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Amazing Black Boxes: Just how do construction cost modifiers work?

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By Joe Macaluso

Have you heard about these three devices?
1. one acts like Orson Welles’ time machine and recreates your building in the past or in the future;
2. another works like a transporter on the Star Ship Enterprise and instantly moves your building to a different location;
3. and yet another expands or shrinks the size of your building like something out of Alice in Wonderland.

Yes, they really do exist. There’s only one catch -- and it’s a big one -- they only affect estimated cost of these transformations. These “black boxes” are called modifiers (indexes, factors or multipliers). They’re simple, easy to use, and fairly accurate.

Below is an example demonstrating each modifier. For clarity, I will take each revision as a separate case; however, you can use any combination (or all of them) for the same building.

Given
Office Building
Construction Year: 2009
Building Location: New York City, New York
Building Size:140,000 SF -
Typical Size for this type of building:140,000 SF
Estimated Cost: $28,000,000;Cost/SF: $200

Revisions
Change Construction Year to 2011
Change Location to Chicago, Illinois
Change Size to 180,000 SF

TIME
Let’s start with time (escalation or historic) modifiers. These will adjust the estimated cost of a building from the original construction date to another construction date, or project costs into the future. This is not to be confused with the length of time it takes to actually build the building (construction duration). To understand how building costs will be affected by construction duration, you need to work with a construction schedule. Time modifiers do not take into account the time value of money or the cost of financing.

The accuracy of time modifiers diminishes as the difference between the original construction date and the revised construction date widens. This is due to changes in technology, materials, labor practices, and equipment -- which changes over time. When determining the construction date for a building, it is good practice to use the mid-point of construction as the date for both original and revised dates.

Time modifiers are determined by tracking a weighted average of the material and labor costs that make up a typical building over time, and providing index figures for each year or part of that year. There are differences in opinion on what costs should be included and how they should be interpreted.

You can find time modifiers in Design Cost Data™ magazine (DCD). If you are using D4Cost™ software or DCD Archives™, either system will revise (rebase) the estimate based on the location you choose. Providers include RS Means, Engineering News Record (ENR), Turner Construction Company, and BNi Publications. BNi uses their own modifiers in its cost guides, and supplies them to Buildings Magazine, the Gordian Group, and DCD. DCD calculates its own time modifiers for projecting costs into the future. ENR produces two separate modifiers: the Construction Cost Index (CCI) and the Building Cost Index (BCI). The CCI factors in 200 hours of common labor in its index, whereas the (BCI) factors about 68 hours of skilled labor. The BCI is more appropriate for buildings. ENR offers a particularly detailed explanation of how they compile their modifiers. It can be found at http://enr.construction.com/economics/FAQ.asp.

To modify an estimate due to a revised construction date,
the formula is:
Estimated Cost *( Modifier for the revised construction date / Modifier for original construction date)
Substituting actual numbers we get:
$28,000,000 * (185.7 / 180.1) = $28,870,600 (rounded)


LOCATION
Location (city or region) modifiers revise the estimated building costs to reflect the costs in a different location. They are also based on a weighted average of building material and labor costs that make up the cost of a typical building, but these costs are tracked for several locations. In addition, there are a few location modifiers available that are based on the unique mix of building material and labor associated with specialty construction, such as clean room labs.

I have even seen international location modifiers. Always check, but generally, location modifiers do not account for the cost differences in managerial efficiency, competition, union practices, building codes or other local conditions. These factors are highly subjective, and normally do not have a huge bearing on costs. If you are aware of special circumstances where these factors have a major impact on costs and are not included in the modifier, address them separately. Location modifiers are not affected by the relative distance from the existing location to the revised location. Location modifiers are also available for individual CSI divisions or specific building materials (for example: steel, concrete, masonry). Location modifiers can be found in DCD magazine. If you are using D4Cost Software or DCD Archives, simply select the desired location for the project and it will revise (rebase) the estimated cost to that location. Providers include RS Means, DCD, and BNi.

To modify an estimate due to a revised location, the formula is:
Estimated Cost * (Modifier for revised location / Modifier for original location)
Substituting actual numbers we get:
$28,000,000 * (116.6 / 132.2) = $24,696,000 (rounded)

 

NOTE: If the estimated costs are obtained from a cost data source that uses a national average, simply multiply that estimated cost by the modifier supplied by the cost data source.

SIZE
Naturally, the cost of a building increases as its size increases, but what about the cost per square foot? In relatively small increments, the cost per square foot remains the same; the total cost increases at the same ratio as the change in size (linear). The square foot size modifier using a linear model will always be one (1). The total cost size modifier will be the ratio of the revised size over the original size.

The linear modifier is quick and easy to use; however, for larger size increments, something called the Six-Tenths rule comes into play. The Six-Tenths rule tells us that the cost of a facility increases exponentially to its size; usually the exponent used is (.6). What does this mean? If you plotted the ratio of cost to size, you would get a curve, not a straight line. Why? As the size of a building increases, you gain cost savings due to economies of scale (better material prices are obtained as larger quantities are ordered), and the learning curve improves productivity as more experience is gained. Also, the ratio of less expensive inner building square footage to that of more expensive perimeter walls increases as the size of the building increases.

The accuracy of size modifiers also diminishes as the difference between original building size and revised building size increases. This is due to the increasing possibility that different construction methods and materials will be required, and is true for both linear and exponent size modifiers.

When determining the size of a building, there are general guidelines for certain building features. For example, balconies, canopies and open terraces as count as half their area, and open roof areas are not counted at all. These are normally not critical issues, but these conventions are laid out in the Association for the Advancement of Cost Engineering (AACEi) Standard #13S-9, and the American Institute of Architects (AIA) Document D101.

When using D4Cost software or DCD Archives simply input the revised square footage of the building. The software will do the math to revise the cost based on the linear model. Exponent modifier providers include RS Means, and the US Department of Defense.


To modify an estimate due to a revised size, using the linear model, the formula is:
Estimated Cost/Building Size = Cost/Square Foot
(Cost/Square Foot) * revised square footage = Revised Estimated Cost
Substituting actual numbers we get:
$28,000,000/140,000SF = $200/SF
($200/SF)*180,000SF = $36,000,000

To modify an estimate due to a revised size, using the linear model, the formula is:
Building Size/Typical Size = Size Factor yields a Cost Multiplier from a reference source
Cost Multiplier * Cost (based on a typical building size)/Square Foot = Revised Estimated Cost/SF
Substituting actual numbers we get:
180,000SF/140,000SF = 1.30 which yields .95 from a reference source
.98 *($200/SF) = $196/SF
($196/SF) * 180,000SF = $35,280,000


About the author
Joseph Macaluso has over 20 years of experience as a construction cost estimator working on multi-million dollar projects for several New York City and New York State agencies. Recently he has authored the guide, Understanding Construction Costs: How to Review Estimates, available in e-book and print formats, at Amazon.com, iTunes, and as an on-line guide at Guides.co website. He can be reached at joemacaluso@verizon.net.

Tags: Costs, Estimating Construction



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