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Introduction to Construction Economics and Construction Industry

Nature and Classification of Construction Industry

Economics and Construction Industry

National Economy and Construction Industry

Construction process

Definition of Economics The science which studies human behavior as a relationship between ends (needs) and scarce means (resources) which have alternative uses Economics is about 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

Five important issues regarding economics

BEST RESOURCES BEST CHOICE BEST ALLOCATION BEST ALTERNATIVE BEST OBJECTIVE scarce resources ( maximised the used of resources ) choice; choosing the right choice allocation of resources (right allocation or use of everything and anything) possible use of resources (alternative in resources; gives best value for money)

means to achieve ends (objectives or aim of life or task)

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 everyone's objective QUALITY and PRODUCTIVITY is the utmost agenda Some is asking not only for quality product, but also for BEST QUALITY or even WORLD CLASS QUALITY

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)

Development economics Vs Economic development

Economic Development refers to social and technological progress. The objective of the development is to create an enabling environment for people to enjoy, healthy and creative lives (more to economic of the development than growth in incomes)

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

The study includes: Broad categories of clients; characteristics, their needs, ways to meet their requirement.

Evaluation of LCC; choice of best solution Nature and efficiency of construction process Assessment of the determinants of demand for construction activities Nature of construction industry; strength, problems, needs

Relationship with other sectors of economy; government policies in management of economy

Construction Economics
Therefore CE involves: 1. Construction Project economics: Design proposal, Constructions and Contract Management 2. Construction Industry Economics: Seek to overcome the effects of the problems and difficulties faced by the industry.


A sector of economy which plan, design, constructs, repair, maintains and eventually demolition of all kinds of building works, civil engineering works, mechanical and electrical engineering works and other works of similar in nature Management of all firms or organisation, processes and issues related to construction works.


Classification of Construction Industry 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

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


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

1. The Physical Nature of the Product

2. The Structure of the Industry 3. Nature of DD for the Construction Industry (determinant of demand) 4. Method of Price Determination


Large in size: required a wide geographical area; enormous inputs ; many activities; expensive. Lecture 1A

ii. Involvement of many expertise: professional; specialist; trades iii. Government as a primary client vi. Landed properties and tailor- made product v. Long life span of 60-100 years


i. Fragmented and segmented in nature (many parties involve) ii. The CI has a large diversities of products iii. Demand or product originates from the owner (procurement for services rather than a simple sale of goods) vi. Adversarial and conflict during project implementation (many phases of works; complex) v. High risk sector (subject to changes) iv. Lack of health and safety (dangerous sector) iiv. Construction Industry as an Engine of Growth

i. Unique, unable to stock its product ii. An investment product: -direct enjoyment (house) -mean for further production -services to public (infrastructure) -social investment (school, mosque etc.) iii. Government is the major client

i. The price can only be determined when construction completed (final account) ii. The Prices influenced by the location of the site iii. The prices influenced by the type of building vi. The prices influenced by the economic situation


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

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

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

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 issues