April 2025
What goes up doesn’t necessarily come down. Construction cost escalation is a prime example.
Despite being an industry norm, it’s still a stubborn challenge to manage. Some of that difficulty stems from a mix of familiar cost drivers: material shortages, supply chain disruptions and inflation. Throw in geopolitical volatility, fluctuating currency rates and the looming threat of trade wars, and it’s no wonder forecasting and controlling escalating costs remains such a moving target.
Clearly, the issue isn’t whether costs will go up—it’s when and by how much. That’s why proactive forecasting—grounded in data, technology and real-world insight—is a must.
Different scenarios call for different forecasting techniques. We’ll touch on four key methods, along with the technologies that can help make the process faster, more accurate and more efficient.
Technique 1: Analyzing Historical Escalation Patterns
What it is: A review of past projects to detect patterns in cost behavior for labor, materials and equipment.
What it’s best for: Creating risk-adjusted estimates based on real-world data from projects that share a similar scope or have comparable elements and cost items
What it forecasts:
- The most likely escalations to anticipate
- Cost trends over the project lifecycle
- Historical patterns that can guide future planning
Questions it helps answer:
- Have potential risks from past projects—and their cost impact—been identified and addressed?
- Did previous contingencies adequately cover the uncertainties that surfaced?
- What recurring trends should be accounted for in future plans?
- What anomalies emerged that could influence future expectations?
Most effective when:
- Past data is accurate and trusted
- Industry benchmarks are available for analysis and comparison
Companion technology: Dashboards offer an efficient, reliable way to aggregate and visualize historical cost data. Trends and anomalies become more apparent when displayed in familiar formats—bar charts, line graphs, S-curves, etc.—enabling construction managers to see escalation patterns and outliers at a glance.
Technique 2: Monitoring Real-Time Market Trends
What it is: Tracking and analyzing shifting material prices, supply chain behavior and labor rates to forecast potential cost escalation.
What it’s best for:
- Spotting emerging risks before they become problematic
- Adjusting procurement strategies in volatile markets
- Managing lengthy projects susceptible to cost shifts
- Responding to sudden changes in economic, geopolitical or environmental conditions
What it forecasts:
- Cost behavior of specific resources
- How internal or external risks may affect costs
- Whether to procure resources sooner or delay them
- Projected impact of current spending on overall budget
- Potential for escalation based on real-time project data
Questions it helps answer:
- Are new risks developing that require attention and mitigation?
- Why are costs shifting—are the causes internal (e.g., scope creep) or external (e.g., economic fluctuations)?
- Are current costs on budget or trending toward overruns?
Most effective when:
- All data sources are current and reliable
- There’s access to localized data for labor and materials, as well as market conditions and supply chains
- Historical data is available to serve as a reference for detecting abnormal shifts
Companion technologies:
- Because dashboards monitor and visualize cost behavior in real time, they can detect early signs of shifts. Data can be organized into customized displays—by resource type, timeframe or region—to help construction managers zero in on forecasted cost escalations by focus area. Dashboards can also compare current data with historical baselines, making forecasting the likely trajectory of cost trends easier.
- Cost-tracking systems, such as construction cost management software, monitor expenses in real time, flagging when actual costs deviate from what was budgeted. As trends emerge—such as prolonged overspending or fluctuating procurement costs—forecasts can be updated to reflect the current rate of spending. This enables construction managers to identify potential overruns, reallocate funds or adjust procurement strategies before costs escalate further.
- Market intelligence tools aggregate current external data that can impact construction costs beyond what’s captured within the project itself. For example, cost databases compile labor rates, energy prices and material costs, while economic trend analyzers track inflation rates and other key economic indicators. These tools provide construction managers with actionable insights to understand how external factors influence project costs. Predictive analytics then generate cost forecasts that incorporate these evolving market conditions.
Technique 3: Incorporating Economic and Inflation Forecasts
What it is: This technique considers inflation rates, interest rates and other economic indicators to forecast cost escalation.
What it’s best for:
- Projects that are substantial in size and scope and/or have extended build schedules across several fiscal periods
- Any project that could be markedly affected by economic factors
- Conducting “what-if” contingency planning
What it forecasts: How inflation, wages or currency fluctuations will trigger or amplify cost escalation
Questions it helps answer:
- How do anticipated economic-based cost trends change procurement strategies?
- How can economic impact forecasts inform escalation clauses in contracts?
- How can these forecasts inform contingency planning?
- How will economic factors influence resource allocation?
- What if unforeseen economic conditions impact cost escalation or the overall project budget?
- All the “what-if” questions that focus on how certain scenarios, conditions or external factors influence cost escalation and impact project costs
Most effective when:
- Data inputs are accurate, current and reliable.
- External data is drawn from trusted sources
- The appropriate analysis framework or model is used based on its intended application
Companion technology:
- Forecasting models found in solutions like cost management software typically figure historical project data and economic indicators in their cost escalation predictions. Common methods used are regression analysis and scenario modeling.
- Like market intelligence tools, these economic data integration tools draw on external data, but here the focus is on combining economic indicators with project data to create forecasts of how specific indicators are likely to affect costs for the specific project, not just a particular resource cost. “What-if” scenarios are explored to help construction managers prepare for potential economic shifts, with a more focused approach to how specific indicators may lead to cost surges.
Technique 4: Collaborating for Insights into Escalation Risks
What it is: Assessing potential cost escalation triggers and risks from a qualitative perspective by tapping into the experience and expertise of the broader project team, stakeholders, contractors and other involved parties.
What it’s best for:
- Early planning stages of large, complex projects with limited data
- Top-down estimating
- Evaluating costs for newer or evolving technologies that may not yet be mainstream in construction projects
- Identifying risks that are difficult to quantify through traditional models or historical data
- Projects or situations requiring real-time collaboration
What it forecasts:
- Potential risks not reflected in historical data or economic models
- How well contingency plans and funding have addressed previously unseen risks
- The impact of emerging technologies or new methodologies on cost escalation
Questions it helps answer:
- What potential risks have not yet been accounted for, especially in past project data or economic models?
- Are the current contingency plans sufficient for addressing unanticipated risks?
Most effective when:
- Optimism bias is absent, allowing for objectivity in evaluating risks
- All disciplines and roles are represented, ensuring diverse perspectives
- Collaboration is actively encouraged and enabled among all participants
Companion technology: Platforms with real-time collaboration and forecasting features enable project teams to bring together expert insights with predictive analytics—helping them more effectively forecast potential cost escalation risks and develop mitigation strategies. These platforms function as centralized, interactive hubs where teams can evaluate risks, explore solutions, make informed decisions and share or access project data, documents and other key information—all in real time.
Proactively Planning for Construction Cost Escalation
Effectively managing cost escalation requires more than just reacting to rising prices—it requires proactive planning.
The techniques covered here underscore how critical forecasting is in identifying risks early, enabling better-informed decisions and maintaining control over your budget. When paired with the right tools, these techniques become even more impactful.
While cost escalation may be inevitable, how well it’s managed is entirely within your control through careful preparation. Contruent can be your partner in controlling costs, even when faced with internal and external risk factors. With its robust lifecycle cost management solution, Contruent Enterprise, you can proactively forecast potential risks and mitigate their impact. Learn more or request a demo today.