USES OF COST INDICES

USES OF COST INDICES

The following are the different uses of cost indices:
1- Updating of cost information: Cost indices is used to bring a tender figure for previously similar job p to current price so it can be used for comparism purposes as part of cost planning. It will also be necessary to make some allowances for increasing cost during the period between the date of preparation of the estimate and the probable tender date.

2- Extrapolation of existing trends: Plotting the pattern of cost measured by an index may be possible to forecast a trends into the future through the use of cost indices. However, there are very great danger in attempting this.

In terms of steady changes in price extrapolating into one or two years ahead is possible but in terms of erratic inflation rates extrapolation purely on trends is not possible.

3- Assessment of fluctuation in price materials: On occasions it will be necessary to assess the effects of price increase in materials on the estimated cost of the project, particularly where the rates of increase is substantial.

In order to do this, it is necessary to approximately breakdown the cost of the job in to material and or further breakdown of the cost of materials or component to be used on the job can be assess. It is customary to use analysis already prepared for previous job of a similar type.

4- Identification of changes in cost relationship: If a cost index is prepared for a different components of a building or for alternative possible solution to design problem (e.g. steel vs concrete frame).

Then it is possible to use the changes in the relationship between one component and another at a time, it may be possible to identify when one solution appears to be at better position than the other.