The Effect Of Labour And Material Costs On The Total Cost Of Construction

Project and Seminar Material for Project Management

Project and Seminar Material for Project Management

Chapter One


1.1 Background Of The Study

Labour cost is defined as the sum of all wages paid to employees, as well as the cost of employee benefits and overall taxes paid by the employer. The cost labour is broken into direct and indirect costs. Direct costs include wages for the employees physically making a product, like workers on an assembly line. Indirect costs are associated with support labor, such as employees that maintain factory equipment but don’t operate the machines themselves.

When manufacturers set the price of a good they take the cost of labor into account. This is because they need to charge more than that good’s total cost of production. If demand for a good drops or the price consumers are willing to pay for the good falls, companies must adjust the cost of labor to remain profitable. They can reduce the number of employees, cut back on production, require higher levels of productivity, reduce indirect labor costs or reduce other factors in the cost of production.

The construction industry is strongly dependent on subcontractors and material suppliers. Costs for purchasing material and services represent 75% of the turnover for Sweden’s three largest construction companies (Dubois & Gadde, 2000), and purchases of material correspond to at least 40% of the contract sum in a construction project (Boverket, 2005). Although material suppliers have a great impact on costs, quality and time in construction projects, there are few studies investigating how supplier’s performance affects these parameters. Hadikusumu et al. (2005) state that material delivery deviations, such as delayed deliveries, incorrect quantity and quality defects, are common in the construction industry, but measurement of material delivery deviations is a neglected area in construction, both by contractors and by construction management researchers.

The amount of money invested in the production of a product. The ingredients of a meal or the pasts of the machine would be things that incur material costs. This cost is apart from the cost of labour to produce the product. The material cost of together with the cost of labour helps determine the total cost of a product and its eventual sale price (Hadikusumu et al. 2005).

The growing need for construction of all types coupled with a tight monetary supply has provided the construction industry with a big challenge to cut cost. According to Mendelson and Greenfield (1996) the remaining part of the twentieth century would involve corporations, institutions and government in a race to survive. The attendant dwindling economic fortune of nations economies around the World have geared up the participant in these sectors (the client in particular) to take up the challenge of ensuring efficient use of their resources to obtain value for money in terms of performance.

The total cost of construction in normal circumstances is expected to be the sum of the following cost: materials, labour, site overheads, equipment/plant, head office cost and profit but in many parts of the world particularly in Nigeria, there are other costs to be allowed for.

Therefore, this study is carried out to investigate the effect of labour and material costs on the total cost of construction.

1.2 Statement Of The Problem

The demand for more construction of all types, coupled with a tight monetary supply has provided the construction industry with a big challenge to cut costs. The problem of high contract costs of all aspects of construction is becoming obvious. Consequently, substantial increases are being observed in projects.

This substantial increase has brought about loss of client confidence in consultants, added investment risks, inability to deliver value to clients, and disinvestment in the construction industry.

The Effect Of Labour And Material Costs On The Total Cost Of Construction

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The Effect Of Labour And Material Costs On The Total Cost Of Construction


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