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    2.4.2 Costs From Actual Operations: Cost June 1989 Cost June 1978 X Buiiding Cost Index (1989) Building Cost Index (1978)

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    Jorge Burgos Ibañez
    This document discusses methods for estimating costs from historical data by applying cost escalation factors. It provides examples of construction cost indices published by the Engineering News Record that can be used to escalate older costs to current estimates. Labor productivity must also be considered, as productivity gains over time can impact the accuracy of escalated costs if not accounted for. A example is given demonstrating this effect by comparing early 20th century copper mining costs and productivity to late 20th century amounts.

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    2.4.2 Costs From Actual Operations: Cost June 1989 Cost June 1978 X Buiiding Cost Index (1989) Building Cost Index (1978)

    Uploaded by

    Jorge Burgos Ibañez
    32 views4 pages
    This document discusses methods for estimating costs from historical data by applying cost escalation factors. It provides examples of construction cost indices published by the Engineering News Record that can be used to escalate older costs to current estimates. Labor productivity must also be considered, as productivity gains over time can impact the accuracy of escalated costs if not accounted for. A example is given demonstrating this effect by comparing early 20th century copper mining costs and productivity to late 20th century amounts.

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    TAREA-COSTOS

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    This document discusses methods for estimating costs from historical data by applying cost escalation factors. It provides examples of construction cost indices published by the Engineering News Record that can be used to escalate older costs to current estimates. Labor productivity must also be considered, as productivity gains over time can impact the accuracy of escalated costs if not accounted for. A example is given demonstrating this effect by comparing early 20th century copper mining costs and productivity to late 20th century amounts.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    32 views4 pages

    2.4.2 Costs From Actual Operations: Cost June 1989 Cost June 1978 X Buiiding Cost Index (1989) Building Cost Index (1978)

    Uploaded by

    Jorge Burgos Ibañez
    This document discusses methods for estimating costs from historical data by applying cost escalation factors. It provides examples of construction cost indices published by the Engineering News Record that can be used to escalate older costs to current estimates. Labor productivity must also be considered, as productivity gains over time can impact the accuracy of escalated costs if not accounted for. A example is given demonstrating this effect by comparing early 20th century copper mining costs and productivity to late 20th century amounts.

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    © All Rights Reserved
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    of 4

    2.4.

    2 Costs from actual operations


    Sometimes it is possible to obtain actual costs from 'similar' operations.
    However great care must be exercised in using such costs since accounting
    practices vary widely. For many years the Canadian Mining Journal has
    published its 'Reference Manual and Buyers Guide'. A great deal of useful
    information is contained regarding both mine and mill. Table 2.18 contains
    information from the 1986 edition for the Similkameen Mine. Similar information
    for eleven open pit operations of different types and sizes as extracted from the
    1993 edition of the Reference Manual (Southam Mining Group, 1992), is
    included in Table 2.19. Since Similco Mines Ltd. is the successor of
    Similkameen Property described in Table 2.18, one can examine changes in the
    operation and in the costs with time. Information as complete as this is seldom
    publicly available.
    2.4.3. Escalation of older cost
    Publications from years past often contain valuable cost information. Is there
    some simple technique for updating so that these costs could be applied for
    estimating even today? The answer is a qualified yes. The qualification will be
    discussed later in this section. The procedure involves the escalation of costs
    through the application of various published indexes. Table 2.20 is an example
    of the: — Construction cost; — Building cost: — Skilled labor; — Common
    labor: — Materials indices published weekly in the Engineering News Record
    (ENR). The values are year end values except where noted. One column is
    based upon an index of 100 for year,. 1913 and the second adjusted for 100 in
    1967. To illustrate the application of the index . system, assume that the cost of
    the mine maintenance building was $100,000 in June of 1978.The estimated
    cost of same buildiing in June of 1939 wolud be:
    Buiiding cost index (1989)
    Cost June 1989=Cost June 1978 x
    Building Cost Index(1978)
    In this case
    2626
    Cost June 1989=100000 x =100000∗1.58=$ 158000
    1664
    The escalation factor of 1.58 is the ratio of the index values for the years
    involved. In a similar way one can compute the escalation factors for the other
    ENR indexes over this period. They are summarized below:
     Construction cost factor = 4568/2754=1.66
     Building cost factor = 2626/1664=1.58
     Skilled cost factor = 4166/2376=1.75
     Common cost factor = 9336/5241=1.78
     Material cost factor = 1686/1229=1.37
    Other indexes are also available. Table 2.21 gives the average hourly earnings
    for mining production/non supervisory workers as published by the U.S. Bureau
    of Labor Statistics (BLS) over the period 1964 through 1992. These values can
    also serve as a labor cost escalator. For the period 1978 to 1989 the factor
    would be
    Mining hourly wage factor = 13.25/7.67= 1.73

    Table 2.22 gives average hourly earnings broken down by industry. Contained
    with the publication Statistical Abstract of the United States are values for the
    producer price index for construction machinery and equipment. The values for
    the time period 1978 to 1991 are given in Table 2.23. The resulting factor for the
    1978 to 1989 time period is
    Construction machinery and equipment factor = 117.2/67.7 = 1.73

    Considering the five ENR indices plus the two from the BLS, an average
    escalation factor of 1.71 is selected. The average cost inflation rate r over this
    11 year period is computed by
    (1+r)11 = 1.71
    Hence
    r = 0.050
    The rate is 5%/year.
    It was indicated earlier that such escalation has to be done with some care. A
    major reason for this is the change in labor productivity which has occurred
    over time.
    Productivity is a very important aspect of cost estimation. It deals with the rate
    at which a certain task can be accomplished. If for example the daily production
    for a one shift per day mining operation is 20,000 tons with 100 employees,
    then one way of expressing the productivity is
    Assume that the pay roll is $10000/day or $100/manshift. The labor cost wolud
    be $0.50/ton

    If through some type of change, the daily production could be raised to 30,000
    tons, with the same employees, then the productivity would be
    Productivity = 30,000/100= 300 tons/manshift

    and the labor component of the cost would drop to $0.333/ton. If this
    productivity has come about through the purchase of new, larger equipment
    then the decrease in unit labor cost will be accompanied by an increase in other
    costs (ownership, etc.).
    A copper mining example will be used to demonstrate the effect of productivity
    changes on cost escalation.
    In 1909, the use of steam shovels was just beginning in the Utah Copper
    Company Bingham Canyon Mine of Kennecott (Anonymous, 1909a,b; Finlay,
    1908; Jackling, 1909). The following data are available from that time.
    Todays mining wages average about $15.00/b our or $120/day. The labor
    (LCR) of 1992 to 1910 is
    LCR = $120/$2 =60
    This is similar to the index values for skilled labor. The copper Price ratio (CPR)
    for the same period is about
    CPR= 100/12.7 =7.9

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