When benchmarking a new project against past projects, it’s critical to level the playing field. Cortex calls this normalizing the data. In the Administration module, you can set up many different types of factor tables to adjust:
- Cost and/or quantities based on any project attributes (e.g., project time, location, or complexity)
- Cost and/or quantities based on any item attributes (e.g., material type, labor type)
- Total project cost or specific cost categories (e.g., just direct labor or material cost)
How does it work?
Let’s look at the common example of adjusting total project costs based on time and location. With Cortex, your company’s administrator can establish a factor rate table with your desired time interval (e.g., monthly, quarterly, yearly), and all the locations where you deliver projects.
Let’s say you’re working on a new project proposal to be built in San Francisco, CA in 2019. You’ve found a very similar project that was built in Birmingham, AL in 2012, but in order to benchmark your new project against it, you have to adjust it to San Francisco in 2019.
When you apply your time and location table, you see the system will increase the Birmingham project’s cost by 83.85%. But how does it work? Your table contains indexes you gathered for every combination of location and year starting with the year of your oldest project*. Those indexes may be developed from a variety of economic sources. The formula for the adjustment multiplier is:
Adjustment multiplier = (Target project’s index) / (Compare project’s index) X 100
Or in the example below:
236.45 / 128.61 = 183.85
So, when this factor rate table is applied, the project from Birmingham in 2012 will be increased 83.85% to bring it in line with San Francisco in 2019 dollars.
* Keep in mind that cost relationships between cities change over time. It may be much less expensive to build in Birmingham than San Francisco today, but that may change in 10 years. So for truly accurate time and location factoring, you should gather indexes starting with those published in the time period of your oldest project and for every additional time period leading up to the present.
Please contact us if you’re interested in learning more about normalization in Cortex Project History. Look for a future blog post where we’ll share how you can adjust specific costs on specific types of detail items.