Let's say if we want to convert from one based period to another using what I just explained, the ENR, BCI, the Building Cost Index, so let's say we want to convert cost from 1967 to 2013. So, if we say that the cost index, the BCI, for the year 2013, is equal to 5,317. And base cost that we're trying to compare the two years with, let's say the BCI for the, I mentioned the 1967, so let's say that for an example, is that constant package was 676. So, the question I will ask you based on that, how the cost increase or decrease since 1967, and by how much. So basically it is as simple as to say that the index on the 1967 base, would be this amount or this index divided by this index. So if we divide both over each other, you will give you here, around 786.5%. I think this is 8. So, 786.5 approximately then from this simple question, we can say, that index on the 1967 base, this over this in 2013 that caused increase by more than 787%. So this is just like basic example, but let's now take another example to show how we can connect this with the construction and estimating a construction project cost. Here is another example, we have focusing base on a cost index So let's say we have a warehouse that will be built in November 2013, and we assume that you have an estimate for a very similar warehouse project that is completed in 1978. For a cost of $4.2 million back then. I will ask you, what is the estimated cost for the new warehouse? If we have a lot of similarities in both warehouse. So, what I would say is that I would look at the publications, and we find what is the cost index, the current one, or the one in that time we want to build the house which is 2013 in November, and we found it is 5,317. And then we look at the base cost index we call it. As I mentioned in the previous example. And the base cost index in 1978 was 1,674. So based on that, an estimated cost for building the warehouse would be the 5,317 divided by the base of 1978. Times the 100% so you have kind of an increase on that constant package of these four components that I was talking about of around 318%. So the 318%, you multiplied by the 4.2 million to get an approximation of $13.34 million to build similar warehouse that got built in 1978 and you want to build it in 2013. So this is a quick example about how to use a Cost Indices or Cost Index using the BCI in this question here and in very direct way, okay. So moving forward, for the cost indices, I also want to highlight there is a limitations, for these specific tool or method. There is one unconsidered factors and project differences. What we mean by the unconsidered factors? It's some indices are based on input components do not consider factors, such as productivity, and changes in technology. Indices do not also consider competitiveness of contractors, and similar factors like that. Last but not least. It's also very important to recognize that geographic and demographic basis. For example in the VCR, I just explained, it's each component from the four components. From the lumber, from the steel, from the cement, from the labors, there's a 20 city average cost. But if you want to go specifically on an area, in a metropolitan area let's say New York or Chicago, comparing to the suburbs in another state. It will then vary considerably, so to consider that geographical and demographic basis is very important, instead of just taking the average of 20 cities in the US. Also project differences, differing resource proportions, this is one main limitation. And what we mean by differing resource proportions is the following. There will be problems, if the proportions of that input component, in an input type cost index, do not reflect the resource proportions in the projects in the question. And I gave you can example between the building cost index from ENR, the BCI, and that construction cost index of ENR, that CCI. They have a different numbers in the labor component, and sometimes these proportions in each of these components is different than the same items in the project itself. So differing resource proportion. Also in project differences, it causes us to look at one main limitation. Defining the projects, so problems, if the project which that index is based on have very little in common with the project under consideration. So, moving forward we finalize the first method, or first tool. I would highlight also another one which is the Cost-Capacity Factor. When it comes to the conceptual and the preliminary estimate of your project. The cost capacity factor applies to changes in size, in scope, or in capacity of projects of similar type. It reflects the non linear increase in cost with size. The economy of scale. Cost capacity factor can be accurate to plus, minus 20% sometimes 15 of the actual cost. Which is pretty also good. And this is the equation of the cost capacity factor, it's expressed by the following. C2=C1 (Q/Q1)2 power of X. Where C2 is estimated based on cost of the new facility that we want to build with it's new capacity, Q2. And C1 is the known cost of the facility that been built, with it's old capacity Q1. And X here is the cost capacity factor for this type of project. Now for X, X is empirically derived cost-capacity factor, for a given type of project. And it is based on a very well documented historical records. For different kinds of projects. As for Q, it is as Q2 and Q1, it is a parameter that reasonably reflects the size of the facility or the project, such as the following examples. If you have for example a queue for barrels per day, produced by a refinery, tons of steel per day, produced by a steel mill. Or could be gross floor area for a warehouse. Let's take an example here to highlight, by numbers, the cost capacity factor.
