Indexing Technique

In the indexing technique, your goal is to reflect how a cost has changed. You're not pinning a type to the cost (such as cost per machine or cost per hour); instead, you're attempting to come up with an index number that reflects the relative change in cost in comparison to a base year. For example, perhaps your company established a robust software development office to get ready for Y2K. Afterward, rather than dismantle that office, the company has continued to use the office's services for software development. The ongoing costs of that development entity were known at its inception in 1999. By calculating how the labor and equipment costs have changed over the years, you can come up with a matrix that reflects today' s costs and that you can apply directly on any project you ' re estimating for which you' re going to use that office. Perhaps the best example of the indexing technique is the Bureau of Labor Statistics Consumer Price Index (CPI). The CPI is a comparison of how a standard set of goods has changed in price over the years. See www.bls. gov/cpi for further info.

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