DoD Military Construction Inflation Index vs. Construction Industry Inflation Indices
Earned Value Management & Hardware Track
Designing and constructing a building is a very involved, detailed, and long term project. Buildings are made of many different commodities that fluctuate due to external conditions such as supply and demand forces, political events, and trade agreements. To help plan and estimate the cost and duration of a building, indices are used to determine the future price of construction materials based on previous prices. Department of Defense construction projects are recommended to use the Total Obligation Authority Military Construction Inflation Indices published by the Office of the Undersecretary of Defense.
Accurately evaluating the cost and risk of construction projects is critical for staying within a construction budget and schedule. This paper shows the past trends in construction materials and how to apply their changes over long term construction projects by focusing on the materials in construction projects that tend to be volatile. It also shows the discrepancies between the DoD Military Construction Inflation Index and actual company indices in the construction industry. The volatile commodities that make up the construction indices tend to be the main driving cost factors of large construction projects. Some of these commodities include steel, cement, lumber, and labor. Evaluating specific materials of a construction project and knowing how they change will increase the information available to determine the risk level of the project and to give the analyst the tools to mitigate risk.
Brian A. Welsh graduated from The University of Virginia’s School of Engineering and Applied Science in May 2006. There he earned a Bachelor of Science in Systems and Information Engineering and a minor in Engineering Business. In July 2006, he joined Northrop Grumman as an Operations Researcher. Mr. Welsh supports Northrop Grumman on cost and risk estimates specifically dealing with the constructing of new buildings within the intelligence community.
Vincent F. Russo is a 1966 graduate in History from Union College, Schenectady New York. He has graduate degrees from the University of Rochester, and the University of Southern California. An Air Force veteran, he served on active duty as a B-52 navigator bombardier and in the reserve as a C-130 navigator. Mr. Russo is retired from the Central Intelligence Agency and now works for Northrop Grumman in the Cost Estimating and Budget Analysis group. He has worked in the Military Economic Cost arena responsible for cost estimates of Soviet radars, other military electronic equipment and Soviet nuclear weapons. As a technical program manager and a senior staff member he was responsible for developing parametric approaches to estimating costs for research and development programs and the costs for follow-on production programs. He currently supports a program in the Intelligence Community. He also serves as Associate Director and instructor for the Cost College at TASC, which develops and teaches the CostPROF modules. This is his first paper for SCEA.