the knowledgebase, you can make better initial estimates. If you don’t have the resources to do these elaborate studies, you can make use of the Industry Standards that we discuss below.
3. Using industry standards
Standards are published documents that establish specifications and procedures designed to maximize the reliability of products, materials, and services.
Specialized organizations collect and analyze project data from many companies and develop those industry standards based on this database of projects, market prices, and other sources. DACE is an example of a specialized organization that develops industry standards. 130 companies from the process industry and infrastructure industry participate DACE’s database with their actual cost data.
To sum up, using the 3 tips that we discuss in this blog, indexation, historical data and Industry standards, would help you keep your cost data accurate and up to date. This will ensure that you can safely bid on your next project, with confidence that you can deliver on budget.
If you have a question, or want to know more about CESK data, please feel free to contact us.