The newly created Index Prediction Tool is a forecasting system that will makes it easier to calculate national construction costs, say analysts at international project and program management consultant Faithful+Gould, the tool’s creator. ENR talked with Tina Le, construction data analyst, and Steve Willcock, technical director, to discuss the benefits to users.
“The Index Prediction Tool allows users to input or select economic forecast information to calculate annual forecast impacts for ENR’s Building Cost Index (BCI),” says Le. Calculations are based on a robust multiple linear regression model, a statistical method that uses independent variables to predict the outcome of a response variable.
“Anyone can use this model to understand the underlying movements in national construction costs,” says Willcock. “Given the complexity and varying factors across the U.S. construction industry sectors, geographies and project types, the Index Prediction Tool provides a logical starting point common to the input costs for most building projects in the U.S.”
The tool comes preloaded with information from the Congressional Budget Office, International Monetary Fund and the Organization for Economic Cooperation and Development, and includes GDP, the current US unemployment rate, the labor force participation rate and consumer price inflation. In addition to the available forecasts, users can edit the inputs in response to actual or anticipated changes in the economic outlook to better understand the forecasted impacts on the ENR BCI, adds Le.
“From experience, we know cause and effect relationships exist between certain economic indicators and construction cost escalation. This often means that in times of economic recession, construction costs escalation can slow or even reverse, as we saw after the 2008 recession. In uncertain times like these with significant variability in economic conditions, incorporating these effects into moving average escalation forecast models with a solid mathematical basis has been challenging,” says Willcock.
The Index Prediction Tool allows users to investigate the impacts of significant changes in economic scenarios on their future construction costs, Willcock adds. “As economic forecasts rapidly change during this unprecedented pandemic, the cost scenario tool can be updated with the latest economic forecast information to calculate a projected cost escalation figure that considers the impacts of the major economic changes.”