Accurate and Reliable Data is Imperative For Decision Making
It’s not easy to stay up-to-date with construction costs in the current dynamic market. Building needs are changing. New materials and methods are frequently being invented. Labor, material and equipment costs fluctuate over time and across geographies. Long-term cost trends of the construction industry’s most vital materials like steel, wood and concrete may impact how you manage and maintain your facilities now and in the future. Accurate and reliable data is essential for good decision making. It’s important to gain a greater understanding of the upcoming data changes and analytical insights so you can prepare for success in 2020 and beyond.
“Every project is completed on time and under-budget,” is a phrase rarely uttered in the construction industry. In fact, large infrastructure projects often cost much more than budgeted for and run months late. This situation is a result of a nexus of challenges including labor shortages and stagnant productivity levels. Despite these challenges and others, growth has been strong the past several years. U.S. construction spending is now trending at a 3 percent increase for 2019 to $1.34 trillion, an increase of $33.9 billion over 2018.
Even in the wake of all this growth, companies strain to thrive. Budgets are continuously under pressure and there is a fair amount of uncertainty in the industry. The struggle is real to get estimates and bids right and complete projects on time and within budget. One reason is we aren’t using all the tools available to us. It’s no surprise, but the construction industry is at the back of the pack when it comes to technology adoption. This needs to change, but we all must recognize that it’s not enough to be a tech wizard with new tools. As the construction industry improves productivity by becoming more fluent in technology, it’s critical that the same attention is applied to data fluency and analytics.
Change is happening fast. While analyzing and updating Gordian’s RSMeans data solutions, we found that 91 percent of construction cost lines have a significant price change from 2019 to 2020. Being caught unaware of these changes can have a significant impact on a project budget.
A thorough and up-to-date construction cost database is crucial for calculating accurate pre-construction estimates. Gordian data scientists regularly examine the long-term cost trends of the industry’s most vital materials. Our team of cost engineers and data scientists behind RSMeans data is constantly tracking current events such as natural disasters, political movements and the general economy to better understand potential impacts on the indexes and monitoring our financial markets. We analyze this information along with historical trends and localized material, equipment, labor and productivity rates.
More than 22,000 hours are invested in cost research each year. Our cost engineers apply their skills and expertise to validate each line item and work closely with data scientists to develop the formulas and algorithms to ensure accuracy, completeness and usability. A robust construction cost database will include wage rates for union, open shop and residential labor, while factoring in fringe benefits and assuming overhead and profit rates.
In our data analysis, we closely monitor City Cost Indexes (CCI), which include location factors and comparisons of individual city costs to the national average within the current year. We also look at historical construction cost indexes, which give us a better understanding of the relationship of a city’s cost to the national average over time and show historical cost trends across the nation. In our most recent analysis, we discovered significant fluctuations in material prices, equipment rental rates, diesel fuel costs and trade wages, with the largest changes being to material costs. A variety of factors, including availability, location, seasonality, tariffs and natural disasters, cause material cost volatility and present challenges at every phase of the building lifecycle — from pre-construction to maintenance and operations. Here’s what the data says.
Historically, wood, concrete and steel have some of the most volatile material prices in the construction industry. That old pattern is continuing in 2020. These critical materials will likely be a part of each and every future construction project and the cost variations could determine the success or failure of a project budget. We’re seeing a 7 percent increase in structural steel, with an overall 5 percent increase in steel material costs across the board. Site-cast concrete also had a significant increase in costs, upwards of 5 percent from 2019 pricing. Structural wood paneling also is increasing by 5 percent, with wooden shutters increasing slightly less at 4 percent. While some of these individual percentages may seem low, the overall swing from inaccurate data could completely change a project estimate.
We found that 79 percent of cost lines changed between -5 percent to 5 percent from 2019 to 2020. The largest price changes of greater than 5 percent occur in 18 percent of cost lines. Depending on the materials in your project, that change could have an enormous impact on your profitability. But it’s important what you do with data.
Leveraging standardized cost data allows for accurate costs construction professionals rely upon for budgeting, planning, forecasting and estimating new construction, renovations, maintenance and repair projects. A robust construction cost database allows you to verify construction costs from third parties, check the validity of subcontractor proposals and evaluate material and assembly alternatives. What the data says could make a huge difference in your future revenue, so make sure yours is up-to-date.
Tim Duggan is the vice president of data and analytics for Gordian. In this role, he leads the development of Gordian’s core asset of unit cost lines that support its solutions in planning, estimating and procurement, and provide fair and equitable costs for customers.