Cost Escalation Overview

Escalation is the provision in a cost estimate for increases in the cost of labor, equipment, material due to continuing price changes over time. Escalation is used to estimate the future cost of a project or to bring historical costs to the present. Most cost estimating is done in current dollars and then escalated to the time when the project will be accomplished. A good example could be the employment of union labor over the duration of broader time scope. Often union labor will increase from one year to the next. Another could be weather changes, from summer to winter conditions.

Cost Escalation is based on a schedule and can be applied to any direct cost category by date range. Date range escalation is calculated based on each cost item's scheduled earliest start and finish dates. In this way, escalation changes when the job schedule changes, which means that if you change the schedule at any time and shift any escalated cost items and their costs from one date range to another, the value of escalation and the effective rate changes.

As a user, you have complete control over the subject cost that you would like Direct Cost Escalation to be calculated. In essence, you can override the default settings and choose any of the cost items on the CBS, or define a rule (filter) that uses all cost items matching that rule as your subject cost. For example, you can specify that the subject cost used in the calculation of Direct Cost Escalation will be all cost items in the CBS that are assigned to a pay item and whose unit of measure is cubic yards. Hand picking cost items or defining rules on which subject cost are defined is done on the Dependency tab of the Direct Cost Escalation Record.

The escalation layers represent, in the Price Breakdown Structure (PBS), cost changes that accrue over time across a cost category, based upon when the costs are scheduled to occur using the Schedule module. For example, it represents forecast wage increases that occur midway through construction, or the cost of installed material price inflation in the economy.

You can escalate a job's direct cost two ways:

1. Specify a fixed amount to any one or all of the cost categories.

2. Specify a fixed rate to any one or all of the cost categories.

When you specify a fixed rate, the amount varies with the cost total that it is applied. When you specify a fixed amount, the amount remains the same and the rate changes as cost totals change. The last input you make designates which method you prefer. For example, if you last input a figure in the rate field of a cost category, then it is understood that the rate is to be fixed. The specified method is indicated on the form with an arrow symbol.

To open a Direct Cost Escalation Record, follow the step by step below.

Step by Step — Direct Cost Escalation Record