Improving Mid-Term, Intermediate, and Long-Range Cost Forecasting for State Transportation Agencies (2020)

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63 6. Implementing Formal Cost Forecasting Practices 6.1 Introduction This chapter summarizes the efforts made to ensure that all guidelines and cost forecasting methods resulting from this study were practical, align with the current needs of the transportation construction industry, and were of easy implementation by state transportation agencies (STAs). Those efforts were made at different levels, including project tasks aimed to gather feedback and suggestions from experts and STA estimators, as well as the development of various tools and resources that have been made available to STAs to facilitate a practical implementation of all guidance and cost forecasting methodologies generated from this research project. Those tools and resources include NCHRP Research Report 953, the Cost Forecasting Approach Selection Framework, the Cost Forecasting Toolkit, and other services and assistance offered by the NCHRP Implementation Support Program. 6.2 Expert Feedback and Input This section refers to the actions taken by the research team to collect and integrate subject matter experts’ feedback and input throughout the different phases of the study, with the purpose of facilitating practical and implementation-ready deliverables. The primary source of expert knowledge for this study was the project panel assembled by NCHRP to guide and supervise the work performed by the research team. The project panel includes a number of subject manner experts from both public and private transportation construction sectors. The AASHTO Technical Committee on Cost Estimating (TCCE) also agreed to serve as an Expert Advisory Panel (EAP) for the study. Through the TCCE, the research team had the opportunity to interact with estimators from at least 15 STAs. The role of the EAP was limited to providing input and feedback towards the validation of research findings and the maximization of applicability and effectiveness of all project deliverables. Two meetings were held with the EAP, one during each of the two project phases. The first meeting with the EAP was intended to validate some initial findings and information collected through the review of the existing literature and the online survey. The second meeting with the EAP served to collect feedback from TCCE’s members on the case studies’ findings and results and the Cost Forecasting Approach Selection Framework. Two vetting workshops were also conducted with planning and estimating staff from two different STAs. These workshops were designed to test the level of practicality and the likelihood of implementation of the proposed Cost Forecasting Approach Selection Framework and the Cost Forecasting Toolkit. This was done by asking workshop participants to apply the proposed framework and toolkit using real historical cost data. Feedback and comments collected throughout the workshop were then used to revise and improve the proposed techniques, framework, and toolkit to make them more user-friendly and effective. Additionally, the Cost Forecasting Approach Selection Framework and the Cost Forecasting Toolkit were discussed and presented to estimators from an additional six STAs through

64 unstructured interviews. In general, feedback and comments received from subject matter experts through the panels, workshops, and interviews were positive. A number of STAs expressed their interest in an eventual implementation of the results and deliverables from this study. No major changes or corrections were suggested. Most suggested revisions to preliminary versions of final deliverables were associated with formatting and terminology issues. 6.3 Cost Forecasting Approach Selection Framework The Cost Forecasting Approach Selection Framework, presented in NCHRP Research Report 953, serves as a map to guide planners and estimators through different sets of guidelines and tools according to unique set of requirements, preferences, and constraints of each STA in terms of data quality and availability, information technology (IT) and staff capabilities, intended cost forecasting time horizon, and risk tolerance. This five-module framework is intended to be the first stop for any STA interested in implementing the guidance and tools produced by this study. The flow chart in Figure 6.1 shows the role of each module as part of the overall cost forecasting process. Table 6.1 provides a short description of each module. A more detailed description of the framework, and the framework itself, is included in NCHRP Research Report 953. Module 4. Intermediate‐Range  Forecasting Method  Selection Standard or  Index‐based  inflation Rate? Forecasting Time Horizon Index‐based Module 1. Cost Index Selection Module 2.  Standard Inflation  Rate Selection Standard Module 5.  Long‐Range Forecasting  Method Selection Module 3. Mid‐Term Forecasting  Method Selection Intermediate‐Range Horizon Long‐Range Horizon Mid‐Term Horizon Figure 6.1 Overall Cost Forecasting Approach Selection Framework

65 Table 6.1 Description of the Cost Forecasting Approach Selection Framework Modules Module Description Module 1. Cost Index Selection This module assists STA in the selection of the cost indexing alternative that best fits its needs, preferences, and constraints. Cost indexing alternatives considered in this module are:  In-house Multilevel Construction Cost Index (MCCI)  In-house traditional Construction Cost Index (CCI)  External CCI  No CCI (standard inflation rate) The module provides information about each indexing alternative’s implications and considerations on four major aspects:  Effectiveness in tracking market price changes  Effectiveness in addressing project-specific requirements and geographic considerations  Required data management efforts for development, maintenance, and implementation  Staff and IT requirements for development and maintenance Module 2. Standard Inflation Rate Selection This module provides low, medium, and high standard annual inflation rate for mid-term, intermediate, and long-range forecasting processes. Those standard inflation rates are provided with their respective forecasting error ranges. These suggested rates are directed to agencies that decide not to calculate applicable inflation rates from the in-house assessment of a cost index. This module is shown in Section 5.2, Table 5.1. Module 3. Mid-Term Forecasting Method Selection If at Module 1 the agency decides to use any type of cost index, that would mean that a quantitative assessment of that index would be performed to generate an applicable inflation rate. Depending on the length of the intended forecast, the framework user would proceed to Module 3, 4, or 5. All three modules consider the use of the Moving Forecasting Error (MFE) method and regression analysis techniques, providing the expected forecasting error ranges for each of the cost indexing alternatives considered in Module 1. Module 4. Intermediate-Range Forecasting Method Selection Module 5. Long-Range Forecasting Method Selection 6.4 Cost Forecasting Toolkit The Cost Forecasting Toolkit consolidates most of the findings from this study into three spreadsheet-based tools. The toolkit has been made available to STAs through the NCHRP’s website. It should be seen as a preliminary functional version of cost forecasting supporting spreadsheets. It still needs to be adapted to the needs of each agency. One of the purposes of providing this toolkit as a deliverable from this study was to give STAs access to the complete set of calculations behind the proposed cost forecasting techniques. The provided toolkit could be used as a reference to develop more sophisticated and effective cost forecasting spreadsheets or software applications. The toolkit allows the use of both MCCIs and traditional CCIs and facilitates the generation and analysis of project- and program-specific CCIs from an MCCI, but it does not help with the actual creation of the MCCI system. Below is a short description of each of the cost forecasting tools, but a complete description of the toolkit can be found in the NCHRP Research Report 953.

66  Tool 1. Forecast with Standard Inflation Rate: - Facilitates the generation of forecasted cost estimates for any simple or compounded annual inflation rate along any forecasting time horizon. - Facilitates cost forecasting processes with single-value (deterministic) or risk-based current-dollar estimates. Risk-based estimates in this tool are entered as three-point estimates. Three-point estimates are defined with three parameters: 1) minimum possible value; 2) most likely value, and 3) maximum possible value. - The use of a single-value estimate generates a deterministic output, while a three-point estimate generates a risk-based forecasting timeline.  Tool 2. Forecast with Construction Cost Index – Moving Forecasting Error: - Facilitates the generation of scope-based CCIs from an MCCI. - Facilitates the generation of either simple or compounded inflation rates from scope- based or traditional CCIs using the proposed MFE methodology. - Uses simple or compounded inflation rates generated from the selected cost index to forecast single-value or three-point current-dollar estimates. - Produces risk-based forecasting timelines for either single-value or risk-based estimates. The risk-based output includes error ranges at 50%, 70%, and 90% confidence levels.  Tool 3. Forecast with Construction Cost Index – Regression Analysis: - Facilitates the generation of simple or compounded inflation rates through linear or exponential regression analyses, respectively, using either scope-based or traditional CCIs. - Uses simple or compounded inflation rates generated from the selected cost index to forecast single-value or three-point current-dollar estimates. - The use of a single-value estimate generates a deterministic output, while a three-point estimate generates a risk-based forecasting timeline. 6.5 NCHRP Implementation Support Program The NCHRP Implementation Support Program offers funding to STAs to facilitate the implementation of products or research results associated with NCHRP projects. Funding requests are reviewed and approved by NCHRP Panel 20-44. Approvals depend on a number of factors, including but not limited to, the level of readiness of the intended research product, the proposed implementation plan, the probability of setting the research results into practice, and potential impacts. NCHRP panel members, STAs, and AASHTO Committees and Councils can apply for funding. No matching funds are required, and there is no minimum or maximum amount per funding request. Some possible activities or products supported by this program are: demonstration or pilot projects, workshops or peer exchanges, training, flyers, brochures or videos for specific target audiences, and briefing materials for senior management. More information about the NCHRP Implementation Support Program can be found on its website (http://www.trb.org/NCHRP/NCHRPImplementationSupportProgram.aspx).