The implications of a new production paradigm for project cost control

A new production paradigm has taken manufacturing by storm since the 1980s. Construction, conceived as project based production, is no exception to this change in paradigm. Improvement in practice cannot be achieved without theory. However, cost control has been perceived as a set of practices and has not received researchers' attention in light of its theoretical implication. This research tried to determine the theoretical background of current cost control in construction, and found that the current cost control practices are not consistent with the new production paradigm. This research was performed in two areas: overhead cost control and direct cost control. For each area, the research studied current practice and the theories underlying those practices. It showed that current practice does not support the new production paradigm. The research then suggested an alternative cost control method to support new production paradigm. The suggested control methods were tested for consistency with the new production paradigm. In the area of overhead cost control, this research showed that current control uses resource-based costing and volume-based allocation, techniques based on the transformation view and manage-by-results (MBR) thinking. The research proposed a new overhead control method, profit point analysis (PPA), which adopted activity-based costing from manufacturing. The case study performed to test the new method suggested that it belongs to the new production paradigm in that it conceptualizes production as a flow and adopts manage-by-means (MBM) thinking. The study of project direct costs showed that cost variance analysis at the operation level neglects dependencies between activities, which is characteristic of theories that conceptualize production as a transformation of inputs into outputs. Managers using microscopic cost variance analysis have manage-by-results (MBR) thinking. The study proposed the new method of EMCVA (eliminating microscopic cost variance analysis) in which process variance control was adopted instead of cost tracking and cost analysis at the level of operations. The new method reflects the new production paradigm and its management thinking in that (1) it prompts a change in attitude of management from an accounting-conscious mind to production-conscious mind, (2) it empowers direct workers, (3) it eliminates unnecessary cost tracking, reporting, and analysis at the level of operation, and (4) it facilitates reducing process variability. In the domain of lean construction, this research applied the new production paradigm to the discipline of cost control. The research contributed to the advance of lean construction by exploring the implication of the new production paradigm and by proposing how project cost control should change in response.