PROGRAMMING OF WORKS AND COSTS

THEME: WORKSHOP 3

COST OF CONSTRUCTION IN COLOMBIA

PRESENTED A:
ING. LUZ ADRIANA SANTOS CASTELLANOS

SUBMITTED BY:

GROUP 5

ALEXANDER ACOSTA – D7303105

RAMIRO JIMENEZ PEREZ – D7303153
ELIZABETH JULIETHA JIMENEZ RINCON – D7303059
IRIANA LICETH LIZARAZO TELLEZ – D7303218

EIGHTH SEMESTER

UNIVERSIDAD MILITAR NUEVA GRANADA

MARCH 16TH, 2019
COLOMBIA
 INTRODUCTION

The work consists of making a practical proposal for the costs management in the
construction sector in Colombia. The construction sector of buildings in Colombia has
been gaining great dynamism and increasing its relevance in recent years. Its
capacity to generate employment, its contribution to economic growth, its articulation
with public policy on housing and its broad traction effect on half of the country's
industrial and commercial productive apparatus, have made construction a focus of
public and private investment, and has become one of the pillars of national and sub-
national development, which has been growing year after year with the economic
performance of the country, despite its empirical management in many of the
construction companies. However, the present challenge is to generate sustainability
in the time of those companies that have been growing and must adapt to the new
needs of the market and its new demands.

The constant evolution of the markets has generated important changes in all
economic sectors and the different market players are immersed in them. Practices
such as the informal hiring of third parties for the development of activities, the
execution of projects without duly approved budgets, the superficial follow-up of the
goals set before and during construction, among others, are the reflection of the lack of
knowledge of project managers in day-to-day situations on a construction site.
 PROBLEMATICS

In the construction sector, we work every day with reduced margins, due to new legal
regulations, market demands where the customer is more informed every day, and
other factors external to the company.

The performance of construction in 1994, if you consider that only 244.794 thousand
square meters were built, compared to 394.525 in 1993, representing a decrease of
37.9 percent.

Of the total area built last year, 183,920 square meters (75.1 percent) corresponded
to housing. Barranquilla occupied in the national concert the fifteenth place in
construction levels. We are concerned about this low level, and that is why we have
tried to reach agreements with the municipal authorities in order to study the problem
together. https://www.eltiempo.com/archivo/documento/MAM-438991

Unlike what will happen next year in the big capitals, where numerous hearings,
tenders, and millionaire contracts are expected, in the ANI, Aero civil and other
national entities there will not be so much contracting. The good news is that if the
public works and concession contracts (4G) already signed are unlocked, this will be
reflected in the economic indicators and GDP itself. On the housing construction site,
a good year is expected, taking into account the recovery of this activity in large cities
such as Bogota and Medellin. In the capital of the Republic, great initiatives such as
Lagos de Torca and Lagos de Tunjuelo could see the light, as long as the POT is
approved (pending in the CAR). Guilds such as Camacol have been recording in the
second half of this year interesting recoveries in VIS construction, which could
favorably impact employment indicators. https://www.dinero.com/edicion-
impresa/informe-especial/articulo/lo-problemas-de- la-infraestructura-para-2019-en-
colombia/265309
 THEORETICAL FRAMEWORK

A definition based on the structure of Direct Raw Material, Direct Labor and Indirect
Manufacturing Costs is that of Edward Moresby, "cost is defined as the
measurement in monetary terms of the number of resources used for some purpose or
objective, such as a commercial product offered for general sale or a construction
project. Resources use raw materials, packaging materials. Hours of labor worked,
benefits, salaried support staff, supplies and services purchased and capital tied up in
inventory, land, buildings, and equipment.

This is a definition of costs directly related to the industrial process, but also, although
tangentially refers to the commercial costs or services that fundamentally have as
structure the disbursements of Remunerations, goods, Services, Interests.

Ferguson and J. Gould, define cost as "an aspect of economic activity, for the
individual entrepreneur this implies his obligations to make cash payments, for the
whole of society, the cost represents the resources that must be sacrificed to obtain a
given good".

This definition uses the term "sacrifices" to refer to costs that are not directly related
to cash, such as depreciation of fixed assets, but are involved in the productive,
commercial or service process. Harry Howe defines cost as "the price paid or the
consideration for acquiring an asset. Applying to inventories, cost means in principle
the sum of applicable disbursements and charges incurred directly or indirectly in
bringing an item to its existing condition and location.

ECONOMY

Construction costs in Colombia in the economic environment have left the aftermath
of the Great Recession of 2008 still seem to have an effect on the performance of the
vast majority of developed countries. As a result, the recovery of Colombia's main
partners, including the United States, has been weaker than expected. In addition,
Colombia's oil revenues have decreased drastically due to the collapse in crude oil
prices. This situation has meant that growth forecasts for the country are more
modest than they were at the beginning of 2015. The National Government has found
it necessary to establish a strategic set of public policy measures to address the
reversal in the economic cycle that is becoming increasingly tangible. Therefore, it is
essential to generate incentives on different fronts of the economy so that it becomes
dynamic, cushions the adversities of the international context and keeps the
macroeconomic fundamentals afloat with their progress in recent years.

INTERNATIONAL

There is no doubt that the international context constitutes an economic policy

challenge for most Latin American countries. After the global economic recession that
began in 2008, the demand generated by OECD countries stagnated and
consecutively China's growth rate began to decline.

As a reflection of this situation in commodity prices, and given the dependence of

most Latin American countries on the revenues derived from them, fiscal balances
have continued to deteriorate, thus facing more difficult economic policy situations.
Given this, the stance taken within countries can be directed in two different
directions; on the one hand, they may lean towards more restrictive fiscal spending in
order to control the fiscal balance, or the space may be opened for the generation of
policies that stimulate key sectors in the economy and thus compensate for the
slowdown in their productive apparatuses.

Modern macroeconomic theory suggests that there is a high level of correlation

between the behavior of the construction sector and the economic dynamics of
countries. The case of Colombia is no exception and an example of this is the
increase in the participation of the construction sector in the national GDP, a situation
that has favored the high performance of the Colombian economy during the last 5
years.
CHARACTERISTICS OF WORKERS IN THE CONSTRUCTION SECTOR

A construction project, like all projects, has three major stages: pre-investment,
investment, and operation.

Considering the characteristics of a construction project, unlike other sectors in which

workers have job stability within their companies, in construction companies,
construction workers are usually hired for each projector for each part of the project
and will stay there for only a few weeks or at most a few months on a particular site.
In the construction of civil infrastructure works, the dynamics of investment are
determined primarily by the communications sector, the energy sector, and road and
transport infrastructure.

These works are mostly attached to public service programmes and therefore have
to operate with official resources. It's functioning, therefore, is intimately linked to
government policies. Business stability in relation to this type of project depends on a
high percentage of the infrastructure plans and programs that the State wants to
implement at any given time.

GENERAL CHARACTERISTICS OF THE LABOR MARKET AND SECTORAL

EMPLOYMENT

Studying the structure of the labor market within countries is particularly important as
it reveals the way in which the human capital available within the economic system
is used. In this way, the different productive sectors are in charge of stimulating the
use of labor according to the underlying behavior of the activity they develop. Indeed,
part of the dynamics of the labor market in cities is directly related to the development
of modern markets and traditionally leading sectors, which in the case of Colombia
have been construction, industry, and commerce. In the last 3 years, the labor market
outlook in the country has been characterized by a sustained reduction in the
unemployment rate, which for the average of the last quarter to September 2015
stood at 9% for the national total.
RESOURCE: Annual National Total Unemployment Rate

This phenomenon of a decrease in the unemployment rate is due to the massive

creation of wage-earning work that reduced the indexes of informality. Labour market
dynamics can be explained by higher growth in labor demand (measured by the
employment rate) than the increase in labor supply.

REGULATORY ENTITIES

The institutions in charge of monitoring the scope of the activities of the building
sector in Colombia are mainly national and local government entities, by means of
decrees, resolutions, and circulars, etc. On the other hand, the laws that are enacted
in the Congress of the Republic, in addition to the constitutional mandates that apply
to the development of the activity, have great relevance when establishing control
guidelines in the development of buildings in the country.
MISSIONAL PROCESSES AND VALUE CHAIN

In the framework of the sector characterization study conducted by Human Capital

and CAMACOL (2014), it was found that the main tasks of the sector are consulting,
promotion, construction and contractor functions.

Thus, out of the total sample analyzed (42 companies), there are various
participations in the activities by the companies, where housing construction and
urbanization (83%), sales promotion (61%), project management (29%) and the
provision of labor services (17%) are the most representative activities.
The building sector is characterized by being intensive in the use of productive factors
of both capital and labor, which generates a multiplier effect of the activity in the rest
of the economy. For this reason, it is important to review where the demand for factors
by this industry is concentrated, which will lead to a simple characterization of the
sector's value chain. On the other hand, it will be necessary to identify the processes
that are part of the building activity, which will be represented in the characterization
of the missionary processes of the sector.

On the other hand, within the development of these activities, it is found that the
participation of the total personnel in the areas focused on the development of
missionary activities is on average 92%, a result that is above that found for the other
sectors (80%). In the meantime, the areas in charge of the missional processes within
the operation of the companies are the direct technical, indirect technical and
commercial areas, each with an average participation of 66%, 21%, and 5%
respectively. Thus, the identification of the company's missional processes leads to
the recognition of commercial activities, sales, project development, project
execution, auditing, auditing, project planning, maintenance of work equipment, after-
sales service, and processing, as the most relevant in the sector.

CONCLUSIONS

 The main road network has limited connections with other regions of the
two countries, which, together with its regular or poor technical
characteristics, conditions a low extra-regional integration and a high
degree of isolation of the Plan area. This situation is aggravated by the
relative ease with which these roads are interrupted by landslides or bridge
breaks.

 The construction industry is one of the pillars of the economy of any

country, due to the number of direct and indirect jobs it generates, as well
as the amount of machinery, materials, and inputs of all types that are
involved in this area.
  For projects, specifically those related to the construction and engineering
sector, the determination of the Opportunity Rate should not be taken as
a generalized market value, the risk of the sector, the conditions of
financial studies carried out and the capital structure of the project should
be taken into account, i.e. the opportunity rate should be calculated for each
project as it is unique and unrepeatable and be able to apply it for the
determination of profitability from the point of view of the investor.

 A characteristic factor to be taken into account by developers of

construction projects is the form of project capitalization.

BIBLIOGRAPHY

 https://www.camacol.co/sites/default/files/proyecto-de-investigacion-del-
sector-de-la-construccion-de-edificaciones-en-Colombia.pdf

 https://repository.unimilitar.edu.co/bitstream/handle/10654/6870/Montealegr
eBrinezCarlosAlonso2012.pdf?sequence=2&isAllowed=y

 https://www.dinero.com/edicion-impresa/informe-especial/articulo/lo-
problemas-de-la-infraestructura-para-2019-en-colombia/265309

 https://www.eltiempo.com/archivo/documento/MAM-438991