The Effect of Economic Variation in Construction Projects on Contractor Firms

Kajsa Simu1 & Helena Lidelöw2

1Ph.D., Adjunct Lecturer, Kajsa Simu, Construction Management, Dep. of Civil, Environmental and Natural Resources Engineering, Luleå University of Technology.
2Associate Professor, Senior Lecturer, Helena Lidelöw, Timber Structures, Dep. of Civil, Environmental and Natural Resources Engineering, Luleå University of Technology.

Abstract

Lean is about finding a flow efficient way to deliver value to the client. To do so reducing variation is vital. The construction industry is project-based and variation in project deliveries is more the rule than the exception. Being able to predict economic variation in projects is important for contractors and other project-oriented firms since it affects the total turnover for the firm. The aim of this research is to capture the variation in economic profit in a project, estimate the effect this variation has on the aggregated firm level, and discuss the implications for flow efficient operational strategies to adhere. Economic reports were collected from 1000 projects, throughout 2 years at a large Swedish contractor. The data contains quarterly economic prognoses and results per project. From the data, the variation in profit was deducted. The variation was used in a statistical model of the firm, reflecting five levels of financially liable units. The results show that variations in the economic results on the project level are evened out on the firm level. Thus, the reduction of variation sought in Lean implementation does not emerge as positive in accounting. Measuring economic results on the project level drives a focus on resources in the value chain. This is a hindrance for implementation of a flow efficient operational strategy as Lean. Therefore, key performance indicators capturing flow efficient strategies for control on project and firm levels need to be developed.

Keywords

Flow efficiency, operations strategy, project coverage, variation control.

Files

Reference

Simu, K. & Lidelöw, H. 2014, 'The Effect of Economic Variation in Construction Projects on Contractor Firms ' In:, Kalsaas, B.T., Koskela, L. & Saurin, T.A., 22nd Annual Conference of the International Group for Lean Construction. Oslo, Norway, 25-27 Jun 2014. pp 221-231

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