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Factors affecting cost of residential projects

Accurate cost planning has traditionally been more an art than science. Can experience help setup a process for accuracy?
Construction, construction cost management, cost consulting
Construction Manager reviewing drawings

Preparing a cost plan is one amongst the many important pre-construction activities that take place in the life cycle of a construction project. Unlike quantities which can be calculated with reasonably high accuracy, cost is a much more elastic concept. Many developers recognize this and have put in place robust process for progressive assessment of project cost. Preparation of cost plan during concept, schematic, DD and post award are various stages at which the building plans and specifications evolve, and the cost is updated keeping pace with these stages. The reason for such progressive refinement of project cost is that the cost of construction, which forms a major component of the project cost depends on many variables and not all are frozen in advance.
Let us have a look at the variables that influence cost of construction. These can be broadly placed in different buckets as the list below suggests. Many of these variables are interrelated as we will discuss later.

  • Target customers
  • Location and site conditions
  • Technology adopted
  • Procurement strategy
  • Project size, schedule and speed of construction
  • Efficiency of execution

Target customers

In the market jargon, words such as affordable, middle income, luxury and super-luxury are used to denote this customer segment. While the terms refer to the selling price, it is natural that the cost will go hand in hand with the price, even if we factor out the brand value from the progressively higher ends of the customers.

Use of branded products, higher component of imported materials and selection of costlier but perceived as state-of-the-art specifications are drivers of higher cost. The challenge faced by the cost planner is to understand the aspiration of the end customer / developer and factor in the higher rates appropriately. Judgment more than Engineering rate analysis holds the key!

Location, Topography and ground

Location of the project impacts the cost of logistic and resource mobilization. Location refers to the proximity of the site to business and trade centres, accessibility, availability of land and other facilities for labour, storage etc. The cost of construction will be lesser in the areas which are easily accessible as the material and labour required for the construction in these areas are available in lesser time and at competitive rates.

Developing areas always attract people from outside due to high demand of work and more opportunities. Topography influences ease and flexibility of overall planning of the buildings and temporary works. Soil conditions directly affect the cost of foundation and temporary & enabling structures.


By technology we do not mean only the construction technology of the core structure, but also technology related to even small activities such as blockwork, tiling etc. Further use of technology in overall management such as digital solution can also impact the cost. Core construction technology is introduced with the objective of saving cost or time whilst not compromising on quality.

A new technology may promise much, but without a supportive ecosystem may fail to fulfil the promise or the potential. Early mover and pioneers in ushering new technology can readily relate to this situation. Nevertheless, in the long term, new technologies definitely help to reduce cost.

Project size, schedule

For the same item of work, say concrete or steel construction, all other factors remaining same, project size does influence cost.

Overheads are spread over higher volumes and owners of larger project are in an advantageous position to negotiate better rates. Proper scheduling of the project with accurate assessment of resource required and activity linkages can help improve efficiency of resource utilization and minimize idling.

Speed of work

Unless there is a hidden benefit of delaying the project, faster construction should invariably lead to lower cost. This argument can however not be stretched beyond a limit and trying to squeeze construction time too much can be counterproductive. A person having all round experience in the construction domain is best placed to decide the speed of work that will be near optimal from perspective of construction cost.

Efficiency of execution

It is claimed by productivity professionals [lean construction is the buzzword], that construction projects have at least 20% wastage in built and much of these go unrecognized. Productivity gains by application of lean principles can therefore be a significant component of cost saving.

However, the challenge for any cost planner is whether to account for this and to what extent? The cost planner does not have any control on project efficiencies, and it is not clear whether the benefits of such efforts would accrue to the project owner or the contractors.

These aspects support the assertion that costs are much more elastic in nature than quantities. Expecting highly accurate cost plans, even at the DD stage should be treated with caution.
A concept of optimistic, realistic and pessimistic cost may be considered, similar to the time estimate for activities used by project schedulers!

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