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45 Cost Forecasting Tool Kit 5.1 Introduction The Cost Forecasting Tool Kit consists of three spreadsheet-based tools designed to facilitate the implementation of both traditional and advanced cost forecasting methodologies: ⢠Tool 1 is intended for state transportation agencies (STAs) that prefer to use standard inflation rates. ⢠Tool 2 can make all moving forecasting error (MFE) calculations discussed in Section 4.3 in a matter of seconds. ⢠Tool 3 is focused on linear and exponential regression techniques and yields regression outputs tailored to better serve the forecasting process. This tool kit is available on the TRB website on the summary web page for NCHRP Research Report 953 (http://www.trb.org/main/blurbs/181093.aspx). Although the tool kit itself provides instructions for its implementation, users are encouraged to review this guidebook and NCHRP Web-Only Document 283 (Rueda-Benavides et al. 2020), which together provide the theoretical background required to take full advantage of these tools. For example, that theoretical knowledge would help in identifying the circumstances under which a regression analysis (Tool 3) would be more effective than the advanced MFE methodology (Tool 2). It would also facilitate a better interpretation and more effective use of the tool kitâs outputs. Even though the assessment of preforecast estimation of risks and uncertainties is outside the scope of this guidebook and NCHRP Web-Only Document 283, the Cost Forecasting Tool Kit allows the use of risk-based current-dollar estimates as inputs to the cost forecasting process. This produces final risk-based forecasting outputs that account for uncertainties that affect all cost estimating phases. The tool kit provided with this guidebook should be considered a pre- liminary functional version. It still needs to be adapted to the needs of each agency. One of the purposes of providing this tool kit as a deliverable from NCHRP 10-101 was to give STAs access to the complete set of calculations behind the proposed cost forecasting techniques. The provided tool kit can be used as a reference for developing more sophisticated and effective cost forecasting spreadsheets or software applications. The tool kit allows for the use of both multilevel con- struction cost indexes (MCCIs) and traditional CCIs and facilitates the generation and analysis of project- and program-specific CCIs from an MCCI. However, it cannot be used to actually create MCCI systems. The use and capabilities of the cost forecasting tools are detailed below. 5.2 Overview of Cost Forecasting Tool Kit The Cost Forecasting Tool Kit was built in Microsoft Excel, a spreadsheet software widely used by STAs, so as to make it easier for them to adapt the provided version of the tool kit C H A P T E R 5
46 Improving Mid-Term, Intermediate, and Long-Range Cost Forecasting: Guidebook for State Transportation Agencies to better meet their needs and preferences. Each of the three tools included in the tool kit is presented in its own worksheet. There are other supplementary worksheets intended to provide instructions about the use of the tool kit, present relevant information to users, and feed the cost forecasting tools with required information and data. The provided tool kit includes a total of nine worksheets. Each of them is briefly described in Table 5-1. 5.3 Tool 1: Forecast with Inflation Rate This tool was developed to facilitate the generation of forecast cost estimates for any simple or compound annual inflation rate along any desired forecasting time horizon. The target users of this tool are estimators who already know the applicable inflation rate or agencies that prefer to use external standard inflation rates without internal analysis of the construction market. Users in the latter group are provided with a link to the suggested inflation rates in a separate worksheet. Tool 1, as well as the other two tools, has been designed to forecast either single-value (deterministic) or risk-based current-dollar estimates. Single-value estimates in Tool 1 generate deterministic outputs, while risk-based estimates produce risk-based forecasting timelines. The latter consider only preforecast uncertainties. Risk-based estimates in all three tools are entered as three-point estimates defined by three parameters: (1) minimum possible value, (2) most Worksheet Description Introduction Provides an overview of the Cost Forecasting Tool Kit, including a brief description of each tool. Agency information Provides a fact sheet with general information about the agency. This worksheet was created for informative purposes but also serves as a source of information for the cost forecasting tools. Most drop-down menus in the tools are linked to this worksheet. Tool 1: Forecast with inflation rate Facilitates the generation of forecast cost estimates for any simple or compound annual inflation rate along any forecasting time horizon. It is intended for estimators who already know the applicable inflation rate and for agencies that prefer the use of external standard inflation rates without the internal analysis of a cost index. Users in the latter group are provided with a link to suggested inflation rates. Tool 2: Forecast with moving forecasting error Facilitates the generation of simple or compound inflation rates from scope-based or traditional CCIs with the proposed MFE methodology. Outputs are provided in the form of risk-based forecasting outputs with error ranges at 50%, 70%, and 90% confidence levels. Tool 3: Forecast with regression analysis Facilitates the generation of simple or compound inflation rates applying linear or exponential regression analyses, respectively. It can use either scope-based or traditional CCIs. Suggested standard inflation rates Although this worksheet is available to all users, it is mainly intended to provide standard inflation rates to the users of Tool 1. This worksheet is actually Module 2 in the framework for selecting a cost forecasting approach (see Section 2.3). Multilevel CCI Calculations for Tools 2 and 3 in the Cost Forecasting Tool Kit are performed with project- or program-specific CCIs developed with the MCCI presented in this worksheet. This is an MCCI for one of the case study agencies in NCHRP 10-101. This MCCI can be easily replaced by other MCCIs or by a traditional CCI. Project-specific CCI Facilitates the calculations described in Section 3.6.4 for the development of project-specific CCIs. The project-specific CCI in this worksheet is developed with the provided MCCI. Depending on the settings selected by the user, the CCI developed in this worksheet can be used in forecasting processes in Tools 2 and 3. Program-specific CCI Facilitates the calculations described in Section 3.6.4 for the development of program- specific CCIs. The program-specific CCI in this worksheet is developed with the provided MCCI. Depending on the settings selected by the user, the CCI developed in this worksheet can be used in forecasting processes in Tools 2 and 3. Table 5-1. Cost-Forecasting Tool Kit worksheets.
Cost Forecasting Tool Kit 47 likely value, and (3) maximum possible value. Any of the three tools can easily be modified to change the way risk-based estimates are represented. For example, they could be modified to use normal distributions (or any other type of probability distribution) as the value to be forecast. Screen captures in Figures 5-1 and 5-2 show example calculations for Tool 1 that use single- value and risk-based cost inputs, respectively. All inputs and outputs in Tool 1 are briefly described in Table 5-2. Numbering in this table matches the numbers in Figures 5-1 and 5-2. 5.4 Tool 2: Index-Based Forecast with Moving Forecasting Error Unlike Tool 1, the second cost forecasting tool does not require an inflation rate provided by the user. This tool estimates either simple or compound inflation rates by applying the MFE methodology on a given cost index and then uses those rates to perform the cost forecasting process. As mentioned before, the tool kit uses an example MCCI to develop project- and program-specific CCIs, but it could be replaced by either another MCCI or by a traditional CCI. Also unlike Tool 1, the MFE methodology in this tool allows the generation of risk-based forecasting timelines from both single-value and three-point estimates. Risk-based out- puts from the latter show wider error ranges because of the preforecast uncertainty added by Figure 5-1. Tool 1: Forecast with inflation rateâsingle-value input.
48 Improving Mid-Term, Intermediate, and Long-Range Cost Forecasting: Guidebook for State Transportation Agencies Figure 5-2. Tool 1: Forecast with inflation rateâthree-point estimate input. the three-point estimate, as shown in Figures 5-3 and 5-4. In both cases, outputs are provided with three error ranges at 50%, 70%, and 90% confidence levels. Screen captures in Figures 5-3 and 5-4 show example calculations for Tool 2 that use single-value and risk-based cost inputs, respectively. All inputs and outputs in Tool 2 are briefly described in Table 5-3. 5.5 Tool 3: Index-Based Forecast with Regression Analysis As explained in Section 2.4, the use of regression analysis techniques seems to be better suited to risk-seekers. These techniques are more effective for modeling market corrections or when there is little doubt about the path to be followed by the construction market (and whether that path can be modeled with a regression model). In those cases, lookback periods should be set to cover only the period containing the trend to be projected, unlike the MFE method, which is used with the largest possible amount of data. That is why Tool 3 includes an additional input to set the desired lookback period. However, regression analysis techniques can also be used for long-range forecasting, as shown in Figures 4-1 and 4-2. They would just yield less-conservative outputs than those that would be obtained with the MFE method. Screen captures in Figures 5-5 and 5-6 show example calculations for Tool 3 that use single- value and risk-based cost inputs, respectively. All inputs and outputs for Tool 3 are briefly described in Table 5-4.
Input Description 1. Inflation rate Desired simple or compound inflation rate provided by the user. 2. Maximum forecasting period Maximum forecasting time horizon shown in the horizontal axis of the figures. 3. Desired forecasting time horizon Forecasting time horizon to be used to generate the forecast cost estimates in the output cells. 4. Type of estimate Drop-down menu to indicate the use of a single-value or a three-point current-dollar estimate. 5. Current- dollar estimate Single-value Best estimate in current dollars. Three-point estimate Minimum, most likely, and maximum current-dollar estimates. Output Description 6. Forecast cost estimates with simple inflation rate Single-value Deterministic forecast cost estimate that uses the inflation rate in Input 1 as a simple rate at the forecasting time horizon indicated in Input 3. Three-point estimate Minimum, most likely, and maximum forecast cost estimates that use the inflation rate in Input 1 as a simple rate at the forecasting time horizon indicated in Input 3. 7. Forecast cost estimates with compound inflation rate Single-value Deterministic forecast cost estimate that uses the inflation rate in Input 1 as a compound rate at the forecasting time horizon indicated in Input 3. Three-point estimate Minimum, most likely, and maximum forecast cost estimates that use the inflation rate in Input 1 as a compound rate at the forecasting time horizon indicated in Input 3. 8. Forecasting timeline with simple inflation rate Single-value Deterministic forecasting timeline that uses the inflation rate in Input 1 as a simple rate. Highlights forecast value at the forecasting time horizon indicated in Input 3. Three-point estimate Risk-based forecasting timeline that uses the inflation rate in Input 1 as a simple rate. Risk considered in this output is only preforecast risk. Highlights forecast values at the forecasting time horizon indicated in Input 3. 9. Forecasting timeline with compound inflation rate Single-value Deterministic forecasting timeline that uses the inflation rate in Input 1 as a compound rate. Highlights forecast value at desired forecasting time horizon indicated in Input 3. Three-point estimate Risk-based forecasting timeline that uses the inflation rate in Input 1 as a compound rate. Risk considered in this output is only preforecast risk. Highlights forecast values at desired forecasting time horizon indicated in Input 3. Table 5-2. Tool 1: Forecast with inflation rateâinputs and outputs. Figure 5-3. Tool 2: Index-based forecast with MFEâsingle-value input.
50 Improving Mid-Term, Intermediate, and Long-Range Cost Forecasting: Guidebook for State Transportation Agencies Figure 5-4. Tool 2: Index-based forecast with MFEâthree-point estimate input. Input Description 1. Type of inflation rate Desired type of inflation rate to be calculated by the MFE method: simple or compound. 2. Maximum forecasting period Maximum forecasting time horizon shown in the horizontal axis of the figure. 3. Desired forecasting time horizon Forecasting time horizon to be used to generate the forecast cost estimates in the output cells. 4. Level of forecast Scope-based CCI to be used with the MFE method. If a project-level forecast is selected, Tool 2 extracts the required index data from the project-specific CCI worksheet; otherwise, Tool 2 uses the program- specific worksheet. This input is not required if a traditional CCI is used instead of an MCCI. 5. Type of estimate Drop-down menu to indicate the use of a single-value or a three-point current-dollar estimate 6. Current- dollar estimate Single-value Best estimate in current dollars. Three-point estimate Minimum, most likely, and maximum current-dollar estimates. Output Description 7. Estimated inflation rate Inflation rate estimated by the MFE method. Depending on type of inflation rate indicated in Input 1, it would be a single or a compound rate. 8. Forecast cost estimate with confidence intervals Expected forecast cost estimate calculated with the inflation rate in Output 7 at the desired forecasting time horizon indicated in Input 3. This estimate is provided with confidence intervals at 50%, 70%, and 90%. 9. Risk-based forecasting timeline Risk-based forecasting timeline that uses the inflation rate in Output 7. Highlights forecast values at desired forecasting time horizon indicated in Input 3. Table 5-3. Tool 2: Index-based forecast with MFEâinputs and outputs.
Cost Forecasting Tool Kit 51 Figure 5-5. Tool 3: Index-based forecast with regression analysisâsingle-value input.
52 Improving Mid-Term, Intermediate, and Long-Range Cost Forecasting: Guidebook for State Transportation Agencies Figure 5-6. Tool 3: Index-based forecast with regression analysisâthree-point estimate input.
Cost Forecasting Tool Kit 53 Input Description 1. Lookback period Number of years of index values to be considered for the intended cost forecasting process. 2. Maximum forecasting period Maximum forecasting time horizon shown in the horizontal axis of the figures. 3. Desired forecasting time horizon Forecasting time horizon to be used to generate the forecast cost estimates in the output cells. 4. Level of forecast Scope-based CCI modeled through regression analysis. If a project-level forecast is selected, Tool 3 extracts the required index data from the project-specific CCI worksheet; otherwise, Tool 3 uses the program- specific worksheet. This input is not required if a traditional CCI is used instead of an MCCI. 5. Type of estimate Drop-down menu to indicate the use of a single-value or a three-point current-dollar estimate. 6. Current-dollar estimate Single-value Best estimate in current dollars. Three-point estimate Minimum, most likely, and maximum current-dollar estimates. Output Description 7. Estimated simple inflation rate Simple inflation rate estimated through regression analysis with the provided CCI. 8. Forecast cost estimates with simple inflation rate Single-value Deterministic forecast cost estimate that uses the simple inflation rate in Output 7 at the forecasting time horizon indicated in Input 3. Three-point estimate Minimum, most likely, and maximum forecast cost estimates that use the simple inflation rate in Output 7 at the forecasting time horizon indicated in Input 3. 9. Estimated compound inflation rate Compound inflation rate estimated through regression analysis with the provided CCI. 10. Forecast cost estimates with compound inflation rate Single-value Deterministic forecast cost estimate that uses the compound inflation rate in Output 9 at the forecasting time horizon indicated in Input 3. Three-point estimate Minimum, most likely, and maximum forecast cost estimates that use the compound inflation rate in Output 9 at the forecasting time horizon indicated in Input 3. 11. Forecasting timeline with simple inflation rate Single-value Deterministic forecasting timeline that uses the simple inflation rate in Output 7. Highlights forecast value at the forecasting time horizon indicated in Input 3. Three-point estimate Risk-based forecasting timeline that uses the simple inflation rate in Output 7. Risk considered in this output is only preforecast risk. Highlights forecast values at the forecasting time horizon indicated in Input 3. 12. Forecasting timeline with compound inflation rate Single-value Deterministic forecasting timeline that uses compound inflation rate in Output 9. Highlights forecast value at the forecasting time horizon indicated in Input 3. Three-point estimate Risk-based forecasting timeline that uses the compound inflation rate in Output 9. Risk considered in this output is only preforecast risk. Highlights forecast values at the forecasting time horizon indicated in Input 3. Table 5-4. Tool 3: Index-based forecast with regression analysisâ inputs and outputs.
