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The National Academies

NCHRP 10-101 [Active]

Improving Mid-Term, Intermediate, and Long-Range Cost Forecasting: Guidance for State Departments of Transportation

  Project Data
Funds: $250,000
Staff Responsibility: Ann M. Hartell
Research Agency: Auburn University
Principal Investigator: Dr. Jorge Rueda-Benavides
Effective Date: 5/1/2018
Completion Date: 4/30/2020

BACKGROUND

The ability to create accurate forecasts of project costs is a core competency for state departments of transportation (DOTs). Cost forecasting is used by state DOTs to develop and update transportation plans; program projects; manage transportation improvement programs; administer the bid-letting process; and oversee contracts. Forecasts are used to demonstrate fiscal constraint and to track performance measures of on-time, within budget delivery. Reliable and accurate cost estimates help agencies improve decision making and transparency, and build trust by supporting reliable program delivery.

Forecasts have a range of time horizons, from short-term construction project estimates (1 to 2 years), mid-term State Transportation Improvement Programs (STIPs; 3 to 5 years), intermediate-range plans (up to 10 years), to Long-Range Transportation Plans (LRTPs; 20 years). However, forecasting costs over long time horizons poses serious challenges: the longer the time horizon, the greater the risk and uncertainty.  The sources of uncertainty include but are not limited to:

  • Cost forecasting approaches:
    • Variation in the quality and quantity of historical data available for forecasting
    • State DOT capacity for forecasting analysis
    • Use of inappropriate cost estimation indices 
  • State DOT program and project delivery:
    • Variation in materials, labor, and other costs 
    • Geographic differences within a state or region
    • Evolution of scope and design during project development
    • Project size and complexity
    • Availability, amount, and timing of federal, state, and local funding
  • Contracting and wider economic forces:
    • Contracting methods and requirements that affect cost and cost development
    • Timing of bid release and lead time to the construction season
    • Market conditions (e.g., “thin” contracting markets with few firms and little competition; year-to-year variability in the size of the program) 
    • Variation in short-term and long-term inflation (or deflation) rates and volatility of economic conditions

OBJECTIVE

The objective of this research is to provide guidance for state DOTs to improve forecasting for mid-term, intermediate, and long-range time horizons to better account for cost variability, economic volatility, and risk. The project will build upon existing research and current practices in cost forecasting, serving as a resource for state DOTs to augment their forecasting approaches.

RESEARCH PLAN

The project will include two phases.

Phase 1

Phase 1 will, at a minimum, include the following:

  • Summarize current practices used by state DOTs for forecasting costs for mid-term, intermediate, and  long-range time horizons.
  • Assess current approaches, including comparing forecasts with actual cost outcomes, as available. 
  • Identify appropriate approaches for cost forecasting, and for each, describe strengths and weaknesses pertaining to:
    • Expected accuracy for state DOT forecasting time horizons
    • Effectiveness in addressing economic, geographic, contracting, and  project variability
    • Applicability for mid-term, intermediate, or long-range time horizons
    • Applicability for augmenting estimation approaches for state DOT processes, including STIPs, transportation asset management plans (TAMPs), long-range transportation plans (LRTPs), and for other purposes
    • Data requirements, including data collection methods and ongoing data management 
    • Resources and staff capacity required
    • Cost-effectiveness of the approach and the returns to improvements in forecasting
  • Submit Interim Report summarizing the results of Phase 1.

Phase 2

Phase 2 will, at a minimum, include development of a framework for state DOTs to select improvements to current forecasting approaches to meet a range of purposes. The framework will provide guidance for selecting approaches identified in Phase 1 that are appropriate and effective in improving cost forecasting for state DOT purposes.

Final deliverables will include (1) a report documenting the research results and the framework and (2) a presentation of the research results (e.g., recorded webinar or PowerPoint presentation).

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