Improving Mid-Term, Intermediate, and Long-Range Cost Forecasting for State Transportation Agencies (2020) / Chapter Skim
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Pages 11-23
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4 1 Introduction and Background 1.1 Introduction Cost forecasting is only one step in the overall construction cost estimating process. However, the importance of its role in state transportation agencies' (STAs)
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5 2. Conducting a qualitative and quantitative assessment of the current practices by comparing forecast cost estimates with actual cost outcomes.
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6 scopes of work and to handle other program-/project-specific considerations. Further information about the MCCI and its development process can be found in Chapter 3.
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7 Long-Range Transportation Plan (LRTP) : "A document resulting from regional or statewide collaboration and consensus on a region or state's transportation system, and serving as the defining vision for the region's or state's transportation systems and services" (FHWA 2017)
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8 "not less frequently than once every four years" (23 USC §119 2018)
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9 Figure 1.1 Cost Forecasting Uncertainty over Time Figure 1.1 illustrates the increasing cost certainty experienced by transportation programs as they move from a long-range planning stage to their actual execution through the award of construction contracts. Additionally, this figure links the different forecasting time horizons with their respective estimate range based on the AASHTO Practical Guide for Cost Estimating (Molenaar et al.
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10 1.3 Current Practice vs. Ideal Practice The current state-of-the-practice of construction cost forecasting is further discussed in Chapter 2, but Figure 1.2 could be considered a fair representation of the typical cost forecasting process currently implemented by STAs.
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11 with a forecasting timeline showing the progression of the cost forecast as it moves across the desired forecasting time period. Finally, the TCCE highlighted the importance of producing riskbased outputs to account for estimating uncertainty and to facilitate the communication of such uncertainty to different types of stakeholders and decision-makers.
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12 Additionally, the research team has designed and applied a more reliable methodology to assess the forecasting performance of cost indexing systems. As explained in Chapter 4, it was used to find the best MCCI configuration and to evaluate the suitability of external and/or in-house CCIs.
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13 Bureau of Economic Analysis (BEA) maintains a similar broad index called the Personal Consumption Expenditures (PCE)
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14 1.4.2 Types of Inflation Rates Inflation rates are used to estimate future construction costs in "year of expenditure dollars." Basically, when used in cost forecasting, an inflation rate is intended to represent an anticipated future trend in the construction market inferred from the analysis of relevant historical data. However, there are different approaches that can be used to approximate and incorporate inflation rates into the cost forecasting process.
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15 Figure 1.4 Fixed Compounded Inflation Rate vs. Fixed Simple Inflation Rate 1.5 Organization of the Report This report has been organized into six chapters, as follows: Chapter 1 presents some background information to facilitate a better understanding of the purpose and content of the report.
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16 Chapter 6 discusses the efforts made in this study to ensure that all cost forecasting practices and techniques resulting from this study were practical, align with the current needs of the transportation construction industry, and were of easy implementation by state transportation agencies. Those efforts include project tasks intended to gather feedback and suggestions from subject matter experts and the development of tools that have been made available to STAs to facilitate the effective implementation of all guidance and cost forecasting methodologies generated from this research project.
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