Cost Types

For the owner, there are different types of costs for construction projects, including the cost of assets and capital costs. Under this rubric we include the cost of the initial composition of project facilities. These elements of capital cost may be broken down as follows:

• Cost of land and property registration procedures

• Planning and feasibility studies

• Engineering activities and studies

• Construction materials and equipment and supervi­sion on site

• Insurance and taxes during the project

• The cost of the owner office

• The cost of other equipment that is not used in construction, such as private cars to transport owner engineers

• Inspections and tests

Maintenance and operating costs for each year of the project’s life of the project include the following:

• Leasing land

• Employment and labor wage

• Materials required for maintenance and repairs annual renewal

• Taxes and insurance

• Other costs of the owner

The actual amounts will vary according to the project’s type, size, location and organizational structure. With regard to this exer­cise, it is important to keep in mind the owner’s goal of reducing the total cost of the project, consistent with the overall investment objective.

In real estate and building structure projects, the largest component is the cost of construction. However, by contrast, in industrial construction and petrochemical projects, the cost of civil engineering and structural work is small relative to the costs of mechanical and electrical equipment. For example, the cost of the concrete foundation of a power turbine may be in the vicinity of 30,000 USD, while the power turbine itself may cost more than 5 million USD. Similar equipment/construction cost disparities are seen in nuclear-plant and other power generation projects.

When calculating costs from the owner’s viewpoint, it is impor­tant to calculate the cost of operations and maintenance in each year of the life of the project for each of the alternatives avail­able in the design and the cost of the life cycle of the project as a whole.

The various risks to the project’s proceeding and their potential cost must also be estimated. Of importance here is the calculation of the limits within which actual costs may be permitted to devi­ate from those projected in the project’s budget, and the cost of risk or an unexpected event during the execution of the project. The percentage of risk has to be calculated for each item and as a proportion of the total final cost. These calculations rely on past experience with and knowledge of the problems that can normally be anticipated during project implementation. Connected with this are the increased costs of possibly emergency which often occur as a result of the following event.

• Changes in the project design

• Differences in the timing of various phases of the project’s work schedule especially those that tend to increase the time it will take to complete the project

• Administrative charges such as salary increases

• Special onsite circumstances, including unexpected obstacles or defects in the soil in some location

• The need of additional or special permits for project construction work