Construction Inflation & Forecasting Dallas, TX 5-16-18 - PowerPoint PPT Presentation

Welcome Advancing Building Estimation Construction Inflation & Forecasting Dallas, TX 5-16-18 edzarenski.com 1

Causes of Inflation  Labor Availability / Wage Rate  Material Availability and Demand  Productivity  Spending / Work Volume Level of Spending can have as much or more impact on inflation than labor & mtrl edzarenski.com 2

Project Inflation Impact  Labor = 30% to 40% of project  Increase 3% adds 0.9% to 1.2% inflation  Material = 40% to 50% of project  Increase 3% adds 1.2% to 1.5% inflation  Margins = applied to 100% of project  Increase 3% adds 3% to inflation edzarenski.com 3

Project Inflation Impact Project Inflation Impact a +10% increase in cost of material = on total cost of building • +0.06% Gypsum Board • +o.40% Concrete • +0.60% All Steel edzarenski.com 4

Project Inflation Impact Project Cost Inflation – Steel Tariff • +25% tariff on mill steel • mill steel is ¼ of Str Stl total cost • Str Stl is 10% of building cost • Other steel is 6% of building cost • 25% tariff = 1% of building cost • could be 5% of steel bridge cost edzarenski.com 5

Types of Inflation Indices  TRADE SUB  CM/GC/OWNER  Inputs  Outputs  Labor & Material  Selling Price  PPI Materials  Final Cost  Market Basket  PPI Trade Cost  PPI Building Type  Market Sector edzarenski.com 6

Construction Inflation Indices edzarenski.com 7

Final Cost Indices NONRESIDENTIAL BUILDINGS  Construction Analytics Building Cost Index  Turner Cost Index  Rider Levett Bucknall Actual Cost Index INFRASTRUCTURE  I H S Power Plant, Pipeline, Refinery Costs  National Highway Construction Cost Index  Bureau of Reclamation Construction Cost Trends RESIDENTIAL  U S Census Constant Quality Single Family House edzarenski.com 8

Project Inflation Impact More than anything else REMEMBER Know what is included in an Index and Use the right Index for your project edzarenski.com 9

Construction Inflation Indices edzarenski.com 10

Construction Inflation Indices edzarenski.com 11

Inflation vs Spending/Volume edzarenski.com 12

Forecasting Overview  Labor - wages, availability and productivity  Material cost and availability  Inflation  Project Cost  DMI / ABI / Starts  Starts & Backlog Cashflow  Market Sector Activity edzarenski.com 13

Sources of Forecasting Data Starting Backlog + New Starts creates Cash Flow  Nonres Bldgs Spending 70%-75 from Starting Backlog  Residential Spending 70% from New Starts  Cash Flow = Spending = Revenue edzarenski.com 14

Forecasting – Market Sector Activity edzarenski.com 15

Forecasting Perspective Project Objective  Resources / Schedule  Inflation  Budget / Cost Corporate Objective  Market Share  Growth = Volume  Revenue minus Inflation = Volume  Size = Volume = Staff edzarenski.com 16

Forecasting Future Outlook Common Oversights in Forecasting  Misusing Starts/Backlog Data  Not Adjusting History for Inflation  Not Using Appropriate Indices  Ignoring Productivity  Considering Revenue = Volume  Staffing to meet Revenue edzarenski.com 17

Forecasting Data edzarenski.com 18

Sources of Forecasting Data Current $ Spending = Revenue Current $ Spending is not adjusted for inflation Constant $ Spending = Volume Constant $ Spending = adjusted for inflation Volume dictates Staffing Needs edzarenski.com 19

Forecasting Data – Jobs All edzarenski.com 20

Forecasting Data – Jobs Nonres edzarenski.com 21

Forecasting Data – Jobs Rsdn edzarenski.com 22

Now You Know THE DIFFERENCES Inputs / Selling Price General Index / Market Sector Index Starts / Cash Flow / Spending Revenue / Volume edzarenski.com 23

Thank You Ed Zarenski Construction Analytics edzarenski@gmail.com @EdZarenski edzarenski.com edzarenski.com 24