| dc.description.abstract | In construction, the project cost estimates are broken down into direct costs and
indirect costs. Direct costs are directly attributable to construction activities, which
consists of the costs of materials, labor, and equipment. They all directly involved
efforts or expenses for undertaking site activities. On the other hand, indirect costs are
not directly attributable to construction activities, but in various degrees are conditional
to them. Indirect costs are typically allocated to a cost item on a certain basis, by means
of a percentage of the direct cost item. In construction, all costs which are required for
completion of the project, but are separated to the direct construction activities, such as
overhead and a number of time related cost items.
Due to the thin profit margins in construction industry, contractors are
encountering a tremendous difficulty in estimating the precise range of indirect costs.
This cost estimate endeavor controls the sustainability of a contracting business:
over-estimate would limit the likelihood of winning a bid; under-estimate would forego
the chance of making a profit. Therefore understanding the clear and complex linkage
between a direct cost item and the related indirect cost is crucial in successful cost
estimation.
This research undertakes this problem by employing the well accepted principle of
Activity-Based Costing (ABC). By in-depth analysis of four construction projects, the
different aspects of linkage between direct cost and indirect cost are investigated. By
using table comparison and incorporating site interviews, this research provides
comprehensive recommendations concerning the estimate of indirect costs. This
research also identifies a number of issues which are most relevant in mis-estimate of
indirect costs in the past. It is concluded that ABC principle is very useful for the
purpose of justifying indirect costs. | en_US |