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

1

Welcome

edzarenski.com

Advancing Building Estimation

Construction Inflation & Forecasting

Dallas, TX 5-16-18

2

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

3

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

4

Project Inflation Impact

Project Inflation Impact a +10% increase in cost of material =

• n total cost of building
• +0.06%

Gypsum Board

• +o.40%

Concrete

• +0.60%

All Steel

edzarenski.com

5

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

6

Types of Inflation Indices

 TRADE SUB

 Inputs  Labor & Material  PPI Materials  Market Basket

 CM/GC/OWNER

 Outputs  Selling Price  Final Cost  PPI Trade Cost  PPI Building Type  Market Sector

edzarenski.com

7

Construction Inflation Indices

edzarenski.com

8

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

9

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

10

Construction Inflation Indices

edzarenski.com

11

Construction Inflation Indices

edzarenski.com

12

Inflation vs Spending/Volume

edzarenski.com

13

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

14

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

15

Forecasting – Market Sector Activity

edzarenski.com

16

Forecasting Perspective

Project Objective

 Resources / Schedule  Inflation  Budget / Cost

Corporate Objective

 Market Share  Growth = Volume  Revenue minus Inflation = Volume  Size = Volume = Staff

edzarenski.com

17

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

18

Forecasting Data

edzarenski.com

19

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

20

Forecasting Data – Jobs All

edzarenski.com

21

Forecasting Data – Jobs Nonres

edzarenski.com

22

Forecasting Data – Jobs Rsdn

edzarenski.com

23

Now You Know

THE DIFFERENCES Inputs / Selling Price General Index / Market Sector Index Starts / Cash Flow / Spending Revenue / Volume

edzarenski.com

24

Thank You

Ed Zarenski Construction Analytics edzarenski@gmail.com @EdZarenski edzarenski.com

edzarenski.com