Escalation Formula

[abacon1960]

I just received a Structural Steel Estimate that is using this formula for future escalation.
=AR20*((1+AS20)^(DAYS($AU$12,$AU$11)/365))

Inputs are as follows: AR20 cell contains the total amount for the steel in this line item
AS20 cell contains a number of 6% formatted in the percent format.
AU12 is the end date
AU11 is the start date

End Date = 01/01/2024
Start Date = 03/27/2023

Outputs are:

Total Amount of Steel = $17,464
Annual Percentage Rate = 6%
Total Escalated Costs = $18,263

I am not quite sure I understand this formula. Is there a better way to do this based on what you see here?

 

[James006]

Hi,
You can decompose the formula as follows :
1. From a base amount, there is an inflation of 6% for a full year
e.g. 17'464*(1+0.06) which would amount to 18'511.84
2. In the basic formula, the inflation rate is (1+0.06)^1 ... to the power 1 for 1 year
3. But, in your case, there are only 280 days between your start and end dates
4. So to adjust the formula you do need to use 280/365
5. And instead of power 1 it is power 0.767123287671233
6. This results in a lower final amount : 18'262.34

Hope this clarifies