In construction, cash flows and power relations largely determine what gets built, how and by whom. From the first design to handover, decisions are steered by budgets, financing and the relationships between the parties involved.
Application
Cash flows in a project
A construction project begins with an estimate of the construction costs. On that basis, financing is arranged, often through equity, a loan or a mortgage. The available budget directly influences the design: choice of materials, level of finish, building services and even the size of the building are tuned to it. If the budget comes under pressure, a round of cost-cutting often follows in which the design is simplified.
Power relations
The client in principle sets the brief and the budget, but depends on the contractor, consultants and suppliers for execution. The contractor holds knowledge and capacity, and can use this to influence planning and price. In a tender, contractors compete for the work, which can lower the building price but may also bring risks to quality.
Property development
A property developer buys land, develops a plan and sells or lets the result. The return that a developer or investor seeks helps determine which type of building is financially viable. In this way, cash flows steer not only individual projects but also what appears in a neighbourhood or city.
A good grasp of costs, financing and contractual relations helps to avoid surprises during construction and to make better agreements.
Related terms
- Construction costs
- Tendering
- Building price
- Property developer
- Mortgage
Learn more about building terms in our knowledge base at fredsdiyplans.com.