These days it’s common to hear, “Our history is worthless in this inflationary environment. We simply can’t rely on the past.”
There is some truth here. In a world where 3% inflation was a reasonable prediction, you could lean on historical pricing with some level of confidence. However, as inflation has risen along with supply chain constraints, predicting the future costs is a greater challenge now. Tuning up your historical cost indexing and escalation strategy are must-haves in an inflationary market.
Focusing on historical cost data misses the big picture. The value of your project history goes well beyond historical costs or prices. Here are some areas where your historical data can provide insights to help you make better decisions:
Relative vs. absolute pricing. You’ve decided that your historical pricing is no good. Fine. But relative pricing is still a valid metric to study and analyze. For example, while you may not want to use a historical price for an HVAC budget, you can review similar historical projects to see that the HVAC element is typically 8-12% of the overall cost of the building. This relative price range can serve as a sanity check for your new budget regardless of current market pricing. So, if a new budget under review has an HVAC element that’s 22% of the overall cost of the building, maybe it requires some attention.
Quantities. While inflation can make price prediction more difficult, historic quantities remain relevant. That is, based on similar historical projects, you can use the range of concrete flatwork, exterior closure, or structural steel to inform design and validate quantity predictions in your early-stage budgets.
Scope. Just like quantities, similar historical projects offer insights into common scope. Future schools will have students, cafeterias, and gyms just like they did in the past. They will have security systems, fire protection systems, and outdoor facilities. Access to prior scope can ensure you don’t forget to include assumptions in scope that could lead to rework, embarrassment, or worse.
Key metrics. Establishing key metrics helps you understand the nature of a historical project beyond just analyzing costs. For example, the relationship between the exterior envelope and the floor area (sometimes referred to as skin-to-floor ratio) provides insight into the shape of the building (is it a pencil or a pancake). The relationship between the total length of the interior walls to the floor area provides insight into room density. The relationship between the gross floor area and the net leasable floor area provides insight into design efficiency. Historical key metrics, especially those based on quantity relationships, continue to offer value in any market condition.
Your historical data can transcend inflationary markets. We can show you how.
