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Planning
Construction Project Cost
by
Melaku Tadesse (Civil Engineer), CM

melakutdsse@gmail com
Tel: 0911 232267

Nov 2020
 PLANNING CONSTRUCION COST
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 Cost Build-up Process

Profit Selling Price

General Cost of Sales

Overhead
Direct Overhead Production
Cost
Materials

Equipment
Direct/Prime
Costs
Labour
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 Planning Manpower Costs

 From the WBS, method of work and schedule of
execution of activities skilled, unskilled and supervisory
staff requirements are decided
 Besides quantity stated quality requirement of
processes and results determine type of profession and
trade skill levels
 The number is decided based on outputs of human and
human operated equipment and time limits stated key
trades with the corresponding individual/crew planned
out puts are determined first; and with this input the
number required to meet the time limit is decided
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 Direct Labour Cost: Comprises both skilled and unskilled

labour and first level supervisors or foremen required
for the execution of contract works or pay items. The
expenditures made for this group of workmen include:
 Basic wages/salaries
 Transportation, accommodation, overtime (optional)
 employment expenses: recruitment, selection, induction,
training
 benefits, bonus (incentive), entertainment,
 Statuary payments: insurance, social security, annual
leave, medical, social leaves (mourning and others),
severance pay
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 Indirect Labour Cost

 direct activities above foreman level supervisory
staffs’ salaries, allowances, benefits, & other payments,
 Expenditures for all support staff assigned in
Administration and personnel, Finance and Accounting,
Purchasing and Supplies and Warehouse; Equipment
Management work units
 idle time due to early arrival to the work site or delay
to an activity or work package due to late arrival
 Overtime payments other than for direct labour
 Expenditure made for any individual or group not
considered as direct cost are to be included here
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 Planning Equipment Costs

 Selection, Allocation and Leveling
 Depending upon method of work and time constraints
set criteria/bases for optimizing selection among the
available options or types
 Workout the allocation and leveling of equipment.
 Define form of acquisition (own, rent/hire and in single
or in fleet) and deploy as per schedule agreed with
the respective responsible bodies
 Acquire and agree on applicable individual and
crew performance rates for different
activities/operations
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 Methods of Costing Equipment

 Unit rate: calculated on hourly rate for the duration a
machine is required for the completion of the activity
it is required for. E.q. dozer for excavation
 Qty of work ….X
 Hrly output -----P
 Total Dozer-hr required = X/P
 No. dozer = total qty/qty per dozer for a period
 Operational methods: the duration that an equipment
is required to stay on project site without being used
for the full working hours that it stays under the
possession of project
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 Methods of Costing Equipment

 Performance aspect: E.g. Concrete Mixer
 Schedule period the mixer will be required for--
10months
 Daily standard work-hour the mixer may be used if
desired ----8
 Standard working-day per month 26 days
 Total hours the mixer should stay on site ready for use--
= 26dyas/month X 8hrs/day X 10 month = 2080hrs
 Hrly rental/depreciation rate …r
 Deduct No.of holidays during the 10 months, 10 days
 No. chargeable hours = 2080-10=2070
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 Methods of Costing Equipment

 Mobilization and Demobilization: moving
equipment from the source location to the project site
and back from the project to its source location. The
movement may require transporting truck if not self-
driven such as trucks…
 Pricing aspects
 Rental rate based on internal for owned
equipment or market rates for rented ones
 Depreciation based costing for owned equipment
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 Planning Costs of Materials

 identify type, quantity including allowance for wastage
and schedule delivery to the project site
 Consider pricing based on significance in value by
applying 80:20 rule or ABC classifications
 Classify project & main office level and domestic &
international level purchases with their respective costs
 Follow up price fluctuations of at least materials of A
group and/or contractually compensable ones
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 Planning Overhead Costs

 Project Overhead (one time and time related)
 Costs that are not easily traceable to pay items of a
project
 Management staff: support and technical supervisory
 site establishment and management;
 health and safety;
 community participation
 any other project related cost not included in direct
cost.
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 Head Office Overhead

 Standing expenditures which are not directly related
to any particular project and made to keep the main
office functioning
 Staff salary
 Office rent and office management expenses
 Distributed to projects based on project amount
 BUDGETING SALES AND COSTS
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 Project Budgeting Process: Budget:

 Is a monetary expression of plan (a project plan) or
financial commitment for action
 Specifies future financial course of action
 Is a means of coordination of project resources
 Can be an instrument for delegation of responsibility; an
authority for implementation and a means for controlling
performance (budgetary control)
 No budget = no budgetary control
 What is important is what is budgeted; what is budgeted is
what is important!
 A project without budget is a ship without compass
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Budget Baseline Elements

 Project plan (components of WBS) and schedules;
functional work units (responsibility centers) which
conform to organizational breakdown structure
 Cost estimate based on given technical baseline,
performance standards and prevailing market prices
of inputs under consideration
 Work units responsible for revenues, budgeted costs
and resources
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Budget Baseline Elements

 Authorized production cost – estimated cost approved
to be expended for a given work package, activity or
operation
 Production standard cost- planned cost estimate
determined based on a planned method of work, uses of
planned resources considering availability & wastage
factors. Actual cost is to be compared with this
 Earned value: value (price) that is to be paid by a client
to a contractor for executed work OR can be used to
identify value of work executed based on the rate used in
the budget
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 Project Cash flow

 because construction projects are known for having a
meager supply of cash it is essential to consider this as
one of the key resources that should be made
available. In fact, it is only if sufficient cash is available
that a project can timely acquire all other resources.
 Thus, a project’s resource plan should be expressed in
the form of cash inflow versus time
 Cash inflow sources may include partial payments,
trade credits and short-term bank credits
 Summary and Reflections
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 Key points planning project Cost

 Views and practices
 What salient points participants may have captured
from the discussion and found energizing to initiate
changes in their current practices
 Attitude
 Skill
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Amesegnalehu!

melakutdsse@gmail.com
Tel: 0911 232267