Construction Financial Glossary

Indirect Costs Definition

Indirect costs in construction are expenses that are not directly tied to a specific project activity but are necessary for overall project execution. These costs include administrative expenses, insurance, and general overhead.

Types of Indirect Costs

  1. Fixed Indirect Costs – Expenses that remain constant regardless of project size, such as office rent and salaries for administrative staff.
  2. Variable Indirect Costs – Costs that fluctuate with project activity, such as utilities and equipment depreciation.

Managing Indirect Costs Effectively

To ensure profitability, contractors must allocate indirect costs accurately across projects. Financial management software can help track and distribute these costs efficiently, preventing budget overruns.



Related Terms: Overhead Costs, General Conditions, Contingency Budget, Direct Costs

FAQs

How are indirect costs different from direct costs?

A: Direct costs are expenses directly tied to a specific project, such as materials and labor. Indirect costs are shared expenses that support overall operations.

Can indirect costs be reduced?

A: Yes, indirect costs can be controlled by optimizing operational efficiency, reducing waste, and negotiating better rates for fixed expenses.

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