Any construction project consists of direct and indirect costs which forms the total costs and expenses resulting from the use of principal components for implementing construction projects.
Different classification of construction undertaking costs and their features are explained below.
Before moving into the main classification of undertaking costs, some of the specific costs encountered in construction undertakings are explained below.
This is defined as the cost spent once for a particular point of time. The purchase of equipment, machinery etc comes under fixed cost assets.
Time-related cost is the cost spend for a particular activity for a given duration. The cost spent on wages, machinery and building rents etc comes under this category.
This type of cost will vary based on the quantities. Materials costs are examples of quantity-proportional costs.
Major classification of construction undertakings costs are:
Total undertaking Cost = undertaking Direct Costs + undertaking Indirect Costs
The costs and expenses that are accountable directly on a facility, function or product are called as direct costs. In construction undertakings, the direct costs are the cost incurred on labor, material, equipment etc.
These costs for a building undertaking are developed as estimates by means of detailed analysis of the contract activities, building approach, the site conditions, and resources.
Different direct costs in construction undertakings are material costs, labor costs, subcontractor costs, and equipment costs.
The costs, unlike direct costs, is not directly accountable for a particular facility, product or function. Indirect costs can be either variable or fixed.
The main sections coming under indirect costs are personnel costs, security costs, and administration costs. These costs do not have a direct connection with the construction undertaking.
The indirect cost can be classified as:
In a construction undertaking, the cost of some of the items cannot be directly allocated for a specific activity. Most of the site related costs come under this section and are categorized as undertaking overhead costs.
Different costs coming under overhead costs are the costs of stores, safety facilities, workshops, offices, staffs and parking facilities. Project overhead costs can either be fixed or time-related costs. All those plants that are required to support the working crews will come under this cost.
Hence an accurate cost estimate is obtained. The overhead cost is estimated by a detailed analysis of the site-related activities and their cost. The site overhead costs account for 5 to 15% of the total undertaking costs. Most of the companies make use of forms and checklist developed by them to estimate these costs.
These form the costs that are used to support the overall activities of the company. The general overhead costs cannot be directly charged for a specific undertaking. The general overhead costs will include the cost of the design engineers, expenses of head-office, cost of directors and managers, schedulers etc.
The general overhead expense and cost are found reasonable through continuous monitoring of the company expenses. The general overhead costs account for 2 to 5 % of the contract direct costs.
The amount of the general overhead that should be allocated to a specific project equals: