Cost escalations

Cost escalation is an increase or decrease in the cost of parts, labour and miscellaneous costs over time.

Cost escalations are entered into the Escalation system table. Escalation indexes are created, and there is a default index for each of parts, labour and misc. These indexes can be applied to parts, labour or misc. at the strategy task level. The default parts, labour and misc. indexes are used where no index is applied.

Escalation percentage can be entered for any date for these Escalation Indexes.

Escalations are applied to all asset types. How escalations are applied in AMT depends on the projection and the analyses being performed.

Current projections - actual costs

As a general rule, for all reports in AMT, actual costs are never escalated. This includes all financial reports.

However, there are exceptions where the actual costs are escalated to today’s value. This occurs when average cost analyses and benchmarking are performed. The forms and reports where this occurs are:

In some other forms, you can view actual costs as escalated (to today's values), or unescalated.

Current projections - future costs

All future costs on the current projection use costs escalated to today’s values. These costs are entered into strategy tasks and have a pricing date nominated in the strategy task. These costs are escalated from this date to today.

Example

On 1 January 2019, you enter a cost of $1,000 for a strategy task. If there is a 5% escalation on 1 March 2019, and you run a forecast report on 1 June 2019, the report uses $1,050 for the forecast cost for that strategy task.

Where a strategy task is linked to a standard job, AMT assumes the standard job pricing is always up-to-date and no escalation is applied.

All future costs are forecast at today’s values. Do not enter future escalations into AMT.

Budget projections - costs to date

The costs entered into the budget projection have a pricing date that sets the point from which they are escalated. For the budget projection, the pricing date is set in the Projection Header form and applies to all strategy tasks.

The general principle is that budget costs are escalated over time. This means that the costs are escalated to the point that they were budgeted to occur.

Example

For the engine on truck 1 assume:

Budget pricing date = 1 January 2016.
Term = 25,000 hours.
Engine strategy task: cost = $100,000 at a frequency of 10,000 hours.
The truck reached 10,000 hours on 27 October 2017.
Escalation history.
- 5% on 1 December 2016.
- 3% on 1 July 2017.
- 4% on 1 Jan 2018.

If you run the life-cycle cost report on 1 May 2018, it will show:

Budget costs to date: $108,15 (5% + 3% cumulative)
Budget future costs: $112,476 (5% + 3% + 4% cumulative)

However, there are exceptions where the actual costs are escalated to today’s value - when average cost analyses and benchmarking are performed. The forms and reports where this occurs are:

Strategy Task Analyser
Fleet Component Performance Summary

In some other forms you have the option to view actual costs as escalated (to today's values) or unescalated.

Budget projections - future costs

All future costs from the budget projection use costs escalated to today's values. These costs are entered into strategy tasks and have a pricing date set in the projection header.

See example above for Budget Project – costs to date.

A strategy task in the budget may reference a standard job, but it is not linked to the standard job. Therefore, the standard job will not update the cost in the strategy task. This ensures the budget never changes.

All future costs are forecast at today's values. Do not enter future escalations into AMT.

Alternate projection - actual costs and future costs

The same rules apply as for the current projection.

Archive projection

Archive projections are created from current, budget or alternate projections. Once created, the archive projection never changes. Therefore, it reflects the rules that apply to their source projection when it was created.

Centreline projections

Centreline projections only forecast future events and costs. There is no historical element.

All costs in the centreline projection use costs escalated to today's values. These costs are entered into strategy tasks and have a pricing date nominated in the strategy task. These costs are escalated from the pricing date to today.

Example

On 1 January 2018, you enter a cost of $1,000 for a strategy task. If there is a 5% escalation on 1 March 2018, and you run a forecast report on 1 June 2018, $1,050 is the forecast cost for that strategy task.

Where a strategy task is linked to a standard job, the program assumes the standard job pricing is always up-to-date and no escalation is applied.

All future costs are forecast at today’s values. Do not enter future escalations into AMT.

Modelling Estimates (current and drafts)

The same rules apply as for budget projections.