Escalation is a very real line item that should be included in any construction budget and/or estimate…🛑
It can be very tempting to exclude it, or assume that things will be OK in the future, in order to make project ‘Pro-Formas’ and ‘Feasibility Studies’ pencil out, however, this practice can result in significant cost overruns during the procurement and construction stage…❌
No one has a crystal ball to predict the future…Nevertheless, having the right data, asking the right questions, and applying the right techniques is the best way to develop a robust escalation allowance, which can help Clients navigate volatile and uncertain markets conditions ⚠️
Below are the key questions to ask when calculating escalation 👇
1. What escalation % to carry per annum?
2. How far in the future should you escalate your budget/estimate (i.e. mid point of construction)?
3. Should you apply a blanket escalation % to the overall hard construction cost, or apply different escalation % to each trade based on current market conditions?
4. Should you even go an extra mile and separate labor from material for each trade, and apply the relevant escalation accordingly?
The next step after calculating escalation is to select the right pricing, contractual and procurement strategies in order to minimize the risk of escalation ✅