Advanced Methodology to Determine Highway Construction Cost Index (HCCI)
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Advanced Methodology to Determine Highway Construction Cost Index (HCCI)

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    Final Report
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    A highway construction cost index (HCCI) is an indicator of the purchasing power of a highway agency. Thus, it must reflect the actual construction market conditions. However, the current method used by MDT is not robust enough to meet this primary goal due to (1) a significantly insufficient sample size of bid items used in HCCI calculation and (2) inability to address the need to track cost trend of construction submarket segments such as, but not limited to, various project types, sizes, and locations. This study develops an advanced methodology to overcome these apparent limitations using two new concepts: (1) dynamic item basket; and (2) multidimensional HCCIs. The dynamic item basket process identifies and utilizes an optimum amount of bid-item data to calculate HCCIs in order to minimize the potential error due to a small sample size, which leads to a better reflection of the current market conditions. Multidimensional HCCIs dissect the state highway construction market into distinctively smaller sectors of interest and thus allow MDT to understand the market conditions with much higher granularity. A methodology is developed to integrate these two concepts and a standalone ‘MDT HCCI Calculation and Bid Analysis System’ is developed to automate the HCCI calculation process. The results show an eightfold increase in terms of the number of bid items used in calculating HCCIs and at least a 20% increase in terms of the total cost of bid items used. In addition, the multidimensional HCCIs reveal different cost-change patterns across different highway sectors. For example, the bridge construction market historically shows a very different trend compared with the overall highway construction market. The new methodology is expected to aid MDT in making more-reliable decisions in preparing business plans and budgets with more accurate and detailed information about the construction market conditions. Further, the system is expected to provide insights on the cost trends of a specific item; aid in identifying project types, locations, and sizes with higher construction cost growth; and aid in identifying hidden relationships such as cost-quality relationship.
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