UK INDICES four-year review

This month we present our annual graphical review of the UK plant cost indices and the performance of the component indices over the last four years (Q1 1994 through to Q1 1998).

As with all indices, if going back more than three to five years for updating costs, there is a danger that the relevant technology has changed. Caution should be used at all times to make sure that the indices relate to the project. In other words, it is no use using the Retail Price Index when computing the cost of a pump.

The purpose of this review is to provide a visual comparative trend indication over a four-year period, indicating the significant economic changes of the UK index and its components.

The data in the table present the average figures of the indices over a four- and one-year period as indicated.

There are no historical reference books on the development of indices, but as early as the late 18th century Sir George Shuckburgh Evelyn (1751-1801) produced a listing to show the depreciation of money from 1050 to 1800.

These days most countries produce indices for wages and material prices. For the cost engineer, reliable indices of relevance to the process industries can be found as published data in magazines and by associations both in the UK and USA.

Generally, the indices are used to update the cost of a product or piece of equipment at a known cost and date to the new date. This is usually formally expressed as:

{{Ca =Cr (Ic/Ir)where Ca = present valueCr = original valueIc = present indexIr = index at the time of original value}}

The cost engineer needs to study the format of the index its elements of design, location, weights of the elements indicated in the original estimate, etc. If major items are ignored for example, materials sourced from different countries then the composition of the index must be adjusted to take into account such changes.