ESTIMATING COST MODELS: Cost Indexes.

Cost indexes are numerical values that reflect historical change in engineering (and other) costs. The cost index numbers are dimensionless, and reflect relativeprice change in either. individualcost items (labor,material, utilities) or groupsof costs (consumerprices,producer prices). Indexes can be used to update historical costs with the basic ratio relationship given in Equation 2-2.

Equation 2-2 states that the ratio of the cost index numbers at two points in time (A and B) is equivalent to the dollar cost ratio of the item at the same times (see Example 2-7).

EXAMPLE 2 - 7.

Miriam isinterested in estimatingthe annuallabQrandmaterialcosts for a newproduction facility.

She was able to obtain the following labor and material cost data:

Labor costs
· Lapor cost index value was at 124 ten years ago and is 188 today.
·Annual labor costs for a similarfacility were $575,500 ten years ago.

Material Costs
·Material cost index valuewas at 544 three years ago and is 715 today.
·Annual material costs for a similar facility were $2,455,OPQ three years ago.

SOLUTION.

Miriam will use Equation 2,.2to develop her cost estimat~s for;annual.labor and material costs.

Labor.

Material.

Cost index data are collected and published by several private and public sources in the United States (and world). The U.S. government publishes data through the Bureau of Labor Statistics of the Department of Commerce. The Statistical Abstract of the United-States publishes cost indexes for labor, construction, and materials. Another useful source for engineering cost index data is the Engineering News Record.