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BUILDING ECONOMICS

COST INFORMATION, INDICES AND DATA

Need for cost information Cost of construction mainly depend on the cost of materials and coat of

labour. A change in these costs will result in changes in total construction cost.

Effective use of historic cost data depends on availability of cost / price indices, for conversion to

present or future estimates.

Sources of cost information - Not all cost information has the same reputation for accuracy and

reliability and care should be exercised when choosing cost data for a new estimate.

-

Cost analyses as published by the BCIS. The Building Cost Information Service has, since its

inception in 1970, published a wealth of cost data on a wide variety of building types. The

advantages of the BCIS are that the service is available, for a subscription fee, online and is

published in standard cost analysis format. The BCIS is also a useful source of cost data for

calculating cost forecasts, etc.-

Cost information from published price books such as Spons or Laxtons. Price books are

published annually and contain a range of prices for standard bills of quantities items.

Because they are in book form, the information tends to be several months old.

- Priced bills of quantities from previous projects. A useful source of information as the cost

information tends to be current. As with other forms of cost data, there is a need to adjust for

differences in location, etc.

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Cost analysis and cost models produced in-house. Depending on the size of an organisation,

perhaps the most reliable source of cost information, partly due to the fact that it is easier to

ensure good quality control on the data. Also data presented in this format will be easily

understood and interpreted. A disadvantage is the time and cost taken to prepare and store the

information.

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In Sri Lanka, Institute for Construction Training and Development publishes cost data relating

to our country. It includes price indices for construction materials, price indices for labour

wages, price indices for hire rate for plant and equipment, cost indices for type of

construction, etc.

(Other price indicators published in Sri Lanka - Colombo Consumers' Price Index CCPI -

Base year 1952 = 100)

Indices Indices can be defined as the vehicle used to transform information related to some period

of time to another period of time.

Mathematically: Current Index = Current price x 100Base price

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Example:

Year Wage Absolute change % change Index

1990 50 -- -- 100

1991 55 05 10.00 110

1992 65 10 18.20 130

1993 80 15 23.10 160

1994 84 04 5.00 1681995 90 06 7.10 180

1996 97 07 7.80 194

1997 100 03 3.10 200

1998 108 08 8.00 216

1999 123 15 13.90 246

2000 130 07 5.70 260

Uses of Indices To obtain historical price of an inputPrice of cement (2004) = Rs: 310.00 per bag

Published index for cement (2004) = Rs: 179.30

Index of cement in October 2007 = Rs: 385.50Estimated price of cement in October 2007 = Rs: 310 x 385.50

179.30

= Rs: 665.00 (approximately)

Update of ratesRate of brick masonry in 1999 = Rs: 2800.00

Current index for brick work (2001) = 153.10

Index of brick masonry in 1999 = 138.30Updated rate of brick masonry for 2001 = Rs: 2800.00 x 153.10

138.30

= Rs: 3,100.00 (approximately) Update of construction cost (similar buildings)

Cost of construction of an office building in 1995 = Rs: 500,000.00

Current index (2007) for construction of office building = 394.40Index for construction office building in 1995 = 132.30

Predicted cost in 2007 = Rs: 500,000 x 394.40132.30

= Rs: 1,500,000(approximately)

Update of construction cost (different buildings)

Cost of construction of an office building in 1995 = Rs: 858,000.00Total floor area of the building constructed = 190 m2

Cost per m2of the building constructed = Rs: 858,000.00

190

= Rs: 4,515.00Current index (2007) for construction of office building = 394.40

Index for construction office building in 1995 = 122.80Updated cost per m2 in 2007 = Rs: 4515.00 x 394.40

122.80= Rs: 14,486.00

Predicted cost of the new building with 250 m2 = Rs: 14,486.00 x 250

= Rs: 3,600,000 (approx) Computation of additional costListed basic price of the input = P

Index of the input at the time of tendering = IbIndex of the input at the time of consumption = Ic

Price per unit at the time of consumption = P x Ic

Ib

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Quantity consumed = QCost of the quantity consumed = Q x P x Ic

Ib

Estimated cost at the time of tendering = P x Q

Additional Cost = Q x P x Ic - P x Q = P x Q (Ic- Ib)

Ib

Types of cost indices -

Tender price indices - Tender price indices are based on what the client has to pay for a building as

it takes into account building costs. These indices, therefore, reflect fluctuations in the tendering

market. Tender price indices can be used to adjust for potential increases in cost between the date of

the preparation of the cost plan and the actual date the project goes to tender.

Building cost indices - The cost of any building is determined, primarily, by the cost of the labour

and materials involved in its erection. Building cost indices measure changes in the cost of materials,

labour and plant to the contractor. They ignore any changes in profit levels, overheads, productivity,

discounts, etc.; therefore, they effectively measure changes in the notional rather than actual costs.

Building cost indices track movements in the input costs of construction work in various sectors,

incorporating national wage agreements and changes in material prices as measured by government

index series. They provide an underlying indication of price changes and differential movements in

various work sectors, but do not reflect changes in market conditions affecting profit and overheads

provisions, site wage rates, bonuses or material price discounts and premiums. In a world of global

markets, building cost indices can be influenced by many factors including demands in immerging

and developing markets such as China and India.

The terms tender prices and building costs are often confused when considering building indices.

Building costs are the costs actually incurred by the builder in the course of business i.e. wages,

material prices, plant costs, rates, rents, overheads and taxes. Tender prices represent the cost a

client must pay for a building. They include building costs but also take into account market

considerations and therefore allow for profits and the builders anticipation of cost changes during the

lifetime of the contract. This means that, for example, in times of boom tender prices may increase at

a greater rate than building costs, whilst in a slump the opposite may apply..

Location indices - Tender price levels vary according to the region of the country where the work is

carried out. Generally speaking, London and the South East of England are the most expensive and

the regional variations are reflected in a location index that is used to adjust prices. The BCIS

annually publishes a set of location indices that cover most parts of the UK and these can be used toadjust in cases where the cost analysis building and the cost plan building are in different locations. In

Sri Lanka there is no location indices published, but actually there is a difference in cost due to

location.

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Price Fluctuation Formula

In Sri Lanka, ICTAD introduced a formula method for reimbursement of price fluctuation of

materials, labour and plant in construction projects.

F = 0.966 (V Vna) Px (Ixc- Ixb)

100 all Ixb

Inputs

Application of Price Fluctuation Formula will be discussed in the class.