Escalation: How Much is Enough?

Abstract

Determining the escalation percentage to an estimate is often the subject of fierce debate. Cost increases are determined by dynamic relati onships between many factors, including acts of nature, interest rate s, oil prices, global commodity markets, wars, wage rates, and the ov erall health of the economy, as well as supply and demand for the required goods or services. How much escalation is enough? Are the recen t price increases temporary aberrations, or will they continue to pla gue us? This paper examines historical escalation rates, as well as i ndications of trends. Various analysis methods -- Monte Carlo simulations, neural networks, trend impact analysis, and the Delphi method -- are examined in an attempt to determine future trends.