While construction cost factors are used for estimating project costs, there are several challenges and potential problems associated with their use. Here are some common issues:
- Regional Variations: Construction cost factors rely on regional averages. Local variations in labor costs, material prices, equipment availability, and regulatory requirements can greatly affect the estimate. If your project is in an area with significantly different market conditions, estimates may be poor.
- Project Size and Scale: Cost factors may not scale linearly with the size or scale of a project. Large or complex projects may have different economies of scale, and cost factors may not accurately reflect these variations.
- Limited Detail: Cost factors are often broad and generalized, providing average values for various construction aspects or categories. This lack of detail can be a limitation for most projects that generally require a more detailed breakdown of costs.
- Inflation and Economic Changes: Economic factors, such as inflation rates, can impact construction costs over time. Cost factors may not account for these changes, leading to significant discrepancies between estimated and actual costs.
- Technology and Innovation: Advancements in construction technology and methodologies may not be reflected in traditional cost factors. Innovative approaches or new materials might not be accurately represented, leading to potential underestimation or overestimation of costs.
- Lack of Project-Specific Information: Cost factors are based on average conditions, and they may not take into account the specific conditions of a project site. Site-specific challenges, such as environmental conditions or logistical constraints, may not be adequately considered.
- Over-Reliance on Averages: Averaging costs across various projects do not capture outliers. Relying solely on averages without considering the range of potential costs can lead to significant errors.
To mitigate these issues, it’s advisable limit the use of construction cost factors and rely upon detailed local data, expert judgment, and a thorough understanding of specific project requirements.
“Location factors are used during preliminary project evaluations. They are not intended to be used when preparing appropriation-quality estimates. They often are applied to conceptual estimates for identifying “go/no-go” projects at an early stage.” (Peitlock, B.A., ccc, Developing Location Factors Using a Factoring Method, International Cost Engineering Council, ICEC International Cost Management Journal (ICMJ), 1998.)
Location factors are primarily used in class 4 and 5 estimates and are not intended to be used for higher quality estimates, such as class 3, 2, or 1. The RSMeans city cost index (CCI) and the Department of Defense area cost factor (ACF) index are two primary examples of location factor publications. (Martinez, A., Validation of methods for adjusting construction cost estimates by project location , University of New Mexico UNM Digital Repository, 2010)
“Despite its potential weaknesses, estimation by adjustment factors is a very common approach for all types of construction. A very common approach for performing quick-order-of-magnitude estimates is based on using Location Cost Adjustment Factors (LCAFs). The accuracy of cost estimates in the early phases varies within an expected range that spans from -100% to +200% ” “Using the results of this study, various commercial entities (e.g., RS Means) could enhance their online tools by uploading publicly available socio-economic variables and allowing users to perform geostatistical analysis. As a result, a cost engineer could input the location of a project and obtain the most accurate location adjustment factor through a mix of interpolation and geostatistical prediction techniques.” (Migliaccio, G., Empirical Assessment of Spatial Prediction Methods for Location Cost Adjustment Factors, J Constr Eng Manag. 2013)
“Problems within the methodology, unfortunately, will continue to arise as standardized estimation tools (CCI) simply cannot account for the unique characteristics of individual states. Unfortunately, the accuracy of program-wide CCIs occasionally led to swings of ±20 percent after projects had gone through the bidding process. Additionally, no direct application of market or economic conditions existed in this conventional CCI process, which was theorized by FHWA to potentially be a significant influence on resulting project estimate accuracy. ” (University of Colorado Denver College of Engineering and Applied Science Department of Civil Engineering, Validation of Project-level Construction Cost Index Estimation Methodology, 2017
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