UNIVERSITY OF SOUTHEASTERN PHILIPPINES
BO. OBRERO, DAVAO CITY
BUILDING SYSTEM DESIGN
CEC 222
FINANCIAL CONSIDERATIONS
BUILDING COST
In the construction industry, one of the main challenges is managing building projects that
have unique features and requirements. However, all projects have elements things in common: a
scope of work, a time schedule, and a budget. Construction cost estimation is a fundamental skill for
engineering firms and contractors since important project decisions are based on costs.
Construction Cost, sometimes referred to as Building Cost or Project Cost, means the total
cost of the work to the owner of all elements of the project designed or specified by the design
professional including the cost at current market rates of labor and materials furnished by the owner
and equipment designed, specified or specifically provided by the design professional.
The accuracy of cost estimates improves throughout the design phase, as the project is
specified in greater detail. When there are no construction documents yet, only a broad estimate is
possible based on the project scale and the type of facility. Engineering firms and contractors with
experience in many projects can use historic cost data to improve the accuracy of preliminary
estimates. Once the design process is complete, the construction drawings and technical specifications
allow more accuracy.
The ownership costs of a building can be classified into capital expenditures, operation costs
and maintenance costs. Capital costs tend to get more attention during design and construction, but
there is also a great opportunity to save on operation and maintenance. For example, energy-efficient
equipment normally comes at a higher price, but the long-term savings outweigh the additional cost.
,Influences on Construction Costs
1. Building Site
One of the primary factors that influences cost is the building site. Waterlogged soils,
previous construction, geological formations and the nature of the rock, native animal species,
and the presence of historical or natural heritage sites are just a few of the things that can
affect materials and labor requirements, delay the issuance of permits, and increase the time
needed to complete the project.
2. Location of the Construction
Similarly, the location of the construction site relative to economic centers can also
be significant. Contractors may have to transport workers and materials for a long distance if
the site is remote. In a bustling urban area, the wages may be higher. Furthermore, regulatory
requirements may be stricter, and hence more expensive to fulfill or comply with, at some
construction sites than at others. Lastly, certain construction sites require the completion of
feasibility or impact studies, which are likely to prove expensive.
3. Time-related Aspects
Time-related aspects can also affect costs significantly. Chief among these is the
project schedule, as a compressed, labor-intensive schedule will incur higher costs and rush
charges. Shorter projects, especially those with significant penalties for the contractor’s
failure to complete the project on time, are also likely to have more expensive insurance. Also,
with a project that you expect to take years to complete, you will almost certainly have to
consider fluctuating market conditions and inflation. Finally, owners inviting bids may notice
seasonal variations in bid amounts, since contractors are busier at some times of the year than
at others.
4. Size & Complexity of Project
The size and complexity of the project are other major influences on cost estimates.
Larger, more prestigious projects may attract more reputable contractors, or there may simply
be few firms capable of handling the project. Either of these scenarios can escalate project
costs.
5. Quality of Plans & Specifications
The quality of plans and specifications are also vital factors, as is the contractor’s
relationship with the project engineer. Construction documents that hint at imprecision will
almost certainly result in higher bids from contractors who want to err on the side of safety.
On the other hand, the project engineer’s reputation can swing costs the other way, since
contractors will know that plans drawn by a reputable engineer are less likely to result in
efficiency losses.
6. Other Factors
Some other factors that affect the project cost include whether a government or
quasi-governmental agency commissions or funds the project, a circumstance which may
require additional paperwork and reporting. Some large projects require the completion of a
value-engineering review before bidding commences. Value engineering, which examines the
function-to-cost ratio of a project, aims at making the design as cost efficient as possible.
, All cost estimates add at least a tenth, and sometimes closer to a fifth, of the construction
total to account for contingencies. Contingencies are allowances held in reserve for unexpected costs.
Introduction to Cost Estimation
A project’s budget has the potential to impact nearly every facet of the project, making it one
of the most critical responsibilities of a project manager. A poorly designed budget leads to improper
asset allocation, unrealistic expectations, and potentially, a failed project. Simply put, a budget must
be accurate for a project to succeed. Cost estimation is one of the most effective tools in the project
manager’s tool belt for planning an accurate budget.
In the field of project management, cost estimation is the process of estimating all of the costs
associated with completing a project within scope and according to its timeline. Initial, high-level
estimates are often used in the earliest stages of project planning and can determine whether or not
a project is ultimately pursued. Once a project is approved and an organization chooses to move
forward with it, more detailed and granular cost estimates become necessary in order to appropriately
allocate various resources.
A thorough cost estimate should include both the direct and indirect costs associated with
bringing a project through to completion. Depending on the specifics of the venture, this will likely
include various overhead costs (utilities, labor, etc.), labor costs (including both time and wages paid),
materials and equipment costs, vendor fees (if the project requires third-party workers, freelancers,
or other contractors), and more.
Major Types of Building Cost Estimate
A cost estimate is predicted expenditure of a project which is generally prepared before the
project is taken up. It is prepared in different types based on the requirement of project. The
construction cost estimates can be prepared either in a detailed manner by taking into consideration
item by item or can be calculated approximately without going much into the details.
Construction cost estimates may be viewed from different perspectives because of different
institutional requirements. In spite of the many types of cost estimates used at different stages of a
project, cost estimates can best be classified into three major categories according to their functions.
A construction cost estimate serves one of the three basic functions: design, bid and control.
1. Design Estimates
In the planning and design stages of a project, various design estimates reflect the
progress of the design. The costs associated with a facility may be decomposed into a
hierarchy of levels that are appropriate for the purpose of cost estimation. The level of detail
in decomposing the facility into tasks depends on the type of cost estimate to be prepared.
BO. OBRERO, DAVAO CITY
BUILDING SYSTEM DESIGN
CEC 222
FINANCIAL CONSIDERATIONS
BUILDING COST
In the construction industry, one of the main challenges is managing building projects that
have unique features and requirements. However, all projects have elements things in common: a
scope of work, a time schedule, and a budget. Construction cost estimation is a fundamental skill for
engineering firms and contractors since important project decisions are based on costs.
Construction Cost, sometimes referred to as Building Cost or Project Cost, means the total
cost of the work to the owner of all elements of the project designed or specified by the design
professional including the cost at current market rates of labor and materials furnished by the owner
and equipment designed, specified or specifically provided by the design professional.
The accuracy of cost estimates improves throughout the design phase, as the project is
specified in greater detail. When there are no construction documents yet, only a broad estimate is
possible based on the project scale and the type of facility. Engineering firms and contractors with
experience in many projects can use historic cost data to improve the accuracy of preliminary
estimates. Once the design process is complete, the construction drawings and technical specifications
allow more accuracy.
The ownership costs of a building can be classified into capital expenditures, operation costs
and maintenance costs. Capital costs tend to get more attention during design and construction, but
there is also a great opportunity to save on operation and maintenance. For example, energy-efficient
equipment normally comes at a higher price, but the long-term savings outweigh the additional cost.
,Influences on Construction Costs
1. Building Site
One of the primary factors that influences cost is the building site. Waterlogged soils,
previous construction, geological formations and the nature of the rock, native animal species,
and the presence of historical or natural heritage sites are just a few of the things that can
affect materials and labor requirements, delay the issuance of permits, and increase the time
needed to complete the project.
2. Location of the Construction
Similarly, the location of the construction site relative to economic centers can also
be significant. Contractors may have to transport workers and materials for a long distance if
the site is remote. In a bustling urban area, the wages may be higher. Furthermore, regulatory
requirements may be stricter, and hence more expensive to fulfill or comply with, at some
construction sites than at others. Lastly, certain construction sites require the completion of
feasibility or impact studies, which are likely to prove expensive.
3. Time-related Aspects
Time-related aspects can also affect costs significantly. Chief among these is the
project schedule, as a compressed, labor-intensive schedule will incur higher costs and rush
charges. Shorter projects, especially those with significant penalties for the contractor’s
failure to complete the project on time, are also likely to have more expensive insurance. Also,
with a project that you expect to take years to complete, you will almost certainly have to
consider fluctuating market conditions and inflation. Finally, owners inviting bids may notice
seasonal variations in bid amounts, since contractors are busier at some times of the year than
at others.
4. Size & Complexity of Project
The size and complexity of the project are other major influences on cost estimates.
Larger, more prestigious projects may attract more reputable contractors, or there may simply
be few firms capable of handling the project. Either of these scenarios can escalate project
costs.
5. Quality of Plans & Specifications
The quality of plans and specifications are also vital factors, as is the contractor’s
relationship with the project engineer. Construction documents that hint at imprecision will
almost certainly result in higher bids from contractors who want to err on the side of safety.
On the other hand, the project engineer’s reputation can swing costs the other way, since
contractors will know that plans drawn by a reputable engineer are less likely to result in
efficiency losses.
6. Other Factors
Some other factors that affect the project cost include whether a government or
quasi-governmental agency commissions or funds the project, a circumstance which may
require additional paperwork and reporting. Some large projects require the completion of a
value-engineering review before bidding commences. Value engineering, which examines the
function-to-cost ratio of a project, aims at making the design as cost efficient as possible.
, All cost estimates add at least a tenth, and sometimes closer to a fifth, of the construction
total to account for contingencies. Contingencies are allowances held in reserve for unexpected costs.
Introduction to Cost Estimation
A project’s budget has the potential to impact nearly every facet of the project, making it one
of the most critical responsibilities of a project manager. A poorly designed budget leads to improper
asset allocation, unrealistic expectations, and potentially, a failed project. Simply put, a budget must
be accurate for a project to succeed. Cost estimation is one of the most effective tools in the project
manager’s tool belt for planning an accurate budget.
In the field of project management, cost estimation is the process of estimating all of the costs
associated with completing a project within scope and according to its timeline. Initial, high-level
estimates are often used in the earliest stages of project planning and can determine whether or not
a project is ultimately pursued. Once a project is approved and an organization chooses to move
forward with it, more detailed and granular cost estimates become necessary in order to appropriately
allocate various resources.
A thorough cost estimate should include both the direct and indirect costs associated with
bringing a project through to completion. Depending on the specifics of the venture, this will likely
include various overhead costs (utilities, labor, etc.), labor costs (including both time and wages paid),
materials and equipment costs, vendor fees (if the project requires third-party workers, freelancers,
or other contractors), and more.
Major Types of Building Cost Estimate
A cost estimate is predicted expenditure of a project which is generally prepared before the
project is taken up. It is prepared in different types based on the requirement of project. The
construction cost estimates can be prepared either in a detailed manner by taking into consideration
item by item or can be calculated approximately without going much into the details.
Construction cost estimates may be viewed from different perspectives because of different
institutional requirements. In spite of the many types of cost estimates used at different stages of a
project, cost estimates can best be classified into three major categories according to their functions.
A construction cost estimate serves one of the three basic functions: design, bid and control.
1. Design Estimates
In the planning and design stages of a project, various design estimates reflect the
progress of the design. The costs associated with a facility may be decomposed into a
hierarchy of levels that are appropriate for the purpose of cost estimation. The level of detail
in decomposing the facility into tasks depends on the type of cost estimate to be prepared.
