Escalation

Definition

Escalation refers to the increase or decrease in costs of goods and services due to inflation, market conditions, and other factors. It includes labor escalation, which adjusts wage rates over time, and material cost escalation for budgeting future projects.

Purpose

The purpose of Escalation is to account for potential changes in costs over the duration of a project, ensuring that budgets and contracts reflect realistic financial expectations. This helps in managing financial risk and avoiding budget overruns.

Examples of Use

• Construction Budgets: Including cost escalation factors when budgeting for long-term projects.
• Labor Contracts: Adjusting wage rates annually based on projected labor market changes.
• Material Procurement: Accounting for potential price increases in construction materials over time.

Related Terms

• Inflation: The general increase in prices and decrease in purchasing power over time.
• Cost Estimation: The process of predicting the costs of a project.
• Contingency: Funds set aside to cover unexpected costs.

Notes

• Accurate escalation requires careful analysis of market trends and historical data.
• Contracts should specify how escalation will be handled to prevent disputes.