Types of Indices

BCIS Construction Indices Seminar

Types of Indices

Ian Pegg, Technical DirectorBCIS


Taxonomy

• Price or Quantity• Laspeyres or Paasche• Monthly, Quarterly or Annual• Cost or Price (Input or Output)

Types of Indices


Definitions

“A price index is a statistic designed to measure how prices vary from one period to another (or one location to another).”

Types of Indices

“An index series is a set of indices at successive periods.”


Types of Indices

• An index has no units – but it does have a base

• Base number and Base period eg– 31st July 1978 = 100– 1985 mean = 100– UK mean = 1.00

• Most BCIS Indices have a base of 1985 mean = 100

• Indices are rebased from time to time

– Numbers are comparable

– Avoid illusion of accuracy


Types of Indices

Percentage change between I1 and I2 = 100 * (I2 – I1) / I1

So if I1 = 120I2 = 150

100 * (150 – 120) / 120 = 25%

Calculating a Percentage


Types of Indices


Types of Indices

• Specific day or Average for the period

• Calendar year or Financial year

Period


Types of Indices

• Annual index is mean of quarterly indices• Quarterly index is mean of monthly indices• Monthly index is weighting of Price Adjustment

Formula Indices• Price Adjustment Formula Indices comprise labour,

materials and plant– Labour – 15th day of month– Materials – average for previous month– Plant – average for the month

BCIS General Building Cost Index


Types of Indices

• Months have 28-31 days (10% difference)• RPI ‘month’ may be 4 or 5 weeks• Annual comparisons not affected• More of a problem for quantity indices

How can the period affect the answer?


Types of Indices

• Life cycle (typical)– Forecast– Provisional– Firm– Revised

• RPI never changed• BCIS All-in TPI

– Forecast (several)– Forecast supported by early results– Calculated based on increasing sample size– No further projects added

Publication


Types of Indices

Updating price P from period 1 to period 2

P2 = P1 * I2 / I1

So if P1 = £3,000I1 = 120I2 = 150

P2 = £3,000 * 150 / 120 = £3,750

Updating a price


Types of Indices

BCIS All-in TPI

• June 2008– 3Q2008 = 258 (forecast)

• June 2009– 3Q2008 = 247 (sample 48)– 3Q2009 = 229 (forecast)

• Calculation based on latest figures:– £4,000,000 * 229 / 247 = £3,708,502 (say £3,700,000)

• Calculation based on original TPI:– £4,000,000 * 229 / 258 = £3,550,388 (say £3,550,000)

Revisiting a calculation


Types of Indices

Difference between First Forecast and Last Calculated

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

1993 1995 1998 2001 2004 2006 2009

Quarter

Dif

fere

nce


Types of Indices

• BCIS/ABI– one week

• BCIS All-in TPI– Forecast– Forecast supported by early results – 6 weeks– Calculated based on increasing sample size – 4 weeks– No further projects added - 1 year

Lag in Publication


Types of Indices

• Base weighted (Laspeyres)

Calculating an Index

00

0100ctct

ctctt QP

QPP n

Pt = 100 * SUMPRODUCT( CurrentPrice, BaseQuantity ) / SUMPRODUCT( BasePrice, BaseQuantity )


Types of Indices

• Base weighted (Laspeyres)• Current weighted (Paasche)


Pt = 100 * SUMPRODUCT( CurrentPrice, CurrentQuantity ) / SUMPRODUCT( BasePrice, CurrentQuantity )

n

nn

ctct

ctctt QP

QPP

0

100


Types of Indices

• Base weighted (Laspeyres)• Current weighted (Paasche)• Fisher’s Ideal• Chain weighted



Types of Indices

• Product discontinued• Specification changes• Specific problems in construction

– Every project unique– Each project can span many periods– Market economy

Other Issues


Types of Indices

• Cost (Input) • Tender Price (Output?)• Output Price (Output)

Cost or Price Indices


Types of Indices

• Materials– List price, merchant or manufacturer

• Labour– National wage awards or site rates

• Plant– Owned or rented

Cost Indices


Types of Indices

• Based on Price Adjustment Formula Indices• Weights calculated from a sample of priced bills

– Percentage calculated for each building sampled– Percentages averaged

BCIS General Building Cost Indices


Types of Indices

• Based on a model for an estate of 16 houses

Building Housing Cost Index


Types of Indices

• Building and Element Price Indices– Based on cost index with allowance for inflation and market

• BCIS All-in Tender Price Index– Based on priced bills of quantities– Competition or negotiated

Tender Price Indices


Types of Indices

• Project Indices– Value of a trade– Match largest item by value against base schedule– Repeat until 25% matched– Estimated value of trade at base date– Combine trades and add Prelims etc

• Quarterly Indices– Adjust for region, value, procurement– Geometric mean of all projects in quarter

BCIS All-in Tender Price Index


Types of Indices

• Best method available• Limitations

– Not all items can be matched• Mechanical and electrical• Curtain walling• Carpets• Laminated beams

– Relies on BQs

• Based on a sample• Current weighted index

BCIS All-in Tender Price Index


Types of Indices

• Cost model for social housing• Match project cost to modelled cost

Tender Price Index for Social Housing(TPISH)


Types of Indices

• Index for schools did not work• £/m2 index

Other Approaches to Project Indices


Types of Indices

• Work carried out in a period

Output Price Indices


Types of Indices

• Non-housing and Public Housing based on Term Contracts

• Private Housing based on panel of contractors

Repair and Maintenance Price Indices


Types of Indices

• Intended use• Original or accepted tender• UK or England Scotland and Wales• All sectors or Public non-housing• Base date or tender date• Weight by project• Adjust or not adjusted• Geometric mean or median• Single quarters index or smoothed index• Revised fortnightly or revised twice before firmed

Comparing two Tender Price Indices:BCIS All-in TPI and BIS PUBSEC


Types of indices

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Types of Indices

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