Question

2. As part of a construction project pro-forma, list four types of costs that are tracked in the following categories: Site Acquisition I Soft Costs Hard Costs

Answer 1

In the construction projects there are mainly four types of costs tracked in following categories are:

1. CAPITAL COST:

Site Acquisition:

The cost of Site / Land Acquisition includes its purchase price and other many other costs including:

• commissions of real estate agent and the title search fee and the title transfer fee,
• the cost of title insurance premiums and the cost of existing mortgage note or taxes that are unpaid by the seller and will be borne by the purchaser,
• the costs of conducting survey, and grading including clearing; and local assessments for streets, sidewalks, water mains and sewers.
• If some unwanted structure is built up on the land then cost of demolition of such structure and removal of scrap material is also taken in the consideration.

The accounts department debits the entire costs to Land cost, including all the costs mentioned above including removal of the unwanted structure reducing any cash / amount received from the sale of salvaged items for making the land ready for use. Since, the Land is assumed to have an unlimited life and it is therefore considered as not to be depreciated. However, the cost incurred on the land improvements, including making of driveways, preparing temporary landscaping, creating parking lots, fences, arrangement of lighting systems, and sprinkler systems, are attached to the cost of land. Owners record the cost of Improvement of Land as to be depreciated in a separate account called Land Improvements Account. They also record the cost of landscaping developed on permanent basis that includes grading and leveling, in the Land account.

With the cost of Land and its development cost, all other machinery and equipment is also considered as Capital Cost.

2. DESIGN AND DEVELOPMENT COST:

This is the architectural cost and design and development of design and drawings. The cost of structural design, the designs of services like plumbing, sewage, fire fighting, drinking water storage and distribution, swimming pool, horticulture design and its irrigation piping and all other parts of building construction that require exclusive design to ensure safety, comfort and luxury requires an exclusive design. All such expenses are considered under this head.

Soft Cost:

First of all one should understand the meaning of Soft Cost in Construction Projects. Soft Cost means the intangible cost that affect the project indirectly, hence it is not the cost of physical items that are required for the construction of building or project. This cost is usually not considered in the estimate cost of the building. Some costs included in this head are Cost of Design, Insurance Cost, Legal Cost, Cost of Approval of Design, Drawings and Layouts from Statutory Authorities and Set up Cost, Most of soft costs are spent in the starting stage of the project.

Most of the elements of SOFT COST are considered as CAPITAL COST. On soft cost there is no depreciation is claimed.

3. CONSTRUCTION COST OF BUILDING – Treated as Hard Cost

Construction Cost is the cost of Raw Material, the payment paid to Contractors of various discipline like civil work, structural work, plumbing, sanitation, plastering, Tile Work, Steel Reinforcement Work, Fire Fighting, Sewage, Swimming Pool, Water Treatment Plants, Garbage to Manure conversion system being installed in the building, Landscaping, Parking Area, Development of Green Area in the Building, Parking Area, CCTV Surveillance and many other requirement of the building are considered as Constructional cost of the building.

All the above costs are considered as HARD COST.

Hard Cost:

Hard cost is the cost that directly relate to the construction of the building. Hard cost is tangible since it is the cost of items and resources that are required to construct a project. It is usually taken into the consideration while making estimate of the project. This cost includes the cost of Cement, Steel, Building Material like aggregate, stone dust, river sand, motors, MEP Items like plumbing pipes, fittings, material required for Air-conditioning of the building, Sewage Treatment Plant, Water Treatment Plant, Irrigation for the Green Field in the building etc.

4. Operational Cost and Facility Management Cost – Mix and Match of Hard and Soft Cost:

Operational costs the costs that are incurred in day-to-day operations and include:

• Wages: Salaries and wages paid to the staff who take care of the activities of the project are considered in Operational Cost.
• Utilities: Electricity, Vehicles, Water, Air-conditioning of the building, Tea and all other activities that relates to create an working environment are the utility expenses and are considered as utility expenses.
• Repairs and Maintenance: These charges are repair and maintenance charges of all equipment and machinery being used in the office area and project execution area. Cost incurred on the repair and maintenance of all such equipment and machinery is recorded as operational cost of the project.
• Rent: If office building or sales building is on rent then such expenses are considered as Operational cost of the project.
• Sales: Cost of salaries, refreshments and vehicle expenses done by the sales staff for their clients are considered as operational expenses.
• General and administrative expenses are also recorded as operational cost of the project.