Developing Location Factors by Factoring

What a location factor is

Where factored estimating (Lesson 22) scales within a project, location factors scale across geography. They let the industry's deep pools of cost data — mostly tied to a few reference locations — be reused anywhere, instead of needing fresh data for every country. A location factor of 1.25 means the work costs 25% more there than at the base location.

How location factors work — and how they're built

Local cost = Base-location cost × location factor

The subtlety this RP addresses is how to develop a location factor "by factoring" — building it up from its components rather than guessing a single number. A location factor is really a blend of several sub-factors, each weighted by its share of cost:

1. Labour — local wage rates and productivity — a low wage with low productivity may not save money.
2. Materials & equipment — local vs. imported prices, plus duties and taxes on imports.
3. Freight & logistics — the cost of getting equipment and materials to a remote or distant site.
4. Indirects & local conditions — local overheads, regulations, climate, and infrastructure availability.

Location factor calculator

Apply a location factor to a base-location cost to see the adjusted local cost and the difference:

Cautions

Location factors are convenient but carry real pitfalls beyond the labour trap:

Used well, though, location factors are indispensable: they're what let a global estimating database serve a project anywhere, turning "we have no cost data for this country" into "we have base data plus a defensible location factor."

Ten things to remember

1. A location factor converts a cost from a base location to another location.
2. Local cost = base-location cost × location factor.
3. It's meaningless without its base location — always state the reference.
4. Build it "by factoring" — from labour, materials, freight, and indirects.
5. Cheap labour ≠ cheap project — low productivity erases wage savings.
6. Imports, duties, and freight can push the factor above 1.0 even with cheap labour.
7. Don't default to 1.0 for unfamiliar locations — develop it properly.
8. Factors drift with exchange rates and markets — note the factor's date.
9. Don't double-count with escalation and currency — apply carefully and document.
10. They let a global database serve a project anywhere — indispensable when used well.