Types of Indices

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Types of Indices

• Ian Pegg, Technical Director
• BCIS

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Taxonomy
Types of Indices

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

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Definitions
Types of Indices

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

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

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Types of Indices
Calculating a Percentage

• Percentage change between I1 and I2 100 (I2
  I1) / I1
• So if
• I1 120
• I2 150
• 100 (150 120) / 120 25

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Types of Indices
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Types of Indices
Period

• Specific day or Average for the period
• Calendar year or Financial year

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Types of Indices
BCIS General Building Cost Index

• 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

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Types of Indices
How can the period affect the answer?

• 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

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Types of Indices
Publication

• 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

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Types of Indices
Updating a price

• Updating price P from period 1 to period 2
• P2 P1 I2 / I1
• So if
• P1 3,000
• I1 120
• I2 150
• P2 3,000 150 / 120 3,750

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Types of Indices
Revisiting a calculation

• 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)

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Types of Indices
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Types of Indices
Lag in Publication

• 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

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Types of Indices
Calculating an Index

• Base weighted (Laspeyres)

Pt 100 SUMPRODUCT( CurrentPrice, BaseQuantity
) / SUMPRODUCT( BasePrice, BaseQuantity )
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Types of Indices
Calculating an Index

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

Pt 100 SUMPRODUCT( CurrentPrice,
CurrentQuantity ) / SUMPRODUCT( BasePrice,
CurrentQuantity )
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Types of Indices
Calculating an Index

• Base weighted (Laspeyres)
• Current weighted (Paasche)
• Fishers Ideal
• Chain weighted

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Types of Indices
Other Issues

• Product discontinued
• Specification changes
• Specific problems in construction
• Every project unique
• Each project can span many periods
• Market economy

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Types of Indices
Cost or Price Indices

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

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Types of Indices
Cost Indices

• Materials
• List price, merchant or manufacturer
• Labour
• National wage awards or site rates
• Plant
• Owned or rented

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Types of Indices
BCIS General Building Cost Indices

• Based on Price Adjustment Formula Indices
• Weights calculated from a sample of priced bills
• Percentage calculated for each building sampled
• Percentages averaged

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Types of Indices
Building Housing Cost Index

• Based on a model for an estate of 16 houses

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Types of Indices
Tender Price 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

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Types of Indices
BCIS All-in Tender Price Index

• 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

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Types of Indices
BCIS All-in Tender Price Index

• 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

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Types of Indices
Tender Price Index for Social Housing(TPISH)

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

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Types of Indices
Other Approaches to Project Indices

• Index for schools did not work
• /m2 index

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Types of Indices
Output Price Indices

• Work carried out in a period

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Types of Indices
Repair and Maintenance Price Indices

• Non-housing and Public Housing based on Term
  Contracts
• Private Housing based on panel of contractors

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Types of Indices
Comparing two Tender Price IndicesBCIS All-in
TPI and BIS PUBSEC

• 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

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Types of indices