58R-10: Escalation Estimating Principles and Methods Using Indices

58R-10: Escalation Estimating Principles and Methods Using Indices
AACE International, May 25, 2011

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This recommended practice (RP) of AACE International defines basic principles and methodological building blocks for estimating escalation costs using forecasted price or cost indices. There is a range of definitions of escalation and escalation estimating methodologies; this RP will help guide practitioners in developing or selecting appropriate methods for their definitions and situation. Other RPs are expected to cover methods that do not involve indices, that cover specific examples of fully elaborated methodologies for specific project situations, technologies, industries, and probabilistic applications. Also, while the RP discusses the relationships of escalation estimating to other risk cost accounts (namely contingency and currency exchange), dealing with those costs is not this RP’s focus.

Escalation estimating is an element of both the cost estimating and risk management processes. Like other risks escalation is amenable to mitigation, control, etc. However, this RP is focused on quantification, not on escalation treatment (i.e., how it is addressed through contracting, bidding, schedule acceleration, hedging, etc.) or control. In terms of cost estimating, this RP covers practices applicable to all classification of estimates. The examples in the RP emphasize capital cost estimating, but the principles apply equally to operating, maintenance and other cost.

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