ABES ENGINEERING COLLEGE

DEPARTMENT OF CIVIL
ENGINEERING

CONSTRUCTION TECHNOLOGY & MANAGEMENT

(NCE-603)

Prepared By
Amit Bajaj
 UNIT-3
SYLLABUS

 Project Cost Control: Cost Planning, Direct Cost,

Indirect Cost, Total Cost Curve, Cost Slope.
 Time Value of Money, Present Economy studies,
Equivalence Concept, financing of projects.
 Economic comparisons present worth method,
Equivalent annual cost method, discounted cash flow
method.
 Depreciation and break even cost analysis of
construction projects.
COST PLANNING
TIME OF DECISION
BENEFITS OF COST PLANNING
 Greater satisfaction with end results.
 Better value for money.

 Improved building quality and performance.

 Budget and value accountability.

 Improved relationships between all project

participants.
 Design problems identified and solved earlier.

 Early identification of high-cost elements.

FACTORS IN SUCCESSFUL COST
PLANNING
 Confirm that all project team members are speaking, and
understand, a common language.
 Acknowledge change is inevitable and establish
contingencies and escalation in cost planning.
 Establish and document a solid base of prioritized needs.

 Study as many feasible site and building alternatives as

possible
 Establish well defined, manageable project schedules.

 Insure the budget has the confidence and acceptance of all

project team members
DIRECT COST
 In construction, the costs of materials, labor, equipment,
etc., and all directly involved expenses for the cost object
are direct costs. 
 Cost object is product outcome.

 Labor
 Material
 Equipment
 Design& Engineering
 Subcontractor’s Fees
INDIRECT COST
 Indirect costs are costs that are not directly accountable to
a cost object. Indirect costs may be either fixed or variable.
Indirect costs include administration, personnel and security
costs.

 Legal Fees
 Interest
 Insurance
 Taxes
 Profit
 Selling Costs
VARIABLE COST
 Variable costs, as the name suggests, are costs that change
during the project life-cycle.
 Variable costs include raw material, energy usage, labor etc.
that may change over time in long run of a project.

FIXED COST
Fixed costs are those that do not change throughout the 
life-cycle of a project.
For example, if you are constructing a road, the excavators and
bulldozers are fixed costs.
TIME COST CURVE (TOTAL COST
CURVE)
COST SLOPE
 Normal Cost: It is the lowest cost of completing an activity
in the normal time, employing the normal resources available.
(No over time or any special resource).

 Normal Time: It is the minimum time required to complete a

project at normal cost.

 Crash Cost: It is the cost of completing an activity by

employing all possible means like overtime, extra resources,
special material etc.

 Crash Time: It is absolute minimum possible time associated

with crash cost. Crash time imposes the condition that the
duration can not be further reduced even after expending the
extra resources to any extent
TIME VALUE OF MONEY
 The Interest Rate

Which would you prefer – 1,00,000 today

or 1,00,000 in 5 years?

Obviously, 1,00,000 today.

You already recognize that there is TIME

VALUE TO MONEY!!
WHY
WHY TIME?
TIME?

Why is TIME such an important element

in your decision?

TIME allows you the opportunity to

postpone consumption and earn
INTEREST.
TYPES
TYPES OF
OF INTEREST
INTEREST

 Simple
 “The Interest
greatest mathematical discovery of all time is
compound interest.”
Interest paid (earned) on only the original amount,
or principal, borrowed (lent). Albert Einstein

 Compound Interest
Interest paid (earned) on any previous interest
earned, as well as on the principal borrowed
(lent).
 SIMPLE
SIMPLE INTEREST
INTEREST FORMULA
FORMULA

Formula SI = P0(i)(n)

SI: Simple Interest

P0:Deposit today (t=0)
i: Interest Rate per Period
n: Number of Time Periods

FV = P0(1+i.n)
FUTURE VALUE OF SINGLE CASH
FLOW

FV Po(1i) n
Future Values of 100 with Compounding
7000
Interest Rates

6000 0%
5%
5000 10%
FV of $100

4000 15%

3000

2000

1000

Number of Years
18
TYPES OF CASH FLOWS

 Single cash flow

 Uniform series

 Linear gradient series

 Geometric gradient series

CASH FLOW DIAGRAMS
 Thecosts and benefits of engineering projects
over time are summarized on a cash flow
diagram.

 Cash flow diagram illustrates the size, sign,

and timing of individual cash flows, and forms
the basis for engineering economic analysis

 Tool! To show expenses and receipts

CASH FLOW DIAGRAMS—
HOW???
A cash flow diagram is created by first drawing a
segmented time-based horizontal line, divided into
appropriate time unit.

 Each time when there is a cash flow, a vertical

arrow is added  pointing down for costs and up
for revenues or benefits. The cost flows are drawn
to relative scale
CASH FLOW DIAGRAMS

P-Pattern “present”
1 2 3 n

F-Pattern “future”
1 2 3 n

A-Pattern “annual”
1 2 3 n

G-Pattern “gradient”
1 2 3 n
SINGLE CASH FLOW (SINGLE PAYMENT
COMPOUND AMOUNT)

F
Compounding Process

1 2 3 4

nn
1 2 3 4
P
F
F  P(1  i) n P
(1  i) n
P=Present equivalent value A=Annual equivalent value
F= Future equivalent value i = compound interest
 A person deposits a sum of ₹ 20,000 at a interest rate of 18%
compounded annually for 10 years. Find maturity value after
10 years.

 ₹104677

 A person wishes to have future sum of ₹1,00,000 for his

education after 10 years from now. What is the single payment
he should deposit now? The bank gives 15% interest rate
compounded annually.

 ₹24,720
SINGLE CASH FLOW (SINGLE PAYMENT
COMPOUND AMOUNT)
A A A A A

1 22 33 44 nn
1
P

A A A A
P    ......... 
(1  i) (1  i) (1  i)
2 3
(1  i) n

 (1  i) n  1
P  A n 
 i(1  i) 
 A company wants to set up a reserve which will help the company to
have an annual equivalent amount of ₹ 10,00,000 for
next 20 years. The reserve is assumed to grow at the rate of 15%
annually. Find single payment that is to be made now as the reserve
amount.
 P = ₹62,59,300
 A bank gives a loan to a company to purchase an equipment
worth ₹ 10,00,000 at an interest rate of 18% compounded
annually. This amount should be repaid in 15 years equal
instalments. Find instalments amount.

 A = ₹ 1,96,400
  (1  i) n  1
P  A n 
 i(1  i) 

 Finding F (Future Value) for equal payment series:

F

1 2 3 4 nn

1 2 3 4
F  (1  i) n  1
P P  A n 
(1  i) n  i(1  i) 

 (1  i) n  1
F  A 
 i 