Hard Costs vs Soft Costs in Construction Explained
Types of hard costs
Purchases that are directly related to the construction process, in which construction workers construct structures, are referred to as “hard costs,” also known as “brick and mortar costs.” Common types of hard costs include:
Raw materials
The most fundamental kind of hard costs are the components that make up a building or other construction project. Most likely, a hard cost is anything that is physically a part of the new structure. Examples of typical raw materials in a construction budget include:
Construction labor
Construction workers physically contribute to construction projects, so paying them is a type of hard cost. You must be able to calculate the total amount that needs to be paid to all employees and subcontractors during the course of a project. Examples of hard costs involving labor are:
Equipment
This is a hard cost if you need to buy new machinery for a new project. Because they have an immediate effect on a construction team’s ability to physically complete a project, maintenance costs for existing equipment can also be categorized as hard costs. To make sure you have the money to finish a project, it’s crucial to account for the cost of the equipment. Common equipment hard costs are:
Interior fixtures
Permanent interior design features are considered hard costs because they are required to complete a construction project. Other raw materials are made aesthetically pleasing and functional for the client by utility features and other finishings. Hard costs for interior fixtures can include:
What are hard costs vs. soft costs?
Construction spending falls into two categories: hard costs and soft costs, each of which describes how an expense relates to a project. Both hard costs and soft costs must be taken into account in a construction budget to cover all potential purchases over the course of the project.
Hard costs are expenses that are primarily related to the actual physical construction of a project. Hard costs include, for example, the cost of hiring workers to build a building and the rental of equipment. Soft costs are expenses like legal fees and safety inspections that indirectly support construction activities. To efficiently allocate resources and finance the project, categorizing expenses as soft or hard can help you understand how each component of construction relates to the overall budget.
Estimating hard costs
Because hard costs are determinable, tangible, and finite, estimating them is a relatively straightforward process. If construction doesn’t go as planned, some additional hard costs may arise, but they usually follow a predictable pattern. Making a list of all the tools and supplies you require for the project and obtaining price quotes from local merchants will help you determine the project’s hard costs. then estimate labor costs by investigating the number of hours of labor that went into related projects.
When do hard costs occur?
Hard costs typically occur during the construction process. Construction companies typically buy all the supplies and materials they anticipate requiring during the course of construction at the beginning of a project. They spend more money on those hard costs as other needs develop or the inventory depletes. Payroll expenses and other hard costs are another constant in the construction process.
Once the building is complete, the construction team won’t have any further hard costs. There won’t be any additional hard costs because the building is finished, though they may settle bills and invoices from earlier in the process.
Types of soft costs
Soft costs are indirect costs associated with a construction project that don’t directly affect the construction process itself. The following are the main categories of soft costs that arise prior to, during, and following construction:
Planning
A soft cost is the planning and research that go into creating construction plans. Before a project starts, this includes paying engineers and architects to create plans and conducting studies and other types of research. The construction team’s ability to develop a project vision and plan for upcoming construction procedures is aided by soft costs associated with planning. Typical planning costs include:
Administration
Despite having no direct impact on the construction process, administrative costs are necessary operating costs for construction projects. The construction budget should detail how much money will be required for administrative costs, such as staff salaries and supplies, to make sure the project is well-managed and adheres to all applicable regulations. Administrative cost costs in construction can include:
Insurance
Because having insurance has no direct effect on the development of a new construction project, it is a soft cost. Construction insurance costs are also ongoing and may continue after construction is completed. To protect themselves and their assets, construction companies may buy a variety of insurance policies, including the following:
Legal fees
Planning a construction project and ensuring that it complies with local code regulations involve a number of legal considerations. Even though legal expenses are a necessary part of operating a construction company, they are not directly related to the building itself, so any kind of legal fee is a soft cost. Typical legal soft costs in construction can include:
Real estate
An essential cost for any construction project is purchasing the land on which it will be built. Real estate is physically related to a construction project, but because land acquisition and real estate expenses can happen before and after a construction project, it is typically regarded as a soft cost. Types of real estate soft costs are:
Property management
The management and upkeep of a new project are not covered by all construction projects, but those that do will have additional ongoing soft costs. Whoever financed the construction must account for property management soft costs in their long-term budget if they intend to maintain their property. Due to the fact that property management supports a building’s use rather than its actual construction, it is a soft cost. Examples of soft costs related to property management are:
When do soft costs occur?
Soft costs may arise before, during, or after construction at any time. Soft costs are more prevalent during the planning stage of construction projects than they are during the building, inspection, and management phases.
Estimating soft costs
Because they can increase and change over time, soft costs are more difficult to predict than hard costs. It’s important to take into account various possible scenarios and predict a range of prices to anticipate when estimating soft costs. For instance, soft costs associated with a lawsuit could continue for years after the project is finished if a legal issue arises during construction. A sizable discretionary fund should be set aside for soft costs in order to account for varying needs and ongoing costs.
FAQ
What is a soft cost example?
Post-construction soft costs: These may include taxes, unpaid legal fees, sales and leasing fees, building management fees, insurance for repairs and upkeep of the property, replacement costs, landscaping, security, and insurance.
What are hard costs?
Hard costs are expenses incurred during the physical construction of a space, including the building of walls, electrical wiring, and plumbing. They also cover the labor that goes into the construction. Around 75% to 85% of the costs of your project will most likely be made up of hard costs.
What is the meaning of soft cost?
A cost item that is not considered a direct construction cost is referred to as a “soft cost” in the construction industry and, more specifically, in contractor accounting. Soft costs are pre- and post-construction costs such as architectural, engineering, financing, and legal fees.
What are soft costs in business?
Soft costs, also referred to as indirect costs, are routine overhead costs that can be readily connected to a particular client matter but are not paid directly to the vendor on the client’s behalf. Soft costs commonly include phone, internet, materials for legal research, copy costs, etc.
