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The Three Elements of Construction Cost

by Chad Ludeman on April 19, 2008 · 7 comments

in budget,Development

Over the course of this project I have found that there are three elements to true construction costs:

  1. The cost of the material being used.
  2. The quantity of the material being used.
  3. The difficulty or labor involved to build an item.

I have often heard that labor makes up 60%-70% of the cost of any constructed item from cabinets to entire homes. I think this is pretty accurate.

I apologize for the elemental nature of this post. If the brevity offends, please feel free to add substance with your own comments on the subject matter.

If you enjoyed reading this post I can promise you'll love our new writing over at Postgreen Homes. Yeah, we know that's the same thing your favorite band said and their new album is nowhere near as good as their early stuff, but seriously, we are actually still getting better.

There also isn't much conversation to be had here . . . at least not with us. So come on over to the Postgreen Homes Blog and tell us what you think of our new(ish) digs and crazy ideas. We will be sure to tell you what we think of your opinion.

{ 7 comments… read them below or add one }

1 lavardera April 21, 2008 at 1:37 pm

This parallels a generally agreed way of viewing the 3 basic variables of any project. Its composed of:

- Budget
- Quality
- Size

In order to hold any of these fixed the others must remain flexible. Budgets are usually fixed. People rarely want to give back on square footage. Quality usually suffers.

2 chad April 21, 2008 at 1:51 pm

Excellent point. We are obviously working on a fixed budget here and square footage is also not too flexible although we have cut it down once to hit our budget.

This leaves quality. I would argue that we are trying to maximize the quality of the following in order to minimize the budget.

- architectural design
- sustainable/energy design
- construction

In other words, fix or minimize the budget, minimize the square footage and maximize the quality.

3 lavardera April 21, 2008 at 2:09 pm

Ha! Well that’s a very positive take on the formula – usually that means the quality of materials is lower. Design is not bound by these things – budget and material quality does not make good design.

4 chad April 21, 2008 at 2:19 pm

Bingo :)

5 Y. Bzerious April 25, 2008 at 10:36 pm

GREAT post! I think you’ve cut to the heart of the entire modernist/pre-fab conundrum: the ONLY way to get dramatically lower costs is to cut back on labor. So how does one do that? If you shift to pre-fab, you’re simply MOVING the labor cost from site to factory, then adding back other expenses like transport — you’re not cutting it back. How can we DESIGN for drastically lower labor costs?

6 chad April 25, 2008 at 11:21 pm

Thanks Y. I’ve always thought the answer lied in something between site built and prefab.

Build subassemblies off-site, close to the site and assemble the final assemblies on-site. SIPs panels are a good example. Panels are fabricated off-site within a couple hundred miles and very quickly assembled on-site.

Does this sound like building a Japanese car or a Dell PC to anyone? Locate all of your subassembly plants just outside of the city you are building in. All types of raw materials are delivered to these few locations instead of to hundreds of different locations. These subassembly plants can then feed each site with the ordered subassembly just as they need it at the site. The subassemblies will then go together much faster on-site. Overall labor should be reduced dramatically if done properly and no one gets greedy along the way.

7 Evelyn Paterson August 19, 2011 at 3:40 am

This three elements of construction cost is very useful. Your sort had a lot of ideas and very impressive. Thank you for the information. Keep it up.
KB Custom Homes

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