TOPIC 1

What is Direct Cost?

Costs directly related to physical construction, such as materials, labor, and equipment.

What is Indirect Cost?

Costs that support construction but are not directly part of the physical work.

Examples of Direct Costs?

Materials, labor, and construction equipment.

Examples of Indirect Costs?

Site administration, supervision, permits, temporary facilities, and overhead.

What is Contingency?

A reserve for identified risks with uncertain occurrence or cost.

What is Management Reserve?

A reserve for unknown or unidentified risks.

What is an Allowance?

A budget amount for a known item whose exact selection or cost is unknown.

Contingency vs. Management Reserve?

Contingency = known risk; Management Reserve = unknown risk.

Allowance vs. Contingency?

Allowance = known item, uncertain cost; Contingency = uncertain risk.

When is higher contingency usually needed?

When project information and cost certainty are low.

What happens to contingency as project information increases?

Uncertainty decreases, so the required contingency generally decreases.

What is Historical Budgeting?

Using costs from similar completed projects as a basis for a new budget.

What factors adjust historical project costs?

Inflation, location, size, design, and current project conditions.

What is Parametric Budgeting?

Estimating cost using a cost factor and measurable project parameter.

Common example of Parametric Budgeting?

Floor area × cost per m².

What is a General/Approximate Budget?

A rough early estimate used to determine project affordability.

What does “less information = higher uncertainty” imply?

Early estimates usually require greater contingency.

What are the major components of construction cost?

Direct cost, indirect cost, financing/profit, and contingency.