Cost indices: how to update a budget over time

Several families of references coexist in Spain, with different uses:

The correspondence rule: to update a global ratio, use a synthetic building index; to revise a contract, use the formula and series the contract itself designates; to budget in detail, work with a current price database, not an old one corrected. Each use has its own instrument, and mixing them produces figures that do not survive review.

The operation is a rule of three on the index: updated cost equals origin cost multiplied by the ratio between the index at the target date and the index at the origin date. Three precautions make it reliable. Check that the index measures what the cost represents: a materials index does not update a complete ratio that includes labour. Chain correctly when the series changes base. And accept the time limit of the exercise: beyond four or five years, the drift is not only in prices but in techniques, regulatory requirements and market structure, and mechanical updating loses meaning; the old ratio is replaced, not corrected.

A different question from updating studies: price revision during execution only exists if the contract provides for it, with its formula, its indices and its thresholds. In public procurement it is regulated and limited; in the private market it is a matter of agreement, and the years of high inflation have brought back into negotiation clauses that had fallen into disuse. For tender analysis, the presence or absence of revision changes the reading of the price: a fixed offer without revision in a volatile market incorporates (or should incorporate) a risk premium.

Updating a cost requires three correct decisions: the index appropriate to the nature of the cost, the chaining arithmetic done properly, and respect for the four-to-five-year limit beyond which the reference is replaced rather than corrected. The time correction is independent of the geographic one covered in regional differences: both apply, in whichever order, but both.