QUS 212: PRINCIPLE OF CONSTRUCTION ECONOMICS I

CONSTRUCTION INDUSTRY
The construction industry and projects forming the built environment involve many
activities, a construction project can refer to any building activity that includes
alteration, repair, erection, demolition, maintenance, painting, land clearing, earth
moving, grading, excavating, trenching, digging, boring, drilling, blasting, concreting
and installation of machinery.
The construction sector is very important to any country’s economy. The industry
covers a wide range of business activities that are brought together by a common
interest in the development of land and real estate. The sector comprises a variety of
interests that include clients, consultants, suppliers and contractors. Clients can be
industrial firms and commercial property developers who determine what should be
built and where. Others might be government departments who require various forms
of infrastructure to support the residents and communities that they represent.
The construction industry includes building, civil engineering and process plant
engineering, but the demarcation between these areas is blurred. Construction work
includes a wide variety of activities, depending on the size and type of projects
undertaken and the professional and trade skills required. Projects can vary from work
worth a few hundred Naira to major schemes costing several million Naira. While the
principles of execution are similar, the scale, complexity and intricacy can vary
enormously.
The construction industry has characteristics that separate it from all other industries.
These are
✓ The physical nature of the product
✓ The fact that the product is normally manufactured on the client’s premises, i.e.
the construction site
✓ The fact that many of its projects are one-off designs, with no prototype model
available
✓ The arrangement of the industry, where design is normally separate from
construction
✓ The organisation of the construction process
✓ The methods used for price determination
CONSTRUCTION ECONOMICS
Construction economics consists of the application of the techniques and expertise of
economics to construction projects. Economics in general is about the choice of the
way in which scarce resources are and ought to be allocated between all their possible
uses. Construction economics is a small part of a much larger subject of environmental
economics. This is concerned with the study of man’s needs in connection with shelter
and the suitable and appropriate conditions in which to live. It seeks to ensure the
efficient use of resources available to the industry, and to increase the rate of growth
of construction work in the most efficient manner.

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APPROXIMATE ESTIMATING
PURPOSE OF, AND METHOD OF, APPROXIMATE ESTIMATING
The primary function of approximate or preliminary estimating is to produce a forecast
of the probable cost of a future project, before the building has been designed in detail
and contract particulars prepared. In this way the building client is made aware of his
likely financial commitments before extensive design work is undertaken.
Unit method
The unit method is a single price rate method of approximate estimating, consists of
choosing a standard unit of accommodation and multiplying this by an approximate
cost per unit. The standard units may represent, for example,
• Schools – costs per pupil place
• Hospitals – costs per bed place
• Car parks – costs per car space
The technique is based on the fact that there is usually some close relationship
between the cost of a construction project and the number of functional units it
accommodates. Functional units are those factors which express the intended use of
the building better than any other. This method is extremely useful on occasions where
the building’s client requires a preliminary estimate based on little more information
than the basic units of accommodation.
The method of counting the number of units is extremely simple, but considerable
experience is necessary in order to select an appropriate rate. These rates can be
obtained by the careful analysis of a number of recently completed projects of a similar
type, size and construction. However, adjustments based on professional judgement
will always be needed to take into account varying site conditions, specification
changes, market conditions, regional changes and inflation. It is one of the simplest
and quickest methods to implement, but it must be used with care. It suffers from the
major disadvantage of lack of precision, and at best can only be a rather blunt tool for
establishing general guidelines. It is advisable, therefore, to express cost within a
range of prices that can be useful for budgetary estimating.
Superficial area method
The superficial area method is still the most common method in use for early price
estimating purposes, it is also a single price rate method. The estimate of cost is easy
to calculate and thus is expressed in a way that is fairly readily understood by those in
the industry and the average construction industry client. The area of each of the floors
is measured and then multiplied by a cost per square metre. In order to provide
comparability between various schemes.
• The floor areas are calculated from the internal dimensions of the building. No
deduction is made for internal walls, lift shafts, stairwells, etc. – gross internal
floor area.
• Where different parts of the building vary in function, then the areas are
calculated separately

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• External works and non-standard items such as piling are calculated separately
and then added into the estimate
It is appropriate for projects such as schools, offices and housing where storey heights
were similar. Storey heights, plan shape and methods of construction are particularly
important when deciding on the rate to be used. Another consideration to favour the
use of this method is that rates are readily available from many different sources or,
alternatively, they can be calculated very easily from existing scheme cost data.
Three considerations should be borne in mind, however. First, the client may express
the project only in terms of the usable space required, and it is necessary therefore to
add to this area circulation and other non-usable space to make the building function
correctly. Second, in a project offering different standards or types of accommodation
it will be preferable to price these independently using different rates. A variety of rates
may therefore be required, depending on the different functions or construction of the
building. Third, items of work which cannot be related to the floor area will need to be
priced at separate all-inclusive rates. The huge range in the superficial area rates
presents the surveyor with some problems. At best, therefore, they can only represent
guide prices and must be adjusted to suit local conditions on the basis of the surveyor’s
personal experience and skill.
Cube method
The cube method of approximate estimating was used extensively at the beginning of
the last century but has since been superseded because of its inherent disadvantages.
The rules of measurement for the cubic content of a building are as follows. The
external plan area was multiplied by the height from the top of the concrete foundation
to halfway up the roof if pitched or to 600 mm above the roof if flat. If the roof space
was to be occupied then the height of pitched roof buildings was three-quarters-way
up the roof. The formula has little to recommend it except uniformity. The allowances
for flat and pitched roofs and the measurement to foundation depth are very arbitrary
and do not readily correlate with cost. Additional allowances need to be made for
projections such as porches, dormers and chimney stacks. Another weakness of this
method is that it does not provide any indication to a client of the amount of usable
space.
Where parts of the building vary substantially in constructional method or quality of
finish, it is preferable to calculate separate volumes and to apply different rates. The
application of cube rates from previous projects does not work quite as well as in the
superficial area method. It is also now known that building cost correlates better with
superficial floor areas than with volumes.
Ideally, if the cube rules are applied then a very similar building in all respects should
be used as the cost database. Otherwise a large number of variables must be
considered in order to arrive at anything approaching the correct price. The complexity
of modern building is another factor which has contributed to the diminished
importance of this method. It is still used to some extent, however, for the valuation of
property for fire insurance purposes.

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Storey-enclosure method
In an attempt to overcome the many disadvantages of the other single-price methods
of estimating, James (1954) devised a new method using the following rules of
calculation:
1. To allow for the cost of normal foundations, the ground floor area (measured in
square metres between external walls) is multiplied by a weighting factor of two.
2. To provide for the extra cost of upper floors, an additional weighting factor is
applied to the area of each floor above the lowest. Thus, the additional
weighting factor for the first suspended floor is 0.15, for the second 0.30, for the
third 0.45 and so on.
3. To cover the extra cost of work below ground level a further weighting factor of
one is applied to the approximate wall and floor areas that adjoin the earth
surface.
The method attempted to take into account
• Plan shape (by measuring the external wall area)
• Total floor area (by measuring each floor)
• Vertical position of the floors (by using different multipliers for each floor)
• Storey heights (ratio of floor and roof areas for external wall areas)
• Overall building height (ratio of roof area to external wall area)
• Extra costs of providing usable floor areas below ground (by using multipliers)
James claimed that it would perform better in terms of accuracy than the other single-
price methods. Lack of use, however, has meant that it has not been possible to verify
this claim. The weightings used are highly subjective and are unlikely to apply to every
building.
In addition, the quantification does not easily relate to the client’s accommodation
requirements and as such embodies the same deficiencies as the cube method.
Certainly, in those early days credibility was also a factor to be taken into account. It
might be more acceptable today to add the areas of walls, floors and roofs and to
multiply these by a single all-in rate.
Approximate quantities
Approximate quantities provide a more detailed approximate estimate than any of the
methods described above. They represent composite items which are measured by
combining or grouping together typical bill-measured items. Whereas the methods
described above estimate costs on the basis of measurement and some cost
relationship, this method relates cost to the actual work to be carried out. In practice,
only the major items that are of cost importance are measured. This method does
provide a more detailed and reliable method of approximate estimating, but it involves
more time and effort than any of the methods above. No particular rules of
measurement exist, and the composite items result from the experience of each
individual surveyor. Also, considerably more information is required from the designer
if the method is to be applied in practice. The method is therefore suited to a more

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advanced design stage. It is more reliable, however, when one is attempting to

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