The Effects of Inflation and Its Volatility on the Choice of Construction Alternatives

Abstract

Life Cycle Cost Analysis (LCCA) is the standard method for costing long-lived construction projects. The LCCA process determines the full costs of mutually exclusive construction options, finding the project design with the lowest total lifetime cost. LCCAs have traditionally ignored the possibility of future changes in relative prices by assuming that the real prices of all construction inputs remain fixed. This study examines historical data on real prices and finds that the assumption of constant real costs is seriously inconsistent with historical experience.