CANTUBA, CASSANDRA B.

BUILDING TECHNOLOGY 4
201420240 T 12PM-1PM & TH 12-3PM
HOW TO GET COSTING OF LABOR?
Construction labors influence every part of a project. They operate
equipment and fabricate and install materials. Detailed estimate requires
the breakdown of project costs into the labor, material and equipment
costs. Thus type of estimate need to have a design available to get such
required details. This chapter introduces the details of estimating labor,
equipment and material costs as the basis for detailed cost estimate of
construction projects

PREPARING DETAILED ESTIMATE

If a contractor chooses a project he or she can professionally and
financially handle, it is worthwhile to expend all efforts to win the bid. In
addition, the contractor must successfully pass a qualification screening.
After the decision to bid, arrangements need to be made to pick up the
contract document and prepare a detailed cost estimate. The steps listed
below, in logical order, are the road map for developing a detailed estimate.

ONE: Review the bidding documents.

Check for general conditions, specifications and all the drawings. If
any discrepancies exist, record them and check with the architect or
engineer. The general conditions and specifications are generally
organized into the following sections: the bid, the owner/contractor
agreement, bonds, alternates, general conditions, specifications, and
addenda.
The bid section includes the invitation to bid, instructions to bidders,
and bid forms. The invitation to bid contains a description of the nature,
extent, and location of the project as well as contact information for the
owner. The documents should also contain date, time and place that bids
will be received; general contractor and subcontractors’ prequalification
requirements; date, time, and location of any prebid conference; availability
of bidding documents with their dates, locations, and procurement costs;
and bond requirements.
The owner/contractor agreement section is most often a ―standard‖
document that formalizes the construction contract price and construction
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duration. It should also list progress payments retained, percentage of
completed work value, acceptance conditions, and final payment
constraints.
The bond section should include bid bond and performance bond
forms and requirements. Bonds are written documents that describe the
conditions and obligations related to the owner/contractor agreement. A bid
bond certifies that if a contractor is awarded the bid within the time
specified in the invitation to bid, the contractor will enter into the contract
and will provide all other required bonds in a timely manner. A performance
bond guarantees the owner that within agreement limits the contractor will
perform all work in accordance with the contracting document. Labor and
material bonds guarantee to the owner that the contractor will pay in a
timely fashion for supplied materials used by all the subcontractors related
to the project.

TWO: Review the drawings to visualize the building size, height, shape,
function, basements, and so on. Start with floor plans, cross-sections,
exterior finish system, and the roof. Note all unusual construction
procedures, building systems, and materials that have been specified.

THREE: Review structural drawings to get acquainted with specified

systems: reinforced concrete, structural steel, masonry, wood, or
combinations. Find out which pieces of heavy construction equipment will
be needed for erection and for how long. Pay attention to various wall
sections, materials and prefabricated assemblies.

FOUR: Review mechanical, electrical, fire extinguisher, and security

drawings. Record any possible interference with substructure and
superstructure erection.

FIVE: Start identifying work to be done by general contractor and work to

be done by subcontractors.
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SIX: Read and study thoroughly the specifications for the work to be done
by the general contractor and those related to any subcontracted work.
Also, review general conditions and note the items that will affect project
costs.

SEVEN: Visit the project site and have with you the project manager or field
engineer.

EIGHT: Call a meeting with the personnel who will hold the key supervisory
positions. Establish with them the general guidelines for quantities take off
and pricing.

NINE: Develop a list of subcontractors. Notify subcontractors and suppliers

that the company is preparing a proposal and ask if they intend to submit
bids.

TEN: Following the site visit and staff consultation, develop a list of items to
be considered for jobsite overhead and general overhead that need to be
priced later.

ELEVEN: Start the quantities takeoff for the category of construction work
selected to be done in house (most often site work, foundations, and
concrete work). When taking off quantities, break each item down by size,
type of material, and workmanship. Also list the type of construction
equipment needed for each phase.

TWELVE: Condense quantities from the work up sheet by work category

and transfer them to a summary sheet for pricing. Pricing means the cost of
materials, labor, and construction equipment. The prices used are from
company available cost files adjusted to a particular location, or from
quotes from suppliers and subcontractors.
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Construction Labor
The construction industry, to which these craftsmen belong, is one of
the most labor-intensive industries in the world. The labor cost component
of a building project often ranges from 30 to 50%, and can be as high as
60% of the overall project cost. Therefore, it is clear that construction labor
is a vital component of a construction project.

Labor’s production rates (Productivity)

A production rate is defined as the number of units of work produced
by a person in a specified time. Production rates may also specify the time
in man-hours or man-days required to produce a specified number of units
of work. The time that a labor will consume in performing a unit of work
varies between labors and between projects and with climatic conditions,
job supervision, complexities of the operation and other factors.
Sometimes, the production rate is replaced by the term productivity.
In the most general sense, productivity is the ratio of input versus the
respective output. Thus construction productivity is defined as the quantity
of work produced in a given amount of time by a worker or a specific crew,
that is, the quantity of construction output units produced in a given amount
of time or a unit time.
The formula for productivity is presented in Eq. 1.
Construction productivity = quantity of work produced / time duration
(1)

Estimating work duration

Determining the total work duration for a task involves knowledge of
the quantity of work required for the task and the production rate for the
specific crew that will be performing the work. The quantity of work
associated with the material quantity is determined by the quantity take off
discussed in Chapter 2. A straight forward approach to the estimation of
activity durations is to keep historical records of particular activities and rely
on the average durations from this experience in making new duration
estimates. Since the scope of activities is unlikely to be identical between
different projects, unit production rates are typically employed for this
purpose.
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The duration of an activity may be estimated as given in Eq. 2.
Work duration = quantity of work / number of crews × production rate
(2)

BASIC PRINCIPLE FOR ESTIMATING LABOR COSTS

Labor costs in construction are determined by two factors: monetary
and productivity. The monetary factor is related to hourly wage rates, wage
premiums, insurance and taxes.
The formula for computing the total cost of labor is quite simple. It
requires the knowledge of the total work hours or labor hours needed to
perform all the tasks and then applying the corresponding wage rates.
The formula for calculating the total cost of labor is shown in Eq. (3).
Total cost of labor = total work hour × wage rate (3)

Example 4: An ironworker works 10hr/day, 6 days/week. A base wage of

LE20.97/hr is paid for all straight-time work, 8 hr/day, 5 day/week. An
overtime rate of one time and onehalf is paid for all hours over 8 hr/day,
Saturday through Wednesday, and double time is paid for all Thursday
work. The social security tax is 7.65% and the unemployment tax is 3% of
actual wages. The rate for worker’s compensation insurance is LE12.5 per
LE100 of base wage. Calculate the average hourly cost to hire the
ironworker.
Solution
Actual hours = 10 × 6 = 60 hr
Pay hours = weekly straight time + weekly overtime + Thursday overtime
= 5 × 8 × 1 + 5 × 2 × 1.5 + 10 × 2 = 75 hr
Taxes are paid on actual wage and insurance is paid on base wage
Average hourly pay = (75/60) × LE20.97 = LE 26.21/hr
Social security tax = 26.21 × 0.0765 = 2.01
Unemployment tax = 26.21 × 0.03 = 0.79
Compensation = 12.5/100 × 20.97 = 2.62
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Then, the average hourly cost = LE 31.63/hr

Example 5: Assume that a crew for a work item includes three bricklayers
and two helpers. The crew works for three days (8-hr/day) to complete the
work package. The wage rate for each bricklayer is LE28.55 and each
helper is LE22.40. Find the total cost of the crew.
Solution
In this instance, the total cost of crew is calculated as follows:
Total cost = 3 × 3 × 8 × 28.55 + 2 × 3 × 8 × 22.4 = LE3131

Example 6: If the daily production rate for a crew that works in an activity is
175 units/day and the total crew cost per day is LE 1800. The material
needed for daily work is 4.5 units at LE 100/unit.
a. Calculate the time and cost it takes the crew to finish 1400 units
b. Calculate the total unit cost. Consider an eight hour work day.
Solution
a. Duration (units of time) = Quantity / Production per unit of time x number
of crews
= 1400 / 175 × 1 = 8 days Cost (labor cost) = Duration (units of time) x
crew cost per unit of time
= 8 days × LE 1800 / day = LE 14400 Total direct cost = Le 14400 + 4.5
units of material × LE 100 / day × 8 days
= LE 18000
b. Unit cost = total cost / quantity = LE 18000 / 1400 = LE 12.86 / unit

Sometimes the productivity of a specific crew expressed in man-hours/unit

not units/day. For example, if the productivity is said to be 0.5 Man-
hour/cubic meters, this means how long it will take one labor to construct
one unit. This way applied to any crew formation and work hours.
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Example 7: What is the duration in days to install 6000 square feet of walls
shuttering if:
a. Crew of 2 carpenters is used with output of 2000 square feet/day
b. Productivity is measured as 0.008 man-hour/square feet. Number of
carpenters =3, and number of working hours/day = 8 hours
Solution
a. Duration = 6000 / 200 = 3 days
b. Total man-hours needed = 6000 × 0.008 = 48 man-hours (if one man
used)
Duration = 48 / 8 = 6 days (if one man used)
Duration using 3 men = 6 / 3 = 2 days

Example 8: (use of several resources) What is the duration of an exaction

activity with a quantity of 3000 m3 using an excavation crew consists of an
excavator with a production rate of 200 m3/day, a loader of 250 m3/day
and 3-trucks of 150 m3/day? Comment on this crew formation.
Solution
- Using the excavator:
Duration = 3000 / 200 = 15 days
- using the loader: duration = 3000 / 250 = 12 days
- using the 3-trucks:
Duration = 3000 / 150 = 20 days
- then, the activity duration is governed by the lowest production rate = 20
days.
This is unbalanced crew where the loader is not working with full capacity;
the production rate of this crew could be adjusted by increasing the number
of trucks to 4 of 5 trucks. Then, for a balanced mix of resources, use 1
loader, 1 excavator and 4trucks. Accordingly, the activity duration = 3000 /
200 = 15 days.
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COST ESTIMATING METHODOLOGY
There are four general methods used to estimate construction costs,
described below in order from least- to most-accurate. Increased accuracy
provides a greater level of confidence in the estimate but requires more
information about specific project requirements and local conditions. Use
the most accurate method for the amount of information known when
preparing the estimate.
1. Project Comparison Estimating
 Project Comparison Estimating is used in early planning stages
when little information is known about the project other than
overall project parameters. Project comparison estimating uses
historical information on total costs from past projects of similar
building types. Supporting facilities are estimated as a percentage
of total facilities cost.
 This method is considered "preliminary" and is accurate only from
-25% to +40% not withstanding abnormal market conditions (i.e.
natural disasters, market volatility, etc).

2. Square Foot/Square Meter Estimating

 Square Foot/Square Meter Estimating is another method of
developing both preliminary and intermediate budgets based on
historical data. This method is effective in preparing fairly accurate
estimates if the design is developed enough to allow measurement
and calculation of floor areas and volumes of the proposed
spaces. More accurate estimates made with this method make
adjustments and additions for regional cost indices, escalation
rates, and size adjustment cost tables.
 Estimates made with this method can be expected to be accurate
between -15% to +25% notwithstanding abnormal market
conditions (i.e. natural disasters, market volatility, etc).

3. Parametric Cost Estimating

 Parametric Cost Estimating is an intermediate-level estimate
performed when design drawings are typically between 10% and
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35% complete. Parametric costs are based on assemblies or
systems grouping the work of several trades, disciplines and/or
work items into a single unit for estimating purposes.
 For example, a foundation usually requires excavation, formwork,
reinforcing, concrete, including placement, finish and backfill. A
parametric cost estimate prices all of these elements together by
applying engineered values developed in assemblies cost data
databases.
 Estimates made with this method can be expected to be accurate
between -10% to +15% notwithstanding abnormal market
conditions (i.e. natural disasters, market volatility, etc).

4. Quantity Take Off (QTO)

 Estimating In Quantity Take Off (QTO) Estimating, the work is
divided into the smallest possible work increments, and a "unit
price" is established for each piece. The unit price is then
multiplied by the required quantity to find the cost for the increment
of work. All costs are summed to obtain the total estimated cost.
 For example, the cost to erect a masonry wall can be accurately
determined by finding the number of bricks required and
estimating all costs related to delivering, storing, staging, cutting,
installing, and cleaning the brick along with related units of
accessories such as reinforcing ties, weep-holes, flashings, and
the like. Accuracy is more likely to be affected by supply and
demand forces in the current market. A QTO can be based on a
site adapt design cost estimate or using a 35% or more design.
 This method provides the most accurate estimate, which is
typically between -7.5% to +10% of construction costs
notwithstanding abnormal market conditions (i.e. natural disasters,
market volatility, etc).

Construction equipment classification

Equipment could be classified based on their use as specific use or general
use.
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Specific use equipment
Specific use equipment is for a specific work item or items on the job.
Units are assignable to jobs and are not shared by other subcontractors.
This equipment is only for specific construction operations and is removed
from the job site soon after the task is completed. Its usage is shorter term
when compared to general use equipment. The most equipment-intensive
operations are: site work, concrete and metal works. Some typical
equipment used for site work includes: tractors, scrapers, front shovels,
hoes, loaders and backhoe loaders, hauling units, and compactors.
Tractors are self-contained units designed for heavy pushing and
pulling work. Tractors can be crawler or wheel type. Crawler or track type
units are designed for work requiring high tractive forces, whereas wheel
type units sacrifice some of the tractive power while being designed for
greater mobility and an ability to travel up to an excess of 50 km/hr.
Tractors are one of the most versatile pieces of equipment since they can
be modified for different uses by changing the blades and attachments of
the units. Typical applications of tractors are land clearing, bulldozing, and
ripping earth. In addition, tractors are also often used together with other
construction equipment, such as in pushing a scraper during excavation or
in pulling a roller compactor during compacting operations.
Scrapers are units designed to load, haul, and dump loose material.
Scrapers represent an alternative to using two different pieces of
equipment, one for loading and another for hauling. Scrapers are ideal for
short hauls of less than a mile and for off-highway work conditions. In
addition, the ability to deposit their loads in layers of uniform thickness also
facilitates subsequent compaction operations. Front shovels are excavation
units used for digging above the surface of the ground on which the piece
of equipment rests.
A shovel is especially suited for hard digging conditions. On the other
hand, hoes, backhoes, or back shovels are excavation units used for
digging below the surface of the ground on which the piece of equipment
rests. Hoes develop excavation force by pulling the bucket downward and
inward towards the unit, and curling the bucket. Apart from pit excavation,
hoes are also used for excavating trenches and for the handling and laying
of pipes.
Loaders are one of the most common pieces of construction
equipment and are used extensively to handle and transport materials,
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excavate earth, backfill, and as a loading or hauling unit. Backhoe loader
units are loaders that have a backhoe attachment on the back of the unit.
Hauling units or trucks serve only one purpose, which is to efficiently
transport material from one point to another. The longer the distance, the
more the justification and advantage is in using trucks rather than other
pieces of equipment. This is because trucks are the fastest moving
construction unit and they generally cost the least to operate for the moving
of material.
Compactors are pieces of equipment used to perform soil
compaction. There are many types of compactors available to suit the
varieties of soil that can be encountered on a construction site, as well as a
required compaction methodology and the desired specified compaction.
The above list is not exhaustive and new equipment is continually being
developed to handle other specialized tasks in construction.

SPECIFIC INDUSTRY OCCUPATIONS

Labor statistics list the following as the top five occupations perceived as
vital in the business operations of construction firms: (a) civil engineer; (b)
production and operations managers not elsewhere classified; (c)
Production supervisors and general foremen; (d) construction and
maintenance laborers: roads, dams and similar constructions; and (e)
masons and related concrete finishers.
The following features some of the most common occupations in the
construction sector.
1. An architect is a licensed professional trained in the art and
science of building design. He/She is primarily responsible for
developing ideas for structures and turning those ideas into
images and plans that form the foundation of the construction
process. He/She is involved almost in the entire construction
process and is the person behind the overall look of buildings.
2. A civil engineer is a professional engineer trained in the planning,
design and construction of buildings, roads, tunnels, airports,
seaports, flyovers, bridges and any other type of structure. He/She
is involved in and also supervises all aspects of a construction
project from conception to completion.
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3. A construction manager plans, directs, coordinates, and budgets
a wide variety of construction projects, including the building of all
types of residential, commercial, and industrial structures, roads,
bridges, wastewater treatment plants, and schools and hospitals.
The scope of their job may be just one part of the project or the
entire project itself. Liaising and coordination work dominate the
tasks of a construction manager, including the selection, hiring,
and oversight of specialty trade contractors, such as carpentry,
plumbing, or electrical. However, they usually do not do any actual
construction of the structure.
4. A carpenter is someone who constructs, erects, installs, and
repairs structures and fixtures made from wood and other
materials.
5. Construction laborers are workers performing a wide range of
construction-related tasks, from the very easy to the hazardous, in
different areas of the construction site.
6. Construction equipment operators use machinery to move
construction materials at construction sites. They operate
equipment that clears and grades land to prepare it for
construction of roads, buildings, and bridges, as well as airport
runways, power generation facilities, dams, levees, and other
structures. They use machines to dig trenches to lay or repair
sewer and other utilities, and hoist heavy construction materials.
Construction equipment operators also operate machinery that
spreads asphalt and concrete on roads and other structures.
7. Plumbers, Pipelayers, Pipefitters, Steamfitters and
Sprinklerfitters. Plumbers install and repair the water, waste
disposal, drainage, and gas systems in homes and commercial
and industrial buildings. They also install plumbing fixtures—
bathtubs, showers, sinks, and toilets—and appliances such as
dishwashers, waste disposers, and water heaters. Pipelayers
prepare and grade the trenches either manually or with machines;
lay clay, concrete, plastic, or cast-iron pipe for drains, sewers,
water mains, and oil or gas lines; and weld, glue, cement, or
otherwise join the pieces together. Pipefitters install and repair
both high-pressure and low-pressure pipe systems used in
manufacturing, in the generation of electricity, and in the heating
and cooling of buildings. They also install automatic controls that
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are increasingly being used to regulate these systems.
Steamfitters install pipe systems that move liquids or gases under
high pressure. Sprinklerfitters install automatic fire sprinkler
systems in buildings. Despite these differences, all plumbers,
pipelayers, pipefitters, and steamfitters must be able to follow
building plans or blueprints and instructions from supervisors, lay
out the job, and work efficiently with the materials and tools of their
trade.
8. Brickmasons , Stonemasons and Blockmasons. Brickmasons
and blockmasons—who often are called simply bricklayers—build
and repair walls, floors, partitions, fireplaces, chimneys, and other
structures with brick, precast masonry panels, concrete block, and
other masonry materials. Stonemasons build stone walls, as well
as set stone exteriors and floors. They work with two types of
stone—natural-cut stone, such as marble, granite, and limestone;
and artificial stone, made from concrete, marble chips, or other
masonry materials.
Factors Influencing Equipment Selection
Many factors can influence the selection of equipment on a
construction site. These factors can be group into three categories: site
conditions, the nature of the work, and equipment characteristics.
 Site conditions
Primary site conditions are: types of material to be
handled, onsite physical constraints, and hauling distances. An
example that can influence equipment selection is the type of
soil encountered. The compaction of clayey soil is done best
with a sheep’s foot roller, whereas more sandy soil is best
compacted with a vibratory roller. Physical constraints onsite
refer to site area and layout, surface condition, topography, and
adjacent neighborhood. The smaller the site area, the more
constraints it has on the mobility of equipment. Smaller
equipment may be needed to maintain mobility or bigger units
may be required to minimize equipment traffic and site
congestion. Selection of cranes is also affected by the shape
and layout of the site. Static cranes must have access to all the
area around a site to be efficient as they have high mobilization
cost. On the other hand, mobile cranes can be more easily
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relocated but require more workspace and have higher
operating costs. The primary surface condition of concern is the
bearing capacity of the soil. Low bearing capacity soil may
dictate the selection of track-type instead of wheeltype
equipment. The neighborhood of the construction site must be
considered, such as other buildings and traffic in the area, as it
can also offer obstacles to equipment movement or certain
construction operations.
Hauling distances can affect the selection of equipment.
For short hauls, a loader can pick up the load and move it to a
dump area by itself. However, for longer hauling distances, the
loader can be just used loading and a dump truck can be used
for hauling and dumping. The longer the hauling distance, the
more advantage is in using higher capacity hauling units since
they can be more cost effective.
 The Nature Of The Work
Some factors relating to the nature of the work include
payload, the total quantity of work, and the construction
schedule. Payload has a direct relation to the capacity of the
equipment selected. For example, the particular crane selected
must be able to lift the maximum load the work may require. A
higher quantity of work can influence and justify the selection of
higher capacity equipment. Although higher capacity equipment
has higher mobilization and rental costs, the per-unit production
costs are lower. Therefore, given a higher quantity of work, the
savings in unit production costs could be high enough to offset
higher mobilization and rental costs, and thus result in lower
total costs. On some projects, costs may not be the governing
constraint; instead, the construction schedule might be. A
tighter schedule often requires higher productivity units, such as
those with higher power, bigger capacity, more mobility, and
faster deployment.

 Equipment Characteristics
Equipment characteristics are related to equipment
capabilities (capacities and versatility) and costs. Capacity can
be in the form of maximum allowable payload and maximum
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volume that can be handled. It can also relate to the power,
mobility, or maneuverability of a piece of equipment. Versatility
refers to the degree of applicability of a unit to perform many
different operations. For example, a dozer can be adapted to
perform many tasks by simply changing a blade or adding
additional attachments. Versatility can make a piece of
equipment more useful on a site, thus replacing the need for
more specialized units. Cost is certainly an important
consideration in equipment selection.
All the above factors can be related and they all must be
considered together in equipment selection. Equipment
planning can yield many solutions. Many decisions involve
trade-offs that must be properly analyzed to identify the best
solution. For example, choosing two smaller pieces of
equipment instead of one larger unit may mean higher unit
production costs, but there is a redundancy in the system that
can be good insurance if one unit should break down and work
can be kept moving. Considering the above factors that can
influence equipment selection, the outcome of equipment
planning should yield a solution that satisfies the following three
underlying objectives in equipment selection: feasibility,
efficiency, and economy.
The feasibility refers to the selection of equipment that
can carry out the tasks in a satisfactory manner. This is
determined by the nature of the work that the equipment will
perform and the condition in which the equipment will do the
work. Efficiency refers to the selection methods that maximize
efficiency of the construction operation such as those decisions
that can reduce the number of equipment pieces through
selecting higher capacity units. Efficiency in operation may not
have a direct effect on the direct cost of the project but may
have an indirect effect on other aspects of the construction
project, such as minimizing site congestion leading to higher
productivity, while decreasing the likelihood of accidents and
promoting communication and coordination. Finally, the
selected pieces of equipment and methods that produce the
lowest cost are ideal for the project as they directly contribute to
lower construction costs, which is one of the goals of every
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construction project.

Construction Equipment
Modern construction is characterized by the increasing utilization of
equipment to accomplish numerous construction activities. Equipment
refers to all the equipment, tools, and apparatus necessary for the proper
construction and acceptable completion of a project. In a construction
project, equipment costs are typically divided into portions. The first and
bigger portion covers the cost of equipment and is often referred to as
equipment cost. It represents the cost of acquiring the equipment and the
cost of operating that equipment during the construction processes. The
second and smaller portion covers the cost of hand tools. This represents a
smaller portion of the project cost and is often calculated as a percentage
of payroll costs. It is added to the indirect cost under the jobsite overhead.

Equipment costs
The cost per unit of time of owning an item of equipment has to be
determined. Costs associated with owing equipment called the ownership
costs. Estimating equipment cost involves identifying the ownership and
operating costs. Ownership costs include: initial cost, financing
(investment) costs, depreciation costs and taxes and insurance costs. The
operating costs include: maintenance and repair costs, storage costs and
fuel and lubrication costs.
 Initial cost
The initial cost is the total cost required to purchase a
piece of equipment. This initial cost is the basis for determining
other costs related to ownership as well as operating costs.
Generally, initial cost is made up of: price at the factory or used
equipment price, extra options and accessories, sales tax,
freight and assembly or setup charges. The initial cost is very
straight forward, whereas the other costs require more analysis
and computation.
 Investment cost
The purchase of construction equipment requires a
significant investment of money. This money either be
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borrowed from a lender, or it will be taken from reserve fund of
the contractor. Either the lender will charge an interest rate for
the borrowed money, or the contractor will lose any interest
money that could be gained if the contractor invest that amount
of money used to purchase a piece of equipment.
In order to calculate the cost of finance (or investment
cost) of an equipment, both the purchase price, P, and the
salvage value, F, should be converted into uniform annual
values using Eqs. 4.10 and 4.8 respectively. In this situation,
the purchase price is considered as a present value invested
for n yeas as a series of uniform payments (equipment useful
life) and the salvage value is considered as a future sum of
money to be discounted for n years as a series of uniform
payments.

 Depreciation
The depreciation in defined as ―the decrease in market
value of an asset‖. A machine may depreciate (decline in value)
because it is wearing out and no longer performing its function
as well as when it was new. Many kinds of machinery require
increased maintenance as they age, reflecting a slow but
continuing failure of individual parts. Also, the quality of outputs
may decline due to wear in components. Another aspect of
depreciation is that caused by obsolescence. A machine is
described as obsolete when the function it performs can be
done in some better manner. A machine may be in excellent
working condition, yet may still be obsolete. For example,
electronic machines, computers, etc.
As asset always has a different value: initial value, book
value, salvage value and market value. The initial value
represents the purchase price of an asset. Salvage value
represents the expected price for selling the asset at the end of
its useful life. The book value represents the current value in
the accounting systems. The book value equals the initial
equals the market value.
Depreciation is an accounting charge that allows for the
recuperation of capital that was used to procure equipment or
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other physical assets. There are three common methods for
calculating depreciation expense for financial accounting
purposes: straight-line, sum-ofyears digits and the sinking fund
method. Each method involves the spreading of the amount to
be depreciated over the recovery life of an asset in a systematic
manner.
Each depreciation method selected produces different
patterns of depreciation expense per period. The straight-line
method assumes linear depreciation or the depreciation cost is
allocated equally over the asset useful life. The sum-of years
digits assumes high rate of depreciation at the early age of an
asset and decreasing rate at its aged life. The Third method
assumes lower rate at the early ages and faster rate at the late
age.
 Straight-Line method
The simplest and best known of the various
depreciation methods is the straight-line
depreciation method. In this method a constant
depreciation charge is made. To obtain the annual
depreciation charge at any year, Dn, the total
amount to be depreciated (initial value, P – salvage
value, F) is divided by the useful life in years, N.
(Annual depreciation charge) Dn = (P – F) / N (9)
 Sum-of-years digits method
Another method for allocating the cost of an
asset minus its salvage value over its useful life is
called sum-of-years digits depreciation method. This
method results in faster depreciation at the early life
of an asset. Larger depreciation charges than
straight-line depreciation during the early years of
an asset and smaller charges as the asset nears
the end of its estimated life. Each year, the
depreciation charge is computed as the remaining
useful life at the beginning of the year divided by the
sum of the years digits for the total useful life, with
this ratio multiplied by the total amount of
depreciation (P – F). Thus means that the
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depreciation is calculated as the percentage of the
remaining life to the original life.
For an asset with useful life N, to obtain the
annual depreciation charge, Dn, at any year n, can
be calculated as follows:
Dn = (Remaining useful life at beginning of
a year / Sum of years digits) × (P – F)
o Sinking fund method
This method assumes that a uniform series of end-
of-payments are deposited into an imaginary sinking fund
at a given interest rate i. The amount of the annual
deposit is calculated so that the accumulated sum at the
end of the asset life, and at the stated interest rate, will
just equal the value of the asset depreciated (i.e., P – F).
The amount of yearly depreciation is invested in a
compound manner for the remaining period as a uniform
series of payments using Eq. 4.10 as follows:
C = (P-F)x{i/[(1+i)^ n-]} (10)
Then the depreciation value, Dn, at any year n is
calculates using the following equation.
Dn = C × (1 + i)^(n-1); n = 1, 2, 3, …….. ……., N (11)
 Operating costs
Operating cost accrue only when the unit of equipment is
used, whereas ownership costs accrue whether or not the
equipment is used. Operating costs include maintenance and
repairs, fuel, oil and lubricants. The amounts consumed by a
piece of equipment vary with the type and size of equipment,
the conditions under which it is operated. An equipment is
seldom used its total horse power and also it is seldom to work
for 60 minute/hour. Thus, the fuel consumed should be based
on the actual operating conditions. Perhaps the average
demand on an engine might be 50 percent of its maximum
power for an average 45 minutes/hour.
o Maintenance And Repair Costs
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The cost for maintenance and repairs include the
expenditures for replacement parts and the labor required to
keep the equipment in good working condition. Historical cost
records of maintaining and servicing equipment are the most
reliable guide in estimating maintenance and repair cost. The
manufacturers of construction equipment provide information
showing recommended costs for maintenance and repairs for
the equipment they manufacture. The annual cost of
maintenance and repairs is often expressed as a percentage of
purchase prices or as a percentage of the straight-line
depreciation costs.
o Fuel consumption
When operating under standard conditions, a gasoline
engine will consume approximately 0.06 gallon of fuel for each
horsepower-hour developed. A diesel engine will consume
approximately 0.04 gallon of fuel for each horsepower-hour
developed.
o Lubricating oil consumption
The quantity of lubricating oil consumed by an engine
varies with the size of the engine, the capacity, the equipment
condition and the number of hours between oil changes.
o Cost of rubber tires
Many types of construction equipment use rubber tires,
whose life usually will not be the same as the equipment on
which they are used. For example, a unit of equipment may
have an expected useful life of six years, but the tires on the
equipment may last only for two years. Therefore, a new set of
tires must be placed on the equipment every two years, which
would require three sets of tires during the six years the
equipment will be used. Thus, the cost of depreciation and
repairs for tires should be estimated separately from the
equipment.
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REFERENCES
 http://osp.mans.edu.eg/elbeltagi/Cost%20Ch4.pdf
 http://www.architectureboard.ph/9%20PRACTICE%20DOCS,%2
0ETC11/x901%20GenericPracticeDocs/Sample%20Archl%20Do
cs/Architect'sCostEstimate.pdf
 http://www.dlsu.edu.ph/research/centers/aki/participant/trainings/
workingPapers/2015-24.pdf