Bài giảng quản lý kinh doanh xây dựng (7 chương)

23/02/2016

CONSTRUCTION BUSINESS
MANAGEMENT
DR. NGUYEN ANH THU
Chapter 7
CONSTRUCTION ECONOMICS

CHAPTER 7
CONSTRUCTION BUSINESS
MANAGEMENT
REFERENCE
1. Chapter 17, Construction Methods and Management, S.W.
Nunnally, 7th edition, 2007, Pearson Education .
2. Lecture Note from Richard O’Carroll, CEEC
3. Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell,
D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J.
Rooney, Ph.D., CPA.

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CHAPTER 10
CONTRACTING IN CONSTRUCTION
BUSINESS

1. Introduction
2. Time Value of Money
3. Equipment Cost

4. Equipment Rental
5. Financial Management of Construction

CHAPTER 10
CONTRACTING IN CONSTRUCTION
BUSINESS

1. INTRODUCTION

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What do the following Buildings have
in common ?

Source: Richard O’Carroll

A ‘Hydropolis Underwater’ Resort Hotel - Dubai UAE
Estimated price -$440M
200 Guest Suites
22M underwater
US$5,500 per night
Source: Richard O’Carroll

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‘Burj Dubai’ UAE –
World’s tallest building
B

Estimated price -$1.5B
828M high
160Nr Levels

Source: Richard O’Carroll

C
‘Ski Dubai’ UAE – World’s
largest indoor snow park
Estimated price -$275M
32,290 Sq foot
2 foot of snow
Has own ‘black slope’

Source: Richard O’Carroll

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What’s in your mind …
Yes….. you spotted it … ‘DUBAI’
“Well not quite what we
wanted you to notice”

LOOK AGAIN !!!

$440 Million

Source: Richard O’Carroll

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$1.5 Billion

Source: Richard O’Carroll

$275 Million

Source: Richard O’Carroll

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They all needed ‘Budget
Estimates’ to be established
(to ‘Confirm feasibility or otherwise
the Client’s Objective’).

“you’re fired !!”

Source: Richard O’Carroll

They all needed to be Measured and Evaluated
Comparative Cost
Planning based on
Analysis on previous
completed Contracts

(to confirm the
Client’s Budget).

Cost per
Hospital Bed

Cost per
Theatre Seat

Cost per Car
Park Space

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CHAPTER 10
CONTRACTING IN CONSTRUCTION
BUSINESS

2. TIME VALUE OF MONEY

Examples
• Checking following statements
Correct or Incorrect? (Interest Rate
is 5%/year )
– 98.000 VND = 105.600 VND next year
– 200.000 VND last year = 205.000 VND
this year
– 300.000 VND this year= 315.000 VND
next year
– 300.000 VND this year =288.714 VND
last year

InC (102.900)
InC (210.000)

Correct
InC (287.000)

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Examples
• A contractor wishes to borrow $12,000 to
finance a project. The interest rate is 5% per
year. If the borrowed amount and the interest
are paid back after 3 yr, what will be the total

amount of the repayment?
F=12,000x(1+0.05)3
=$13,891.50
The amount of interest is $1,891.50

Examples
• A contractor want to set aside enough money
today in an interest-bearing account to have
$100,000 in 5 yr from now for the purchase of
a replacement piece of equipment. If the
company can receive 8% per year on its
investment, how much should be set aside
now to accrue the money?

P=100,000 / (1+0.08)5
=$68,058.32

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 1 
P  F
n 
 (1  i ) 

F=P(1+i)n

P

$5.000

$20.000

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Cal

Given

Formula

P

F

 1 
P  F
n 
 (1  i ) 

P

A

 (1  i ) n  1

P  A
n 
 i (1  i ) 

F

P

F  P(1  i) n

F  P(

F
, i %, n)
P

F

A

 (1  i ) n  1
F  A

i



F  A(

F

, i %, n)
A

A
A

P

F

Equation
P  F(

P
, i %, n)
F

P
P  A( , i %, n)
A

 i (1  i ) n 
A  P

n
 (1  i )  1

A
A  P( , i%, n)
P



i
A  F

n
 (1  i )  1

A  F(

A
, i %, n)
F

6. Financial Management of
Construction
• Financial Planning
– Cost estimating prior to bidding or negotiating a
contract.
– Forecasting project income and expenditure
– Determining the amount of work undertake at
one time.

• Financial schedule or cash flow schedule
shows the planned rate of project expenditure
and project income.

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Examples
DIRECT
PAYMENT
COST
4,000
6,000

1. PILE FOUNDATION
2. CONCRETE FRAME &
FLOOR
12,000
3. BRICK WALL &
PLASTERING
5,000
4. FINISH PAINT WORK
2,000
5. INSTALLATION WORK
3,000
TOTAL
26,000
IN-DIRECT COST = 1,200 / mon

18,000
7,500
3,000
4,500
39,000

Examples

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Examples

7. Cost
Control

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CHAPTER 10
CONTRACTING IN CONSTRUCTION
BUSINESS

3. EQUIPMENT COST

Equipment

Cost

Ownership

Fixed

Operating

In Used

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1.Depreciation
2.Investment (interest) cost

Ownership
Costs

3.Insurance cost
4.Taxes
5.Storage cost

Ownership
Cost

1. Depreciation

• Depreciation is a major component of fixed costs and
has a significant affect on project cash flow.
• Decline in market value of an equipment due to age,
wear, deterioration, and obsolescence.

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Ownership
Cost

1. Depreciation

1. Evaluating tax liability
2. Determining hourly equipment cost

Factors in Computing Depreciation
Expense
The fixed asset’s initial cost

Its expected useful life

Its estimated value at the end
of its useful life.

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Depreciation Methods
Straight line

Sum of the years’ digits method

Declining balance

Units of production

Straight line Method
• Provides for the same amount of
depreciation expense for each year of
the asset’s useful life

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Example 1
• A machine had a cost of $24,000, salvage value of $2,000 and
useful life of 5 years
• Annual depreciation expense =
Annual depreciation expense = Cost – Salvage value
Life
= $24,000 - $2,000
5 years
= $4,400 annual depreciation

Adjusting entry
Account
Depreciation expense
Accumulated depreciation - truck

Debit

Credit

$4,400
$4,400

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Example 2

Source: Susan et al.

Example 2

Source: Susan et al.

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Example 3
• A machine had a cost of $30,000, salvage of
$5,000 and useful life of 6 years. Compute
depreciation under the straight line method?
• What is depreciation expense in year 3?

Sum of the years’ digits method

• Find the annual depreciation and book value
at the end of each year for a track loader
having initial cost of $50,000, a salvage value
of $5,000, and expected life of 5 year.

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Sum of the years’ digits method

Units of Production
• This method provides for the same amount of
depreciation expense for each unit produced
or each unit of capacity used by the asset

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Example 4
• A machine had a cost of $24,000, salvage
value of $2,000, estimated total hours of
production of 10,000 and annual hours used
of 2,100 hours. Compute depreciation for the
period under the units of production method.

Example 4
• Depreciation rate per unit =
Cost – Salvage value
Estimated hour
= $24,000 - $2,000 = $2.20
10,000 hours
• Annual depreciation expense =
Hourly depreciation rate x annual hours
= $2.20 x 2,100 hours = $4,620

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Example 5

Source: Susan et al.

Example 5

Source: Susan et al.

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Example 5
• A machine had a cost of $30,000, salvage
value of $5,000, estimated total hours in
production of 5,000 and annual hours used of
900 hours. Compute the depreciation
expense for the period using the units of
production method

Declining Balance Method
• Provides for a declining periodic expense over
the estimated useful life of the asset.

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