Cost Management and Production Control for Construction Companies

P.R.C. Marchesan1 & C.T. Formoso2

1MSc. – Research Assistant, Federal University of Rio Grande do Sul, Brazil - Av. Osvaldo Aranha 99, 3o andar, Porto Alegre, RS. e-mail: prmarchesan@iname.com
2PhD – Associate Professor, Federal University of Rio Grande do Sul, Brazil - Av. Osvaldo Aranha 99, 3o andar, Porto Alegre, RS. e-mail: formoso@vortex.ufrgs.br

Abstract

Construction, like other industries, has been experiencing profound changes involving both the business environment and internal organization. In this context, new cost management information that provides better understanding and helps managing increasingly turbulent and complex production processes is needed. Activity-based costing (ABC) has been suggested as the leading contender method to replace traditional cost accounting systems, due to its capability to make the processes and activities performed in the organization more transparent and observable. This paper reports the main results of a research project which aimed to develop a cost accounting system capable of providing useful information to manage production processes in construction and devise a model that integrates this system to the Production Planning and Control process, based on the new operations management paradigm and on the ABC ideas. The study involved three case studies, a series of interviews with construction managers and the development of prototype software. The main conclusions of this research work are that the cost information provided by the proposed management accounting system (a) makes the production processes more transparent; (b) helps to identify production inefficiencies; (c) encourages managers to introduce corrective actions; and (d) allows the evaluation of corrective actions to be undertaken. The study also indicated that the proposed model has contributed to establish systematic procedures for production control concerned not only with time management but also with cost management.

Keywords

Cost management, activity-based costing, lean construction, production control.

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Reference

Marchesan, P. & Formoso, C. 2001, 'Cost Management and Production Control for Construction Companies' In:, Ballard, G. & Chua, D., 9th Annual Conference of the International Group for Lean Construction. Singapore, Singapore, 6-8 Aug 2001.

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