Escalation Estimating:

Working with Economic Consultants

John K. Hollmann and Larry R. Dysert

2007 AACE International Transactions, EST.01

AACE International, Morgantown, WV, 2007

Capital project costs have soared since 2003. Commodity price increases are driving demand for process facilities that, in turn, has created a sellers market for engineering, procurement, and construction (EPC) services. Management expects estimators to accurately predict future project costs but how do you know if the market and prices will keep climbing, level off, or crash like the 1980's? Estimators' skills with price forecasting have become rusty since the 1980's, and no standard reference or economic consultant is tracking EPC bid prices. But, to provide management with the best information, cost engineers must combine their expert knowledge of project costs and EPC market trends with the economists' knowledge of macro-economic price trends. This paper presents an approach that the authors are using to work with economists and augment their forecast models to produce better estimates of escalation (as well as other cost analysis uses).

Originally published by AACE International.

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