The construction industry has its own set of terms, abbreviations, and phrases, which can be quite confusing for both inexperienced and experienced individuals from other fields. The purpose of this Glossary of Construction Terms and Phrases is to make construction terminology more easily understandable. It provides clear and concise explanations of various terms, phrases, and abbreviations commonly employed in construction, design, contracting, engineering, and project management. The glossary is intended for all those who wish to understand construction terminology more easily.
Part 01 - Cost Management
The definitons sources is AACEI Library (https://library.aacei.org/terminology/welcome.shtml)
ACCRUAL
In earned value management, the actual costs that are recorded for goods and/or material received or services rendered before payment. For example, subcontractor service for a safety inspection for a specific piece of equipment in the month of January which was validated as completed may be recorded by accrual based on an estimated cost. However, the accruals originally recorded in January for the cost of this activity are adjusted after a final cost is determined. See also: ACTUAL COST (AC). (October 2013)
ACTUAL COST OF WORK PERFORMED (ACWP)
(1) The actual expenditures incurred by a program or project.
(2) The
direct costs actually incurred and the direct costs actually recorded and
assigned in accomplishing the work performed. These costs should reconcile
with the contractor's incurred cost ledgers when they are audited by the
client.
(3) In earned value management, a measure of the actual cost of
the work performed as of a data date.
Syn.: ACTUAL COST (AC). See also:
BUDGETED COST OF WORK PERFORMED (BCWP); BUDGETED COST OF WORK SCHEDULED
(BCWS); EARNED VALUE (EV); PLANNED VALUE (PV). (October 2013)
ALLOWANCES
(1) For estimating, resources included in estimates to cover the cost of known
but undefined requirements for an individual activity, work item, account or
sub-account.
(2) For scheduling, dummy activities and/or time included in
existing activities in a schedule to cover the time for known, but undefined
requirements for a particular work task, activity, account or subaccount.
(December 2011)
AMORTIZATION
(1) As applied to a capitalized asset, the distribution of the initial cost by
periodic charges to operations as in depreciation. Most properly applies to
assets with indefinite life.
(2) The reduction of a debt by either
periodic or irregular payments.
(3) A plan to pay off a financial
obligation according to some prearranged schedule. (November 1990)
ASSETS
Anything owned that has a monetary value, e.g., property, both real and personal, including notes, accounts and accrued earnings or revenues receivable and cash or its equivalent. Assets may be subdivided into current, fixed, etc. Property: real, i.e. physical; or intangible, i.e. knowledge, systems, or practices. Assets are created through the investment of resources in projects. (June 2007)
BACKCHARGE
Cost of corrective action taken by the purchaser, chargeable to supplier by contract terms. (June 2007)
BASIS
Written documentation that describes how an estimate, schedule, or other plan component was developed and defines the information used in support of development. A basis document commonly includes, but is not limited to, a description of the scope included, methodologies used, references and defining deliverables used, assumptions and exclusions made, clarifications, adjustments, and some indication of the level of uncertainty. (June 2007)
BREAKEVEN POINT
(1) In business operations, the rate of operations output, or sales at which
income is sufficient to equal operating costs or operating cost plus
additional obligations that may be specified.
(2) The operating
condition, such as output, at which two alternatives are equal in economy.
(3) The percentage of capacity operation of a manufacturing plant at which income will just cover expenses. (November 1990)
BUDGET
A planned allocation of resources. The planned cost of needed materials is usually subdivided into quantity required and unit cost. The planned cost of labor is usually subdivided into the workhours required and the wage rate (plus fringe benefits and taxes). (November 1990)
BUDGET AT COMPLETION (BAC)
The summation of time phased costs at any work breakdown structure (WBS) level. In earned value management according to the ANSI EIA 748 standard, all levels have BAC including work packages, planning packages, summary planning packages, performance management baseline (PMB), management reserve (MR), undistributed budget (UB), and contract budget baseline (CBB). (October 2013)
CASH FLOW
Inflow and outflow of funds within a project. A time-based record of income and expenditures, often presented graphically. (June 2007)
SALES PRICE
The revenue received for a unit of a product. Gross sales price is the total amount paid. Net sales are gross sales less returns, discounts, freight and allowances. Plant netbacks are net sales less selling, administrative and research expenses. Syn.: SELLING PRICE. (November 1990)
CODE OF ACCOUNTS (COA)
A systematic coding structure for organizing and managing scope, asset, cost, resource, work, and schedule activity information. A COA is essentially an index to facilitate finding, sorting, compiling, summarizing, or otherwise managing information that the code is tied to. A complete code of accounts includes definitions of the content of each account. Syn.: CHART OF ACCOUNTS. See also: COST CODES. (June 2007)
CONCURRENCY
Degree to which independent activities may be, or are performed at the same time (fully or partially). Degree to which phases, stages, or activities may be overlapped. (June 2007)
COST
In project control and accounting, it is the amount measured in money, cash expended or liability incurred, in consideration of goods and/or services received. From a total cost management perspective, cost may include any investment of resources in strategic assets including time, monetary, human, and physical resources. (January 2002)
COST CODES
Codes allocated to items or activities that allow costs to be consolidated according to the elements of the coding structure. See also: CHART OF ACCOUNTS; CODE OF ACCOUNTS (COA). (June 2007)
COST CONTROL
The application of procedures to monitor expenditures and performance against progress of projects or manufacturing operations; to measure variance from authorized budgets and allow effective action to be taken to achieve minimum costs. (November 1990)
COST ESTIMATING
Cost estimating is the predictive process used to quantify, cost, and price the resources required by the scope of an investment option, activity, or project. Cost estimating is a process used to predict uncertain future costs. In that regard, a goal of cost estimating is to minimize the uncertainty of the estimate given the level and quality of scope definition. The outcome of cost estimating ideally includes both an expected cost and a probabilistic cost distribution. As a predictive process, historical reference cost data (where applicable) improve the reliability of cost estimating. Cost estimating, by providing the basis for budgets, also shares a goal with cost control of maximizing the probability of the actual cost outcome being the same as predicted. (November 2012)
DE-ESCALATE
A method to convert present-day costs or costs of any point in time to costs at some previous date via applicable indexes. (November 1990)
DEPRECIATION
(1) Decline in value of a capitalized asset.
(2) A form of capital
recovery applicable to a property with a life span of more than one year, in
which an appropriate portion of the asset's value is periodically charged to
current operations. (November 1990)
DIRECT COSTS
Costs of completing work that are directly attributable to its performance and
are necessary for its completion.
1) In construction, the cost of
installed equipment, material, labor and supervision directly or immediately
involved in the physical construction of the permanent facility.
2) In
manufacturing, service, and other non-construction industries: the portion of
operating costs that is readily assignable to a specific product or process
area. Syn.: CAPITAL, DIRECT. (June 2007)
ESCALATION
A provision in costs or prices for uncertain changes in technical, economic, and market conditions over time. Inflation (or deflation) is a component of escalation. (December 2011)
ESTIMATE AT COMPLETION (EAC)
An estimate of the total cost an activity or group of activities will accumulate upon final completion. (June 2007)
ESTIMATE TO COMPLETE (ETC)
(1) In general terms, the estimated resources (i.e., work hours, costs, time,
and/or materials) required to complete a scope of work.
(2) In earned
value management, an estimate of the remaining costs required to complete an
activity or group of activities. ETC = estimate at completion (EAC) – actual
cost (AC), is often used to calculate the estimated cost to complete the
project or program under discussion. (October 2013)
EXPENSE
Expenditures of short-term value, including depreciation, as opposed to land and other fixed capital. See also: PLANT OVERHEAD. (November 1990)
FIXED COST
Those costs independent of short term variations in output of the system under consideration. Includes such costs as maintenance; plant overhead; and administrative, selling and research expense. For the purpose of cash flow calculation, depreciation is excluded (except in income tax calculations). In construction this includes general and administrative costs. (June 2007)
FORECASTING
(1) The work performed to estimate or predict future conditions and events.
Forecasting establishes the range of possibilities within which one can come
to focus on the objectives one will commit to achieve. Forecasting is the work
involved in anticipating future events, while establishing objectives is the
work necessary to commit oneself to accomplish predetermined results.
(2)
When in respect to resource requirements, considering future conditions and
events, it is a synonym for cost estimating. Forecasting and cost estimating
are often confused with budgeting, which is a definite allocation of resources
and not a prediction or estimate. (June 2007)
FRONT END LOADING (FEL)
(1) In the context of the project development process, defining the project
scope and plans in a way that assures the best practical level of definition
is achieved as needed to support a project decision gate.
(2) In the
context of pricing proposals, a technique used in the development of the
project schedule of values to influence cash flow. See also: UNBALANCING.
(August 2022)
FUTURE VALUE
The value of a benefit or a cost at some point in the future, considering the
time value of money.
A single lump sum value at a future time “n” that is
equivalent to:
(1) A prior lump sum value.
(2) A series of prior
values (uniform or gradient).
GENERAL & ADMINISTRATIVE COSTS (G&A)
The fixed cost incurred in the operation of a business. G&A costs are also associated with office, plant, equipment, staffing, and expenses thereof, maintained by a contractor for general business operations. G&A costs are not specifically applicable to any given job or project. Syn.: ADMINISTRATIVE COST. See also: OVERHEAD. (June 2007)
GENERAL TERMS AND CONDITIONS
(1) That part of a contract, purchase order, or specification that is not
specific to the particular transaction but applies to all transactions.
(2)
General definition of the legal relationships and responsibilities of the
parties to the contract and how the contract is to be administered. They are
usually standard for a corporation and/or project. (June 2007)
INDIRECT COSTS
Costs not directly attributable to the completion of an activity, which are
typically allocated or spread across all activities on a predetermined
basis.
(1) In construction, (field) indirects are costs which do not
become a final part of the installation, but which are required for the
orderly completion of the installation and may include, but are not limited
to, field administration, direct supervision, capital tools, startup costs,
contractor's fees, insurance, taxes, etc.
(2) In manufacturing, costs not
directly assignable to the end product or process, such as overhead and
general purpose labor, or costs of outside operations, such as transportation
and distribution. Indirect manufacturing cost sometimes includes insurance,
property taxes, maintenance, depreciation, packaging, warehousing and
loading.
INFLATION
A persistent increase in the level of consumer prices, or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services. See also: DEFLATION. (December 2011)
INTEREST
(1) Financial share in a project or enterprise.
(2) Periodic compensation
for the lending of money.
(3) In economy study, synonymous with required
return, expected profit, or charge for use of capital.
(4) The cost for
the use of capital. Sometimes referred to as the time value of money.
(November 1990)
INTEREST RATE
The ratio of the interest payment to the principal for a given unit of time and is usually expressed as a percentage of the principal. (November 1990)
MANAGEMENT RESERVE
(1) An amount added to an estimate to allow for discretionary management
purposes outside of the defined scope of the project, as otherwise estimated.
May include amounts that are within the defined scope, but for which
management does not want to fund as contingency or that cannot be effectively
managed using contingency. Syn.: RESERVE; RESERVE ALLOWANCE.
(2) In
earned value management according to the EIA 748 standard, an amount held
outside the performance measurement baseline, commensurate with the level of
risks and opportunities identified by the project or withheld for management
control purposes. Management reserve has no scope, is not specifically
associated to individual risks, and is not time-phased. It is typically not
estimated or negotiated and is created in the budget development process. (May
2021)
MARK-UP
As variously used in construction estimating, includes such percentage applications as general overhead, profit, and other indirect costs. When mark-up is applied to the bottom of a bid sheet for a particular item, system, or other construction price, any or all of the above items (or more) may be included, depending on local practice. (November 1990)
OVERHEAD
A cost or expense inherent in the performing of an operation, (e.g., engineering, construction, operating, or manufacturing) which cannot be charged to or identified with a part of the work, product or asset and, therefore, must be allocated on some arbitrary base believed to be equitable, or handled as a business expense independent of the volume of production. See also: GENERAL & ADMINISTRATIVE COSTS (G&A). (May 2012)
PRICE
The amount of money asked or given for a product (e.g., exchange value). The chief function of price is rationing the existing supply among prospective buyers. (November 1990)
PROFIT
1. PROFIT, GROSS PROFIT – Earnings from an on-going business after direct and
project indirect costs of goods sold have been deducted from sales revenue for
a given period.
2. PROFIT, NET PROFIT – Earnings or income after
subtracting miscellaneous income and expenses (patent royalties, interest,
capital gains) and federal income tax from operating profit.
3. PROFIT,
OPERATING PROFIT – Earnings or income after all expenses (selling,
administrative, depreciation) have been deducted from gross profit. (June
2007)
PROFIT MARGIN
A ratio of profit to either total cost or total revenue. Usage often varies depending on the type of company. Retail companies generally use the profit to revenue ratio. Wholesale companies and contractors generally use the profit to cost ratio. (June 2007)
REFURBISHMENT COSTS
Costs incurred during the life cycle of an asset for betterments, restorations, replacements, and/or adaptations that enhance the asset’s value (e.g., extending useful life, enabling new or different uses). This cost is usually planned as a project and capitalized as opposed to maintenance and repair, which are usually planned as operational costs and expensed.
RESOURCE
Any consumable required to accomplish an activity. From a total cost and asset management perspective, resources may include any real or potential investment in strategic assets including time, monetary, human, and physical. A resource becomes a cost when it is invested or consumed in an activity or project. (October 2017)
RESOURCE CODE
Code used to identify a given resource type. See also: CODE; CODE OF ACCOUNTS (COA). (June 2007)
RESOURCE LEVELING
Any form of network analysis in which scheduling decisions are driven by resource management concerns (e.g., limited resource availability or difficult to manage changes in resource levels). Syn.: LEVELING; RESOURCE OPTIMIZATION. See also: RESOURCE SMOOTHING. (June 2007)
RISK
(1) An ambiguous term that can mean any of the following: a) All uncertainty
(threats + opportunities); or b) Undesirable outcomes (uncertainty = risks +
opportunities); or c) The net impact or effect of uncertainty (threats –
opportunities). The convention used should be clearly stated to avoid
misunderstanding.
(2) Probability of an undesirable outcome.
(3) In
total cost management, an uncertain event or condition that could affect a
project objective or business goal.
S-CURVE
(1) In the context of risk management, a cumulative distribution of the
probability of values in a defined range produced by quantitative risk
analysis.
(2) In the context of project control, a cumulative
distribution of costs, labor hours, progress, or other quantities plotted
against time.
SUNK COST
A cost that has already been incurred and which should not be considered in making a new investment decision. [2] (November 1990)