Improving Cost Estimation and Budget Planning with New Michigan Highway Construction Cost Index

Accuracy in cost estimating and budget planning has a significant impact to DOTs. Inaccurate cost estimates can lead to cost overruns and create difficulties in budget planning. MDOT has developed a highway construction cost index (HCCI), including categorical, regional, and statewide indices, however, the future trend of the cost index was forecasted using a time series analysis which cannot consider significant economic factors such as the pandemic, and/or periods of high inflation, leading to low accuracy of the forecasted index value. This makes it difficult to use the current index for engineers estimates and budget planning. A new HCCI, including calculation tool/program, at the project and pay item levels is needed to more accurately adjust the historical price of pay items, improving the accuracy of the historical data-based estimation as well as provide MDOT with a better understanding of why pricing fluctuates for specific materials and/or regions over time. In addition, with the consumer price index rising in Feb. 2022 to 7.9%, a program analysis template to better understand the impacts of inflation and adaptation to inflation is needed as well as an analysis of labor, logistics, and economic factors that may be affecting pricing.