Fundamentals of Building Costs

FUNDAMENTALS OF
BUILDING COSTS
CONSTRUCTION COST
• refers to the overall cost for the

development of a facility or an
asset. Estimation of construction
cost is a complex process since it
involves many variable factors.
Cost in construction can be of
tangible costs or intangible
costs.
TANGIBLE
COSTS
• are the cost that can be
measured in monetary
terms. All the labour,
material costs etc are an
example of tangible costs.
INTANGIBLE
COSTS
• are costs that are difficult to

measure in monetary
terms. Examples are service-
related cost and goodwill.
Costs in construction can be
direct costs and Indirect cost.
DIRECT COSTS
• are costs that are directly
attributed to a specific
project element.
INDIRECT
COSTS
• are costs that are not
attributed to a specific
project element but are
indirectly related to the
performance of the
project. Direct and Indirect
costs can be fixed or can be
variable also.
OVERHEADS
➢ are anything that is required for the delivery of the project and that cannot be included in the
direct costs. Generally, overhead costs are 8% to 10% of the contract value. Few overhead costs are;
• Salaries and benefits
• Insurance policy – Group workmen policy, Contractors all risk (CAR) policy, equipment policy, provident fund, premium
etc.
• Financing cost – Interest, guarantees, warranties, bonds, penalties etc.
• Progress photographs and videos
• Conveyance cost – Cost for the transportation of labours to and from the site, senior engineers for their site inspection,
employees transportation cost etc.
• Travel and transfer cost
• Visit of headquarter personnel.
• Temporary site installations and facilities like labour colonies, parking, site offices etc.
• Client and consultant requirements for their office space, office staff etc.
• Utilities like electricity, water, drainage etc which are temporary for the site offices, labour colonies etc.
• Taxes and Duties
• Miscellaneous expenses
RISK
IS THE PROBABILITY OF ANY HAPPENING
CONTINGENCY
IS THE BACKUP MONEY OR FUTURE
MONEY THAT WE KEEP ASIDE.
RISK AND CONTINGENCY
• The difference between risk and

contingency is that in Risk, we
spend time and money in
advance for a given risk
condition whereas in
contingency we set aside money
that we do not spend now and
invest them when needed.
• Contingency reserve is known-unknown where
we set aside amount for things that we know or
not know whereas management reserve is
unknown-unknown where there is no idea about
the things.
• Risk and Contingency are usually 2% to 5% for

normal projects whereas it increases up to a
maximum of 10% if the project is uncertain at the
time of tender.
MARKUP
• A general term for the combination of general office overheads, risk and
contingency
➢Markup is expressed as a
percentage of the total cost.
▪ Bid Price = Total Cost + Markups
▪ Total Cost = Direct Cost + Indirect

Cost
• If the markup is expressed as a percentage of the bid price it is called
Offtop.
• For example, if 100% is the bid price, 10% Markup, 90% as Total cost,
then 10/90 will be the markup (Ontop) and 10/100 will be Offtop.
• Markups are loaded in different ways in different projects.
The types of markup loading are:
• Uniform distribution of markups (For eg; 15% for all components)
• Front loading of markup (Here more percentage of markup will be charged at the initial stages of
the project for initial works since major works come in this time and later the markup percentage
will be reduced.)
• Backloading of markup (This is the reverse of front-loading where more loading of markup will be
given to the last stages. This is to protect the project from any escalation, uncertainties etc.)
• Uneven loading of markup (This loads markup only to those work packages that are going to incur a
loss in a project)
ACTIVITY
1. What are Key Performance Indicators (KPI)? Explain.

2. What are the Categories of KPI? Explain briefly each.
3. What is Critical success factors (CSF)?

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FUNDAMENTALS OF

• refers to the overall cost for the

• are costs that are difficult to

• The difference between risk and

• Risk and Contingency are usually 2% to 5% for

▪ Bid Price = Total Cost + Markups

▪ Total Cost = Direct Cost + Indirect

1. What are Key Performance Indicators (KPI)? Explain.

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