Construction: Building Across Years

INTRODUCTION:

Construction is a tricky thing to consider when modeling economic impacts. While the considerations to analyze are outlined in Construction: Building the Right Model, this article will walk through an example of a project that crosses years, as large-scale developments are rarely completed neatly in one calendar year.

EXAMPLE:

Morgan Construction is planning a large-scale industrial development in Omaha. The 100 acre site will be developed in phases over five years. The developer has given us the following spending information.

Morgan Industrial Park Costs by Year

The first year, 2020, contains only $495,000 in site acquisition fees - the purchase of the land. In IMPLAN, land sales are considered to be asset transfers.  One person receives money while the other receives tangible property. Thus, the land sale itself has no value in IMPLAN and we will not include this in our model.

The five years of construction on Morgan Industrial Park from 2021-2025 can be modeled. As there are different types of construction work being done in each year, we will need to assign the proper IMPLAN Sector to each. For all construction Sectors, there is a bridge to the Definitions of IMPLAN’S 546 Construction Sectors.  Using this document, we can search for what type of construction will be happening each year and choose the appropriate Sector.

Morgan Industrial Park Costs & IMPLAN Sectors

Now we are ready to set up our project in IMPLAN first by choosing our Region. In this case, we will be looking at the Omaha-Council Bluffs, NE-IA MSA. Our first step on the Impacts screen will be to set up an Event for each year. Note: if we had more detailed information, we could set up multiple Events for each year.

Next we will create five different Groups; one for each year of the project. Note that they are all identical except for the Dollar Year.  The Dollar Year field is changed for each Group so we can model the Event happening in that year.

The Dollar Year can sometimes be a tricky thing to determine and in the case of a multi-year construction project, it can be difficult to determine whether each year’s expenditures should be accounted for in that year’s dollars or if they should be accounted for in base year’s dollars. The answer? It depends on how the initial dollars are estimated. Dollar Year should always reflect the year of the Event Values. Therefore, if separate expenditures value are known that will enter the economy independently in different years these multiple years of expenditures should be analyzed in separate Events and Groups. 

Now we will drop the Event for each year of the project into the appropriate year Group. Make sure that each Event only drops into one Group.

Now we are ready to hit RUN and check out our Results.

RESULTS:

The default that we are seeing on the Results screen is the combination of the impacts across the five years. Looking at our Results, we see that the total Direct Output is not equal to the $6,450,000 of Direct Output we entered on our Impacts screen. This is because of the deflation. We entered 5 different Dollar Years on the Impacts screen and we are seeing our Results in 2019 dollars. The $5,921,136 in Direct Output accounts for the different Dollar Years and the reporting of the Results in 2019 dollars.

You can see the yearly impacts by using the FILTERS and choosing the Event you want to see. For example, choosing to FILTER by Event Name “Roads” and Dollar Year “2022” will see the Direct Output of $500,000 that we entered on the Impacts screen.

TOTAL EMPLOYMENT TRAP:

If we look at the summary table, we see a Direct Employment of 55.19 jobs and a Total Employment of 88.83 jobs. However, let’s not forget this represents 5 years of construction.

When multi-year projects are summed it is fine to add the yearly Labor Income, Value Added, and Output components together, but Employment is a little different. We suggest reporting Employment in terms of average annual jobs or jobs/year for the project.  We do this because:

• If worker is on the job site over the course of the entire project or over several years of the project, that job will be counted in IMPLAN more than once. (i.e. if a worker is on site for all five years of project IMPLAN counts that as 5 jobs). However, we know that this is in fact just one job sustained over 5 years of the project.
• As the nature of the construction project changes so do the workers. In our example, the jobs supported in the first year were utility workers, then road construction workers came in year two, and industrial building workers in years 3-5. Since some jobs are sustained and some are lost every year, the net effect is best reflected in the expression of average annual or jobs on the site/ year of the project.

To account for the jobs over the 5 years of construction, export your results to Excel and then divide the Direct, Indirect, and Induced Employment by 5. Then you can report your Results and Average Annual Employment.

RELATED TOPICS:

Construction: Building the Right Model

Definitions of IMPLAN’S 546 Construction Sectors

Written December 13, 2019