‘Think Simple’, as my old master used to say – meaning reduce the whole of its parts
into its simplest terms, getting back to first principles.
Frank Lloyd Wright, American Architect (1867-1959)
‘First principles pricing’ is the good old-fashioned estimating that is part of every cost planner’s bread’n’butter…
And though it is not something that you will need to do daily, it is handy to understand … and can be helpful when reviewing costs, considering cost options or alternatives and especially handy when reviewing builders variations.
Estimating, pricing and costing from “First Principles” is the process of ‘building-up’ prices, or rates, for an item or piece of work considering all the parts and activities needed to put it together.
The components to be considered include:
- Material supply
- Labour charge-out rates and costs
- Productive time
- Non-productive labour
- Labour constants;
Plant refers to owned or hired equipment, machinery, scaffold, etc.
Items of plant have a cost of their own, to keep and run, including:
- Capital cost and finance
- Wear and tear
- Repairs, replacements, and servicing
- Consumables – petrol, oil, etc.
- Delivery, transport
- Non-productive time
- Licenses, insurance and registration
- And sometimes, supervision and specialist operators.
Overheads and profit
- Off-site and on-site costs such as administration, finance and incidentals
- Profit… which also includes risk
Sundries and fixings
This includes items such as glue, nails, small tools, mortar etc. They are minor, but are still costs worth considering when establishing a unit-rate for a piece of work.
Each of the components mentioned above would have some sundry and minor costs associated with them.