QSM 506

Construction
Economics

Overview of the
Construction and
Development
Overview of the Construction
and Development
 Introduction to development economics
Development economics Vs Economic

development
Definition of economics, construction

industry, construction economics

Economics in construction industry

 Classification of the industry

Construction industry categories
Overview of the Construction
and Development
 The nature of construction industry
Characteristics of construction industry

 Building process
 Factors related to construction economics
Introduction to development
economics
Development economics Vs Economic
Development

 Development economic
- a branch of economics that deals with the study
of developing countries, focuses on
macroeconomics (long term economic growth)
and microeconomics (the incentive issues of
individual households and firms)
Introduction to development
economics
Development economics Vs Economic
development

 Economic development
The process of expanding the real freedoms

that people enjoy

The objective of the development is to create an

enabling environment for people to enjoy long,

healthy and creative lives (more to economic
development than growth in incomes)
Introduction to development
economics
 Definition of economics
The science studies of human behavior as a

relationship between ends (needs) and scarce

means (things) which have alternative uses
Choice of the way in which scarce resources

are allocated between all their possible uses

It is all about the choice of means to achieve

ends
Introduction to development
economics

 Definition of construction industry

The erection, repair and demolition of things

as diverse as houses, offices, shops, dams,

bridges, motorways, home extension, factories
and airports
Introduction to development
economics

 Definition of construction industry (cont’d)

Provide construction products to clients and to

society at large
The carrying out of buildings, engineering,

mining or other operations in, on, over or under

land, or the making of a material change in the
use of any buildings or other land
Introduction to development
economics
 Definition of construction industry (cont’d)
Construction, extension, installation, repair,

maintenance, renewal, removal, renovation,

alteration, dismantling, or demolition of;
any building, erection, edifice, structure, wall,

fence or chimney, whether constructed wholly

or partly above or below ground level
any road, harbour, works, railways, cableway,

canal or aerodrome
Introduction to development
economics
 Definition of construction industry (cont’d)
any drainage, irrigation or river control works

any electrical, mechanical, water, gas,

petrochemical or telecommunication works; or

any bridge, viaduct, dam reservoir,

earthworks, pipelines, sewer, aqueduct culvert,

drive, shaft, tunnel or reclamation works
Introduction to development
economics
 Definition of construction industry (cont’d)
- And includes any works which form part and
integral part of, or are preparatory, to or
temporary for works described before,
including site clearance, soil investigations and
improvement, earthmoving, excavation, laying
of foundation, site restoration ad landscaping
Introduction to development
economics

 Definition of construction economics

A study of the ways in which resources

available to the construction industry may be

appropriately allocated and optimally used
Consists of the application of techniques and

expertise of economics to the study of the

construction firms, construction process and the
construction industry
 Economics in construction
industry
 5 important issues regarding economics

BEST RESOURCES • scarce resources (resources in this world are limited)

BEST CHOICE • choice; choosing the right choice

BEST ALLOCATION • allocation of resources (right allocation or use of

everything and anything)

BEST ALTERNATIVE • possible use of resources (alternative in

resources; gives best value for money)
• means to achieve ends (objectives or
BEST OBJECTIVE
aim of life or task)
 Economics in construction
industry
 About the importance of achieving the objective or aims of
life
 The way how the scarce resources is being selected from
many alternatives to produce its best use, for best value for
money
 VALUE is probably the criteria of every human’s objective
 QUALITY and PRODUCTIVITY is the utmost agenda in
everyone’s mind
 Everybody is asking not only for quality product, but also
for BEST QUALITY or even WORLD CLASS QUALITY
 Economics in construction
 industry
Construction product is basically the output of the
public sector (government) and the private sector
 Works termed under New Works or Repair and
Maintenance Works
 Classified under Building Works and Civil Works
 Construction products can be classified under 4
major headings
 a) nature

 b) structure

 c) demand or market

 d) price determination
Classification of the industry

 Construction industry categories

1. Building Construction Industry
All general and operative contractors primarily engaged
in the construction of residential, farm, industrial,
commercial, or other buildings

* Definition Source: Standard Industrial Classification

Classification of the industry
2. Heavy Construction Industry
All general contractors primarily engaged in heavy
construction other than building, such as highways and
streets, bridges, sewers, railroads, irrigation projects, and
flood control projects and marine construction

This includes special trade contractors primarily engaged

in activities not normally performed on buildings, such as
highway grading or underwater rock removal (does not
include special trade contractors primarily engaged
activities performed on buildings)

* Definition Source: Standard Industrial Classification

Classification of the industry
3. Special Trade Construction Industry
All special trade contractors who undertake
activities of a type that are specialized either to
building construction, including work on mobile
homes, or to both building and non-building
projects

e.g. painting, electrical work, plumbing, etc. (not

include activities for heavy construction)

* Definition Source: Standard Industrial Classification

 Characteristics of
construction industry
The nature of construction industry

1. Technologically complex
- range from the familiar, well-known materials and trades
to highly complex facilities involving multi-
interacting sub-system
2. Vague
- involves such a wide range of activities that industry’s
external boundaries are also unclear as well as
relationship between the parties are also not always clear
 Characteristics of
construction industry
3. Poor at coping with risk
4. Poor at safety records and inherently or naturally
dangerous industry
- due to its nature; encompasses very wide range of risk
sources
- complexity, different, unique production process
- different structure of the procurement, dynamic of the
end user
 Characteristics of
construction industry
5. Often very heavy, very costly, covers wide
geographical area
6. Involves extraordinary diversity of professions,
specialists and suppliers
7. Very massive, multi-dimensional of interaction,
integration, interfacing and coordination
8. Future in nature
 Characteristics of
construction industry
9. Procurement for services rather than a simple
sale of goods
10. Temporary multi-organisation, product
contacted out for and covering payment and
services delivery
11. Demand or product originates from the owner
12. Uncertainties, lack of vital information
13. Adversarial
 Factors related to
construction economics
 Consideration of the broad categories of clients
of the industry, their individual needs and factors
influencing them, and the best ways in which
these requirements may be met
 Evaluation of the total (life cycle) costs of
alternative solutions to the problems of meeting
the requirements of a particular client and choice
of the best solution
 Factors related to
construction economics
 Study of the nature of the construction process,
the roles of the participants on construction
projects, and ways and means of planning,
monitoring and controlling costs and ensuring
efficiency throughout the construction process
 Assessment of the determinants of demand for
construction activity and study of the effect on
the industry of different volumes and mixes of
total demand
 Factors related to
construction economics
 Consideration of the nature of the construction
industry and its needs, strengths and problems
 Examination of the relationship between
construction and other sectors in economy, the
contribution the industry makes to the national
product and implications to the construction, of
changes in government policies related to the
management of the economy
 Factors related to
construction economics
 Examination of the government policies and
roles to the construction sector
 The construction economics should extent to
sustainable development and environmental
economics taking care of the environmental
isssues