Explanatory Guide
How the Model Works
A structured explanation of what the tool analyzes, how the baseline model is organized, and how scenario inputs shift the final value distribution.
Purpose of the Tool
This simulator explains how the total value of building a detached house is typically distributed across the different parts of a construction project.
It answers a simple question:
If a house project costs X, where does that money usually go?
The tool is educational. It does not estimate construction costs, market prices, or local building budgets.
Instead, it analyzes how a project value can be structurally decomposed into the main components of producing a house.
What the Tool Analyzes
The model works with a Development Project Value and a Land Value defined by the user.
The system then derives Total Project Value as the sum of those two inputs, and shows how that total is typically distributed across the main parts of a house project.
In other words, the simulator acts like a cost anatomy model, not a cost estimator.
Project Layers
A residential project can be understood as a set of structural layers through which value flows.
The model divides the total project value into the following components:
Land
The site where the house is built.
Construction
All activities required to physically build the house.
Professional Services
Architecture, engineering, surveys, and design work.
Transaction Costs
Legal, administrative, and brokerage costs associated with completing the project.
Contingency Reserve
A buffer included in construction budgets to absorb unforeseen conditions.
Financing
Interest and costs associated with borrowing money.
Development Margin
Profit and risk compensation when a developer is involved.
These layers describe how value moves through a construction project, not how accounting systems operate in a specific country.
Construction Anatomy
The construction layer can also be decomposed into the physical systems required to produce a building.
These systems represent the functional anatomy of a house.
Structure
Foundations, structural frames, slabs, and load-bearing elements.
Envelope
Exterior walls, insulation, windows, and roofing systems.
Mechanical Systems
Heating, cooling, and ventilation equipment.
Water Systems
Plumbing and drainage infrastructure.
Electrical Systems
Electrical distribution and lighting infrastructure.
Communications
Data and connectivity infrastructure.
Energy Systems
Systems such as solar panels or energy storage.
Interior Finishes and Assemblies
Floors, walls, ceilings, cabinetry, kitchens, and bathrooms.
External Works
Driveways, terraces, retaining walls, and site infrastructure.
These categories describe the physical composition of a residential building, independent of country, market conditions, or regulations.
Baseline Model
The simulator begins with a neutral baseline distribution representing a typical detached house project.
| Project Layer | Typical Share |
|---|---|
| Land | 25% |
| Construction | 55% |
| Professional Services | 8% |
| Transaction Costs | 5% |
| Contingency | 7% |
These values represent a balanced reference scenario.
They are not universal rules. They simply provide a coherent starting point for the model.
Parametric Modifiers
User inputs adjust the baseline distribution.
Examples of inputs:
- house size
- site slope
- basement
- construction system
- finish level
- glazing level
Each parameter activates modifiers that shift the internal distribution.
For example:
- a basement increases structural cost
- high glazing increases envelope share
- high-end finishes increase interior cost share
The model always preserves the rule:
All percentages must sum to 100%.
Budget Plausibility Check
Because the tool allows users to enter any project value, the system includes a plausibility check.
The model verifies whether the entered value is structurally compatible with the selected house characteristics.
If the value appears unrealistic, the system warns the user before running the simulation.
This check prevents extreme or nonsensical inputs while keeping the model independent from regional price databases.
Why These Baseline Percentages?
The baseline percentages used in this model are not derived from a single country, market report, or cost database.
They represent a structural reference scenario based on how residential projects are typically organized in many parts of the world.
The objective is not to predict prices but to create a balanced conceptual model that reflects the internal anatomy of a house project.
Land
Land is typically one of the largest components of a residential project.
In many housing markets, land represents a significant but highly variable share of the total project value. In dense urban areas it may dominate the project value, while in rural areas it may be relatively small.
The baseline value of 25% represents a balanced middle scenario where land is important but does not overwhelm the construction component.
Location parameters in the model can shift this value significantly.
Construction
Construction usually represents the largest single component of a house project.
This layer includes all activities required to physically produce the building, including labor, materials, equipment, and contractor operations.
In many residential projects, construction typically represents around half of the total project value, which is why the baseline model assigns it 55%.
This share is then further decomposed into the building systems that form the physical structure of the house.
Professional Services
Professional services include architecture, engineering, surveying, design studies, and technical coordination.
Although these activities are essential to the success of a project, they usually represent a relatively small share of the total budget compared with physical construction.
In many residential projects, professional services often fall within a range of 5-10%, which leads to the baseline value of 8%.
Transaction Costs
Building a house involves a number of administrative and legal processes.
These may include:
- legal documentation
- permits and administrative procedures
- brokerage and transaction fees
Although these costs vary by country, they commonly represent a modest but unavoidable share of the total project value.
The model assigns a baseline value of 5%.
Contingency Reserve
Construction projects almost always include a contingency allowance to address uncertainty.
Unexpected ground conditions, design adjustments, or market fluctuations can introduce additional costs during construction.
A contingency reserve of around 5-10% is commonly used in construction planning.
The model adopts a baseline value of 7%, representing a typical buffer for residential projects.
A Reference Model, Not a Universal Truth
These baseline percentages are best understood as a starting point for analysis, not as universal rules.
Different countries, building cultures, and project conditions may produce very different distributions.
The model intentionally begins with a neutral scenario, and then adjusts the distribution using parametric modifiers based on the characteristics of the project.
This approach allows the system to remain globally applicable, transparent, and educational.
What the Tool Is Not
The simulator is not:
- a construction cost estimator
- a professional budget calculation tool
- a regional price database
Actual construction costs vary significantly depending on:
- location
- regulations
- labor markets
- material prices
- specific project conditions
The goal of the model is to improve building literacy, helping people understand the internal structure of construction costs.