What are escalation costs?

Escalation costs refer to the anticipated increases in material and labor pricing over the duration of a project. This concept is crucial in construction cost estimation since project budgets need to account for price fluctuations that may occur due to various factors, such as inflation or changes in supply and demand. By including escalation costs in budgeting and financial planning, project managers can help ensure that they have sufficient funds to cover the actual expenses incurred when completing the project, even if the costs of materials and labor rise during the construction timeline.

Assessing escalation costs is especially important for long-term projects where the time between the initial cost estimates and the actual implementation can lead to significant differences in pricing. This understanding helps in making informed bidding decisions and securing financial resources to complete the project within the expected constraints.