Forecasting the cost of capital projects using labor and producer price indexes

Technical Report · Thu Aug 01 04:00:00 EDT 1985

OSTI ID:6209482

Tessmer, Jr, R G

The purpose of this study is to develop a methodology for forecasting the future cost of capital construction projects. The resulting procedure defines a capital project in terms of commodity and labor cost components which can be tracked for escalation over time. Causal factors which have historically driven these costs are identified, and they form the basis for estimating future commodity and labor costs. To capture inherent uncertainty about the future, a range of assumptions is made for the causal factors. Three sets of commodity and labor cost forecasts are then produced: a high cost forecast, a reference cost forecast, and a low cost forecast. This methodology was specifically developed to forecast the cost of a large coal-fired power plant for the Tennessee Valley Authority. However, the set of cost components is large, consisting of about 80 elements, and it can be readily applied to other capital construction projects. This methodology does not supplant the traditional cost-estimation portion of a proposed project. It, rather, provides a way to bracket the future cost of projects, especially those for which decisions to proceed may not have to be made for five, ten, or more years into the future. Also, the individual price forecasts can be used as a check against, or in lieu of, price forecasts provided by an outside firm such as Data Resources, Incorporated. Two major cost factors are not included in the three forecast sets. These factors, interest during construction and change in labor productivity, should be factored into any cost analysis which uses this methodology.

• Research Organization: Tennessee Valley Authority, Chattanooga (USA). System Forecasting Group
• OSTI ID: 6209482
• Report Number(s): TVA/PUB-86/6; ON: DE86900535
• Country of Publication: United States
• Language: English

Related Subjects

20 FOSSIL-FUELED POWER PLANTS
200100* -- Fossil-Fueled Power Plants-- Power Plants & Power Generation
CAPITALIZED COST
COST
FORECASTING
FOSSIL-FUEL POWER PLANTS
NATIONAL ORGANIZATIONS
POWER PLANTS
PRICES
TENNESSEE VALLEY AUTHORITY
THERMAL POWER PLANTS
US ORGANIZATIONS