28R-03: Developing Location Factors by Factoring - As Applied in Architecture, Engineering, Procurement, and ConstructionAACE International, October 19, 2006
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Location factors are a vital product of any cost engineering service organization supporting industries with global assets and projects. One thing is for certain—location factors will be challenged. So, not only is it important to have an easily-understood and logical method of developing location factors, the process must be supported with hard data from a well-defined survey and a project execution knowledge that only comes through experience. This Recommended practice documents such a process.
International markets and politics are constantly changing, and those involved with developing location factors must constantly collect, analyze, and understand the effects created by these changes. Location factor development should not be a mathematical exercise that is done on an as-needed basis, but should be a continually improving process. The factoring method of developing location factors is a tool for living that process.
This recommended practice provides a generic method of developing location factors in support of the Total Cost Management (TCM) cost estimating and budgeting and database management processes for construction related projects. The method applies to construction projects of all types including buildings, infrastructure, utilities, process plants, and so on. This generic method provides a basis for users to tailor their own detailed process around their own needs and computing capabilities. Location factors are used during preliminary project evaluations (i.e., Class 5 or 4 estimates). They are not intended to be used when preparing appropriation-quality estimates (i.e., Class 3 or better estimates).
A location factor is an instantaneous (i.e., current—has no escalation or currency exchange projection), overall total project factor for translating the total cost of the project cost elements of a defined construction project scope of work from one geographic location to another. This factor recognizes differences in productivity and costs for labor, engineered equipment, commodities, freight, duties, taxes, procurement, engineering, design, and project administration. The cost of land, scope/design differences for local conditions and codes, and differences in operating philosophies are not included in a location factor.
Location factors provide a way to evaluate relative cost differences between two geographic locations. They often are applied to conceptual estimates for identifying "go/no-go" projects at an early stage. The ability to produce meaningful data during the conceptual stage is critical to the efficient management of the funds and resources of owners. This is what drives location-factor developers toward methods that are accurate, flexible, easily managed, and allow a quick turnaround.
International markets and politics are constantly changing, and those involved with developing location factors must constantly collect, analyze, and understand the effects created by these changes. Location factor development should not be a mathematical exercise that is done on an as-needed basis, but should be a continually improving process. The factoring method of developing location factors is a tool for living that process.
This recommended practice provides a generic method of developing location factors in support of the Total Cost Management (TCM) cost estimating and budgeting and database management processes for construction related projects. The method applies to construction projects of all types including buildings, infrastructure, utilities, process plants, and so on. This generic method provides a basis for users to tailor their own detailed process around their own needs and computing capabilities. Location factors are used during preliminary project evaluations (i.e., Class 5 or 4 estimates). They are not intended to be used when preparing appropriation-quality estimates (i.e., Class 3 or better estimates).
A location factor is an instantaneous (i.e., current—has no escalation or currency exchange projection), overall total project factor for translating the total cost of the project cost elements of a defined construction project scope of work from one geographic location to another. This factor recognizes differences in productivity and costs for labor, engineered equipment, commodities, freight, duties, taxes, procurement, engineering, design, and project administration. The cost of land, scope/design differences for local conditions and codes, and differences in operating philosophies are not included in a location factor.
Location factors provide a way to evaluate relative cost differences between two geographic locations. They often are applied to conceptual estimates for identifying "go/no-go" projects at an early stage. The ability to produce meaningful data during the conceptual stage is critical to the efficient management of the funds and resources of owners. This is what drives location-factor developers toward methods that are accurate, flexible, easily managed, and allow a quick turnaround.
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