CONSTRUCTION ECONOMICS II

Patricia Hillebrandt, in the book "Economic Theory and the Construction Industry" defines
Construction Economics as:
"A branch of general economics that consists of the application of the techniques and
expertise of economics to the study of the construction firm, the construction process and the
construction industry."

General economics if we remind ourselves has been defines as:

" The study of how people and society choose to employ scarce resources, which may have
alternative uses, to produce and distribute various goods, services and factors incomes there
from among the members and groups in society."

Now Construction Economics in usual talk is frequently described as being about helping
clients to achieve 'value for money for their new or rehabilitated building. This does not mean
focusing on techniques of minimising costs but adds a new concept of value. In fact, in both
public and private sectors it is normally about maximising the difference between the cost of
building to the owner (i.e. the price charged by the contractor) and its value, either in use or
in exchange.

Consequently, this course is a study of the factors that affect construction costs and how they
can be managed to maximise value for money.

METROLOGY

Metrology is the science of measurement. It establishes a common understanding of units

crucial in linking human activities. Metrology is divided into three basic activities;
• The definition of units of measurement.
• The realisation of these units of measurement in practice.
• Traceability, that is, linking measurements made in practice to certain reference
standards.

The three activities overlap and are used in varying degrees by the three basic sub-fields of
metrology:
• Fundamental metrology also known as scientific metrology. This is concerned with
the establishment of units of measurements.
• Applied, technical or Industrial metrology. This involves the application of
measurement to:
i) manufacturing.
ii) other processes in the society.
• Legal metrology which covers:
i) The regulation and statutory requirements for measuring instruments.
ii) The various methods of measurements.
In each area of expertise, established measurement systems exists. This may involve a
network of:
i) Laboratories
ii) Calibration facilities
iii) Accreditation bodies that maintain the established practices

The main objectives of metrology is the invention of an agreed upon fair system of
measurement to facilitate trade and other human transactions. The seven base units
used in metrology comprise:
1) Length
2) Mass
3) Time
4) Electric current
5) Thermodynamic temperature
6) Amount of substance
7) Luminous intensity

By convention each of the seven units are considered to be mutually independent of

each other. However, in reality they are interdependent given that some definitions
contain other base units. All the other International System of Units (SI) are derived
from these seven base units e.g.

1) Length - metre (m)

2) Mass - kilogram (kg)
3) Time - second (s)
4) Electric current - ampere (A)
5)Amount of substance - mole (mol)
6) Thermodynamics - Kelvin (K)
temperature
7) Luminous intensity - Candela (cd)

To this end our methods of measurements of various elements of buildings are based
on these concepts and are for the purpose of obtaining a fair basis for costing of
buildings and therefore facilitating fair trade.
 COST IMPLICATIONS OF DESIGN VARIABLES

Introduction
Design of buildings is said to be complex and challenging requiring designers to use
enormous:
• Skills
• Judgement
• Knowledge
• Information
• Time

These, the designer needs in the quest for balancing many competing factors so as to satisfy
the clients demands for shelter. The competing factors a designer grapples with in this quest
may include amongst others:
• Statutory obligations
• Technical feasibility (available forms of construction)
• Environmental standards
• Site Conditions
• Costs (initial and cost- in- use)
• Cultural etc.

These factors, the designer is expected to skilfully combine so as to achieve value for money
for the building. Value for money is a function of:
• Appearance ( i.e form and specification)
• Function (i.e. size and use of facility)
• Costs (initial and cost-in-use)

Some of these variables are measurable whilst others are subjective for example:
• Structure is judged by adequacy and ability to support the building during its life
without having excessive material content or interfering with functional space unduly.
• Materials can be judged in terms of their durability and freedom from the need for
repairs and maintenance.
• Lighting & Heating can be judged in terms of the adequacy of the internal
environment to which they are intended to create.
• Internal Space & Arrangement can be judged on the extent to which it facilitates the
functions to be performed within the building.
Optimising all these factors requires great skills and knowledge in decision making. Every
decision made determines:
i) the cost of the building
ii) the cost-in-use as well

The decisions made by the designers affect the costs of the building in the sense that a
decision made during the early stages of the design will affect a continuous series of
interrelated developments throughout the designs.

Consequently, the design economist in order to be useful to the building team must:
• Be familiar with the design processes and thus know when crucial decisions affecting
major costs are made.
• He must have the techniques, knowledge and experience to enable him to provide
answers to questions of cost as the design develops.

THE DESIGN PROCESS

The design process largely (but not always) follows an identified procedure that is said to
embody certain techniques which are normally followed so as to achieve a good design in
terms of balancing the earlier enlisted competing factors. These procedures can also be used
to help select the form of cost advice most appropriate for a particular design problem at
given stages in the design.
Pre-tender procedures include the following stages:

Stage A: Inception - Appointment of design team and general approach defined.

Stage B: Feasibility - Testing to see whether client requirements can be met in

terms of planning, accommodating, costs etc.

Stage C: Outline - General approach identified together with critical

Proposals dimensions, main shape locations & uses.

Stage D: Scheme - Basic form determined & cost plan (budget) determined.
Design.

Stage E: Detail - Design developed to the point where detailing is

Design. complete & the building works.

Stage F: Production - Working drawings prepared for the contract documents.

Information.
Stage E: Bills of -
Quantities.

It is recognized that the above procedure is not a hard and fast rule but that certain overlaps
occur in actual practice. Certain cost parameters are normally used to help make judgement
on whether a design is economical or not.

COST PARAMETERS

Parameters can be defined as any factor that limits the way something can be done ( Oxford
Advanced Learners Dictionary). For our purposes, cost parameters are the factors that limit
the way a design can be effected or realised given a cost limit.
These factors have been identified as:

• Building shape
• Building size
• Storey heights
• Total heights
• Fenestration
• Perimeter/floor Area Ratios
• Circulation space
• Relative Costs of Flats & Houses
• Variations in the number of Storeys of bridge
• Column Spacing
• Floor Spans
• Floor Loadings
• Optimal Envelope Area
• Etc.

BUILDING SHAPE

One of the earliest decisions a designer makes is the shape of the building. This decision is
said to have a bigger effect on the final cost of the building in comparison with the others.
The maxims should be that the simpler the shape of the building, the lower will be its unit
cost.

The plan shape of a building will affect;

1) External cladding elements. these comprise:
• External walls
• Windows
• External doors
2) Internal vertical elements viz:
• Partitions
• Services ( Heating, Plumbing)

3) External Works:
• Setting Out
• Site Works
• Drainage Works
• Etc.

Although the simplest plan shape , that is the (circle, square ?) building will be the most
economical to construct, it is not always a practicable proposition. This is because where
adequate natural daylight to most parts of the building would create that deficiency in the
centre of the building.

Difficulties could also arise in planning internal partitions. It may not necessarily provide
high resonance in aesthetics. Hence a balance must be achieved between:
• Appearance
• Function
• Costs

Various cost studies carried out to consider the effect of shape and height on building costs
found:
• That the overall cost increases as the perimeter wall increases in relation to floor area.
• That this aspect becomes more poignant when the building is increased in height by
adding further floors without altering the total floor areas.

EXCEPTIONS

1)Certain types of buildings present peculiar problems which in turn dictate the form and
shape of the building
a) Hotels: these need to be tall and slender so as:
• Provide good views to their guests.
• Provide good advertising effect by being prominent in the skyline.

b) Office buildings - Buildings of small depths up to say 12m can be more readily split into
small office units and thus accommodate more tenants.

2) Function of Building - May require wider and larger spaces and heights for production
equipment and lines.

Other Factors:
a) The site may dictate form and shape. An awkwardly shaped site leads to irregular design
shapes.

b) Building by-laws may dictate form and shape of building by:

• Dictating plot ratios (i.e how much land to be occupied by building).
• Intensity of development e.g. plot sizes & divisions for residential areas etc..

* drawing & equation*

15m
15 m
7 3 105m 4 7m
A
=225m2
225 m2 15m 15 120 15m

8m
Perimeter = 74

Perimeter = 60m2

A). πr2 = 225 C

8.46
!!"
r2 = #

r2 = 71.62

r = √71.62

r = 8.46

B). πD = 5

20m
i) πr2 = 400
r =√
A = 400m2
20m
400m2
P =80m

BUILDING SHAPE

Increase in the size of buildings usually produces reduction in unit cost such as cost per
square metre of floor area. This is mainly because on site costs ( i.e. preliminaries overhead)
do not increase proportionately with increases in the plan size of a building (transportation,
site buildings, water for works, temporary roads etc.)

Investigations shows that tender prices, when expressed per square metre of net floor area,
tend to fall as the area increases. This is because small buildings will require a higher
proportion of external cladding elements to floor area than large buildings. External cladding
includes: walls, windows, doors etc.

PERIMETER/FLOOR AREA RATIOS

The lower the wall/floor ratio, the more economical the design will be. Wall/floor ratio is the
area of the enclosing walls divided by the floor area. The best wall ratio is produced by a
circular building floor but the saving in quantity of wall is usually more than offset by much
higher costs of circular work over straight work ( increased cost varying between 20% and
30% ).

By reducing the frontage and increasing the depth of a building, the amount of natural light
reaching the innermost parts will be reduced and may result in increased operating costs
through higher artificial lighting charges.

STOREY HEIGHTS

If the floor area of a building is held constant, the variations in storey heights will cause
changes in the cost of the building. Variation in storey height will cause changes in:
• Cost of walls.
• Cost of partitions.
• Associated finishes on walls and partitions.

Other subsidiary items whose costs will also vary include:

• Costs of providing heating due to increased volumes.
• Costs of roof due to increased heights for hoisting.
• Increased costs of staircase and lifts where provided.
• Possibilities of higher costs of finishes and decorations in ceilings.
• Longer service and waste pipes to supply sanitary appliances.
 • Substantial increase in storey height may lead to substantial increase in weight of the
building thereby necessitating costly foundations to support it.

Buildings may require a greater storey heights where accommodations for large machinery,
equipment or overhead cranes are needed as in production lines in factories.
TOTAL HEIGHTS OF BUILDINGS

The following principles are normally applied in connection with total heights.

• Where land values are astronomically high. It makes good economic sense to build
high rise buildings so as to realise maximum utilisable space. Also, site density, plot
ratios or the maximum number of persons to be housed.

• High buildings heights are also at times desirable in circumstances where:

a) maximum day light is required in the building.
b) It facilitates good building layout in a given site.

• Increase in total heights, number of storeys of buildings will increase the building
costs differently according to:
a) Building type (multi-storey, flats, single storey)
b) Building form (external appearance, framed construction, internal arrangement of
accommodation).
c) The construction method used, ( In-site, assemblage of components on-
site, mixture, load bearing, framed).

• Where addition of an extra story will not affect the structural form of the building the
depending on the relationship between the cost of walls, floor and roof, construction
costs may fall per unit of floor area).

• At a certain number of increase in storeys the form of construction changes and cost
per unit begins to rise. For example, it is good practise and is economical to change
from load bearing walls to framed construction when a building exceeds four storeys.

• The cost of foundation per metre square of floor area falls with increase in the number
of storeys provided the form of foundation remains unchanged. This is subject to:
i) soil conditions
ii)building loads
iii)etc.

• At heights beyond 5 storeys, lifts and other forms of vertical circulation in the
building become necessary. This makes high buildings more expensive
• Maintenance costs are normally high at high heights thus making such buildings more
expensive to maintain.
 • In cold countries, heating costs fall as the number of storeys increases and the
proportion of roof are to wall reduces. This is because roofs are points of major heat
loss.
• Lettable space reduces proportionately to increase in the number of storeys. This is
because circulation and structural members occupy more space.
• Provision of services e.g. water, electricity, fire fighting etc. are more expensive in
high buildings.
• Working at high heights during construction will require equipment such as cranes for
vertical transportation of people and materials thus making such buildings expensive
to build, more safety measures at such heights also necessitates extra expenses.

CIRCULATION SPACE

Circulation spaces in buildings include:

-Entrance halls
-Passages
-Corridors
-Stairways
-Lift wells

The reduction of circulation of space to a minimum is an economic aim of designers. These

spaces are normally referred to as "dead spaces" because they cannot be rented as
accommodation. Circulation space requirements tend to rise with increases in the height of
buildings and it is accordingly important not to overlook it when designing high rise
buildings.

Certain types of buildings require special consideration in the provision of circulation spaces
e.g. The layout and planning of hotels must facilitate movements of people and, as far as
possible, provide for separation of guests, staff and maintenance personnel. This is so as to
avoid annoyance and disturbance of guests whilst at the same time facilitating service
facilities to be used efficiently.

Research in U.K has established that different types of buildings need different amounts of
circulation e.g.:
i) Office blocks - 19% of total floor area
ii)Laboraties - 13% of total floor area
iii)Flats (four storey) - 21% of total floor area

OPTIMAL ENVELOPE AREA

This is considered to include:

i) walls
ii) roof

These form the barrier between the inside and outside environment of buildings. If we hold
floor areas constant but vary the number of storeys of the building the roof area is noted to
reduce by more than the consequent increase in wall area. This has the effect of reducing the
total envelope area. However, there is a limit to this process in that there is an optimal floor
number beyond which the situation reverses and the increases in wall area becomes greater
than the roof area saving.

The optimal floor numbers for a square building can be calculated using the following
formula:

./
a) 𝑁 √𝑁 = 𝑥
!0

Where N = optimum number of storeys

x= roof unit cost divided by wall unit cost
f= total floor area (m2)
s= storey height (m)

b) If the desired width in metres (w) is known the formula for a rectangular building is:

1/
N2 = !02

c) More complex formulae involving several elements have been developed to optimise the
shape of the whole building however they all amount to an over-simplification of variables
and issues involved,
 Usefulness and
Cost Evaluation Application to
Methods/Techniques Various Stages of the
Construction Metrology/ Science of Derived From Building Process
Economics Measurement Metrology

Application of Identifies and provides • Resource • Inception

scarce resources to parameters to be Analysis • Feasibility
obtain value for studied on how • Functional Unit • Outline
money in building costs behave • The Cube Proposal
constructed when they are varied Method • Sequence
facilities: and thus gives us • Superficial/Floor Design
• Labour methods of evaluating Area • Detail Design
• Materials costs. • Storey • Production
• Plant They include: Enclosure Information
• Overhead • Building shape • Cost-In-Use • Bills of
• Money • Building size • Cost Plan Quantities.
• Storey heights • Approximate • Tendering
• Total heights Quantities • Contract
• Fenestration • Bills of Administration
• Perimeter/Floor Quantities • Final Account
Area Ratios. • Investment • Maintenance.
• Circulation Appraisal
Space methods e.g.
• Relative Costs IRR, NPV etc.
of flats vs. • Property
houses. Valuation
• Variation on Methods
number of
storeys.
• Column
spacing.
• Floor Spans.
• Floor
Loadings.
• Optimal
Envelope Area.