Construction Operations’ Icebergs

The TIP OF THE ICEBERG is an expression of a visible small problem which is followed by huge unseen problem which are following the first one.

Anytime you enter into a project you experience a bunch of the costs which you need to find a source in addition to what you had predicted, previously. Yet, in a construction project we face three different types of costs:

The cost of construction includes an initial development capital and a subsequent operation and maintenance capital. In the case of an outright sale of the property after completion of the facility, only the initial investment capital must be considered to complete the construction of the facility. In the case of continuous operation, additional capital must be estimated and set aside to maintain the facility. In both cases, having an accurate estimation of the cost is extremely critical to the continued profitable operations of the business. Incorrect analysis of the total cost can reduce or even diminish any profit from the construction activity. An extreme case may even be to bankrupt the developer or the investor since the construction project overran the budget with no additional capital to cover it.

So, we should clearly analyze and understand each type of the costs showed in the picture while it does not mean that we are able to cover the total costs completely. That is why we are ESTIMATING all the costs involved.

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