COST RELATED TERMS IN A

CONSTRUCTION PROJECT
VIPUL SOLANKI
FIXED COST
• Fixed costs are everything that is a one-off charge.
• These fees are not linked to how long your project goes on
for.
• So if you need to pay for one-time advertising to secure a
specialist software engineer, or you are paying for a day
of Agile consultancy to help you start the project up the
best way, those are fixed costs.
• Examples of fixed costs include rental lease payments,
salaries, insurance, property taxes, interest expenses,
depreciation, and potentially some utilities.
VARIABLE COSTS
• Variable costs, as the name suggests, are costs that change
during the project life-cycle.
• Construction projects usually have a long duration and can
easily span several years.
• These are the opposite of fixed costs - charges that change
with the length of your project.
• It's more expensive to pay staff salaries over a 12 month project
than a 6 month one.
• Machine hire over 8 weeks is more than for 3 weeks.
• Examples of variable costs are sales commissions, direct
labour costs, cost of raw materials used in production, and
utility costs.
SUNK COSTS

• Sunk costs are those that have been

incurred in a project, but have not
produced value towards the project’s
objectives.
• A sunk cost refers to money that has
already been spent and which cannot be
recovered.
• For example, your rent, marketing
campaign expenses or money spent on
new equipment can be considered sunk
costs.
GENERAL & ADMINISTRATIVE COSTS
• the costs of operating a construction business.
• These costs include such things as office space, office
staff, operating facilities, etc.
• They are not associated with any specific project, but may
be allocated across projects in a cost estimate.
• Examples of general and administrative expenses include
building rent, consultant fees, depreciation on office
furniture and equipment, insurance, supplies, subscriptions,
and utilities.
TIME RELATED COSTS
• those costs that the Contractor must incurs with the
passage of the time and independently from the
quantum of work performed.
• A typical example is the cost of the Workers.
• In fact, the Workers will be paid on hourly basis and not
per quantity of work executed.
FUTURE COSTS
• Also referred to as 'survivor costs’, are the costs that arise
during the life-years that would not have been lived
without a life-extending intervention.
• These costs are typically classified into future related
medical costs, future unrelated medical costs,
and future non-medical costs.
• For example, when a business is determining its budget for
a future time frame, an estimated of the future cost of
necessary items is typically included.
OVERHEAD EXPENSES
• Overhead expenses are all costs on the income
statement except for direct labour, direct materials, and
direct expenses.
• Overhead expenses include accounting fees, advertising,
insurance, interest, legal fees, labour burden, rent, repairs,
supplies, taxes, telephone bills, travel expenditures, and
utilities.