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2020 N A T I O N A L C O O P E R A T I V E H I G H W A Y R E S E A R C H P R O G R A M NCHRP RESEARCH REPORT 953 Improving Mid-Term, Intermediate, and Long-Range Cost Forecasting Guidebook for State Transportation Agencies Jorge Rueda-Benavides Cesar Mayorga Auburn university Auburn, AL Cliff Schexnayder ArizonA stAte university Tempe, AZ Ghada Gad CAliforniA stAte PolyteChniC university Pomona, CA Daniel DâAngelo APPlied reseArCh AssoCiAtes, inC. Champaign, IL Subscriber Categories Administration and Management â¢ Finance Research sponsored by the American Association of State Highway and Transportation Officials in cooperation with the Federal Highway Administration
NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM Systematic, well-designed, and implementable research is the most effective way to solve many problems facing state departments of transportation (DOTs) administrators and engineers. Often, highway problems are of local or regional interest and can best be studied by state DOTs individually or in cooperation with their state universities and others. However, the accelerating growth of highway transporta- tion results in increasingly complex problems of wide interest to high- way authorities. These problems are best studied through a coordinated program of cooperative research. Recognizing this need, the leadership of the American Association of State Highway and Transportation Officials (AASHTO) in 1962 ini- tiated an objective national highway research program using modern scientific techniquesâthe National Cooperative Highway Research Program (NCHRP). NCHRP is supported on a continuing basis by funds from participating member states of AASHTO and receives the full cooperation and support of the Federal Highway Administration (FHWA), United States Department of Transportation, under Agree- ment No. 693JJ31950003. The Transportation Research Board (TRB) of the National Academies of Sciences, Engineering, and Medicine was requested by AASHTO to administer the research program because of TRBâs recognized objectivity and understanding of modern research practices. TRB is uniquely suited for this purpose for many reasons: TRB maintains an extensive com- mittee structure from which authorities on any highway transportation subject may be drawn; TRB possesses avenues of communications and cooperation with federal, state, and local governmental agencies, univer- sities, and industry; TRBâs relationship to the National Academies is an insurance of objectivity; and TRB maintains a full-time staff of special- ists in highway transportation matters to bring the findings of research directly to those in a position to use them. The program is developed on the basis of research needs iden- tified by chief administrators and other staff of the highway and transportation departments, by committees of AASHTO, and by the FHWA. Topics of the highest merit are selected by the AASHTO Special Committee on Research and Innovation (R&I), and each year R&Iâs recommendations are proposed to the AASHTO Board of Direc- tors and the National Academies. Research projects to address these topics are defined by NCHRP, and qualified research agencies are selected from submitted proposals. Administration and surveillance of research contracts are the responsibilities of the National Academies and TRB. The needs for highway research are many, and NCHRP can make significant contributions to solving highway transportation problems of mutual concern to many responsible groups. The program, however, is intended to complement, rather than to substitute for or duplicate, other highway research programs. Published research reports of the NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM are available from Transportation Research Board Business Office 500 Fifth Street, NW Washington, DC 20001 and can be ordered through the Internet by going to https://www.nationalacademies.org and then searching for TRB Printed in the United States of America NCHRP RESEARCH REPORT 953 Project 10-101 ISSN 2572-3766 (Print) ISSN 2572-3774 (Online) ISBN 978-0-309-67344-0 Library of Congress Control Number 2020945172 Â© 2020 National Academy of Sciences. All rights reserved. COPYRIGHT INFORMATION Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA, FTA, GHSA, NHTSA, or TDC endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and not-for-profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP. NOTICE The research report was reviewed by the technical panel and accepted for publication according to procedures established and overseen by the Transportation Research Board and approved by the National Academies of Sciences, Engineering, and Medicine. The opinions and conclusions expressed or implied in this report are those of the researchers who performed the research and are not necessarily those of the Transportation Research Board; the National Academies of Sciences, Engineering, and Medicine; the FHWA; or the program sponsors. The Transportation Research Board; the National Academies of Sciences, Engineering, and Medicine; and the sponsors of the National Cooperative Highway Research Program do not endorse products or manufacturers. Trade or manufacturersâ names appear herein solely because they are considered essential to the object of the report.
The National Academy of Sciences was established in 1863 by an Act of Congress, signed by President Lincoln, as a private, non- governmental institution to advise the nation on issues related to science and technology. Members are elected by their peers for outstanding contributions to research. Dr. Marcia McNutt is president. The National Academy of Engineering was established in 1964 under the charter of the National Academy of Sciences to bring the practices of engineering to advising the nation. Members are elected by their peers for extraordinary contributions to engineering. Dr. John L. Anderson is president. The National Academy of Medicine (formerly the Institute of Medicine) was established in 1970 under the charter of the National Academy of Sciences to advise the nation on medical and health issues. Members are elected by their peers for distinguished contributions to medicine and health. Dr. Victor J. Dzau is president. The three Academies work together as the National Academies of Sciences, Engineering, and Medicine to provide independent, objective analysis and advice to the nation and conduct other activities to solve complex problems and inform public policy decisions. The National Academies also encourage education and research, recognize outstanding contributions to knowledge, and increase public understanding in matters of science, engineering, and medicine. Learn more about the National Academies of Sciences, Engineering, and Medicine at www.nationalacademies.org. The Transportation Research Board is one of seven major programs of the National Academies of Sciences, Engineering, and Medicine. The mission of the Transportation Research Board is to provide leadership in transportation improvements and innovation through trusted, timely, impartial, and evidence-based information exchange, research, and advice regarding all modes of transportation. The Boardâs varied activities annually engage about 8,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. The program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transportation, and other organizations and individuals interested in the development of transportation. Learn more about the Transportation Research Board at www.TRB.org.
C O O P E R A T I V E R E S E A R C H P R O G R A M S AUTHOR ACKNOWLEDGMENTS The research reported herein was performed under NCHRP Project 10-101, âImproving Mid-Term, Intermediate, and Long-Range Cost Forecasting: Guidance for State Departments of Transportation.â Principal Investigator Dr. Jorge Rueda-Benavides, Assistant Professor, Department of Civil Engineering, Auburn University (AU) led the research. All research efforts were performed with the support of the AU Highway Research Center. The co-principal investigators in this project were Dr. Cliff Schexnayder, Arizona State University, Tempe, AZ (retired); Dr. Ghada Gad, Assistant Professor, California State Polytechnic University, Pomona, CA; and Daniel DâAngelo, Principal Civil Engineer, Applied Research Associates, Inc., Champaign, IL. Cesar Mayorga, doctoral candidate in the Department of Civil Engineer- ing at AU, served as a graduate research assistant on this project. The research team also acknowledges the valuable support and contributions made by the AASHTO Technical Committee on Cost Estimating, which served as an expert advisory panel for this study. The Minnesota Department of Transportation, Colorado Department of Transportation, and Delaware Department of Transportation also made valuable contributions to this study by providing the research team with sufficient historical bid data to develop and assess the long-term performance of various cost forecasting approaches. CRP STAFF FOR NCHRP RESEARCH REPORT 953 Christopher J. Hedges, Director, Cooperative Research Programs Lori L. Sundstrom, Deputy Director, Cooperative Research Programs Ann M. Hartell, Senior Program Officer Jarrell McAfee, Senior Program Assistant Eileen P. Delaney, Director of Publications Natalie Barnes, Associate Director of Publications Janet M. McNaughton, Senior Editor NCHRP PROJECT 10-101 PANEL Field of Materials and ConstructionâArea of Specifications, Procedures, and Practices Ben T. Orsbon, South Dakota Department of Transportation, Pierre, SD (Chair) Bismark Agbelie, Catholic University of America, Washington, DC Ashley Anderson, Florida Department of Transportation, Bartow, FL Teresa L. âTeriâ Kennedy, Arizona Department of Transportation, Phoenix, AZ Scott J. Lawry, Wisconsin Department of Transportation, Madison, WI Robert J. Munchinski, H. W. Lochner, Inc., Bothell, WA Richard B. Duval, FHWA Liaison Alex Clegg, AASHTO Liaison Nelson H. Gibson, TRB Liaison
NCHRP Research Report 953 presents a cost forecasting method for use by state trans- portation agencies that better accounts for cost variability and economic volatility over time. The method will be of interest to those responsible for developing and updating cost forecasts for mid-term State Transportation Improvement Programs (3 to 5 years), intermediate-range plans (up to 15 years), and Long-Range Transportation Plans (20 years) as well as those who manage transportation investment programs, administer the bid-letting process, and oversee contracts. The ability to create accurate forecasts of project costs is a core competency for state departments of transportation (DOTs). Cost forecasting is used to develop and update transportation plans; program projects; manage transportation improvement programs; administer the bid-letting process; and oversee contracts. Forecasts are used to demonstrate fiscal constraint and to track performance measures of on-time, within-budget delivery. Reliable and accurate cost forecasts help agencies improve decision-making and transparency and build trust by supporting reliable program delivery. Because transportation investment programs have extended time horizons, state DOTs must forecast costs well into the future. This poses a serious challenge: the longer the time horizon, the more uncertainty and risk that forecasted costs will vary from actual, future costs. The sources of forecasting uncertainty include variation in market conditions, construction conditions, and inflation of costs for materials and labor, which increase or decrease at different rates over time and by region. NCHRP Report 953 presents a multilevel construction cost index (MCCI) for use by state DOTs to develop forecasts from initial cost estimates. The MCCI can be used to improve the accuracy of cost forecasting by accounting for differences in inflation rates for different materials and work items included in a program as well as regional differences within a state. By incorporating these differences and drawing from state-specific data, the MCCI offers considerable improvement over the use of a single, generalized inflation rate to forecast the future cost of a transportation investment program. Under NCHRP Project 10-101, âImproving Mid-Term, Intermediate, and Long-Range Cost Forecasting: Guidance for State Departments of Transportation,â Auburn University was asked to review current practice in cost forecasting and develop a practical approach to improving cost forecasting methods. The resulting methodâthe MCCIâwas developed in partnership with three DOTs that contributed data and vetted the method: the Minnesota DOT, the Delaware DOT, and the Colorado DOT. The AASHTO Technical Committee on Cost Estimating also provided feedback. F O R E W O R D By Ann M. Hartell Staff Officer Transportation Research Board
The guidebook is accompanied by a spreadsheet-based toolkit for using the MCCI. NCHRP Web-Only Document 283 details the research activities and methods. Recorded presentations and accompanying slides that summarize the research are also available. These materials can be accessed on the TRB website at http://www.trb.org/main/blurbs/ 181093.aspx.
1 Chapter 1 Introduction 1 1.1 Introduction and Background 2 1.2 Overview of Guidebook 3 1.3 Business Case for Implementation of Effective Cost Forecasting Programs 3 1.4 Inflation Rates and Cost Indexes 4 1.5 Factoring Inflation Rates into the Cost Forecasting Process 6 1.6 Current Practice Versus Ideal Practice 8 Chapter 2 Framework for Selecting a Cost Forecasting Approach 8 2.1 Introduction 8 2.2 Module 1: Cost Index Selection 8 2.3 Module 2: Standard Inflation Rate Selection 11 2.4 Modules 3 to 5: Midterm, Intermediate-Range, and Long-Range Forecasting Method Selection 15 Chapter 3 Cost Indexing Alternatives 15 3.1 Introduction 15 3.2 Use of Macroeconomic Indexes 16 3.3 External Traditional Construction Cost Indexes 16 3.4 In-House Traditional Construction Cost Indexes 17 3.5 Limitations of Traditional Construction Cost Indexes 19 3.6 Multilevel Construction Cost Index 20 3.6.1 Collection and Cleaning of Historical Bid Data 23 3.6.2 Defining Basket of Pay Items for the Multilevel Construction Cost Index 23 3.6.3 Configuration and Calculation of the Multilevel Construction Cost Index 28 3.6.4 Development of Scope-Based Construction Cost Indexes 31 3.6.5 Regional Considerations and Price Inputs for Multilevel Construction Cost Index 33 3.7 Identification of Suitable Construction Cost Index 33 3.7.1 Representative Pay Items and Analysis Period 34 3.7.2 Bid Data Point Clouds 34 3.7.3 Base Power Regression Curves and Base Unit Price Estimates 35 3.7.4 Index-Based Data Point Clouds 35 3.7.5 Average Distance Between Bid Data and Index-Based Data Point Clouds and Identification of the Most Suitable Cost Indexing Alternative C O N T E N T S
37 Chapter 4 Index-Based Cost Forecasting Approaches 37 4.1 Introduction 37 4.2 Linear and Exponential Regression 38 4.3 Moving Forecasting Error 39 4.3.1 Moving Forecasting Error: Step 1 39 4.3.2 Moving Forecasting Error: Step 2 39 4.3.3 Moving Forecasting Error: Step 3 40 4.3.4 Moving Forecasting Error: Step 4 40 4.3.5 Moving Forecasting Error: Step 5 41 4.3.6 Moving Forecasting Error: Step 6 45 Chapter 5 Cost Forecasting Tool Kit 45 5.1 Introduction 45 5.2 Overview of Cost Forecasting Tool Kit 46 5.3 Tool 1: Forecast with Inflation Rate 47 5.4 Tool 2: Index-Based Forecast with Moving Forecasting Error 48 5.5 Tool 3: Index-Based Forecast with Regression Analysis 54 Acronyms 55 References Note: Photographs, figures, and tables in this report may have been converted from color to grayscale for printing. The electronic version of the report (posted on the web at www.trb.org) retains the color versions.