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 Essentially, it uses ABC to get a more accurate
Cost Management picture of costs and then applies controlling
mechanisms to manage those costs. This can be
Activity-Based cost control particularly useful in industries like construction,
where overheads can be significant and complex
(Jaya et al., n.d).

The CMCPs’
ABC system.
construction tools
project Activity-based cost control (ABCC)
01
02
03 and techniques.
overheads
is a broader approach that utilizes the insights gained from activity-based
costing to actively manage and control costs within an organization. (Cheng,
2009).

Combines the principles of Activity-Based Costing with the concepts of

controlling to manage project overheads more effectively (Jaya &
Pathirage, n.d).

Activity-based cost control (ABCC) Involves identifying the key

activities that drive costs, establishing performance measures for those
activities, and implementing control mechanisms to optimize the efficiency
and effectiveness of the activities. This enables organizations to better
understand their cost structure, identify areas for improvement, and make
strategic decisions to enhance profitability and competitiveness.

The Activity-Based cost control (ABC)

Is system offers greater accuracy in product costing but requires more
resources to generate this information. The justification for adopting an
activity-based costing approach must rely on the benefits of improved
decisions resulting from more accurate product costs. (Hansen, Guan, and
M. Mowen,)
This method helps managers understand the real cost drivers and make more
informed decisions about pricing, product mix, and resource allocation. On
the other hand, activity-based cost control extends this approach by using the
activity-based costing information to actively manage and control costs.
(Werner & Xu, 2012)

The Activity-Based Cost Controlling (ABCC) Model for Improving the Management of
Construction Project Overheads (Jaya thesis)
The ABCC model was developed using three converged themes:
 The management of construction project overheads.
 The CMCPs’ tools and techniques.
 The ABC system.

Page 2
1. Identification of Construction Project Overheads (Jaya and Ariany)

However, project overheads in constructions are classified into two types: general-office overheads and site-
project.

General-office overheads maintain general expenditure for the survival of the construction company,

While site-project overheads are allocated to support all activities of the particular construction project.

There’re forty-seven (47) project overheads are identified and categorized into four hierarchies of construction
project overheads that include:

unit-level, batch-level, project-sustaining, and facility-sustaining overheads.

Construction project overheads must be separated from the other cost components (e.g., materials, labour,
contingency, and profit margins) and from a compounded contract of project prices.

1.1 Identification of Critical Success Factors (CSFs)

The CSFs used to improvement the cost management and controlling practices – the CMCPs of construction
project overheads.

Table-1 shows the forty (40) CSFs which were identified from the construction industry. These forty CSFs
were grouped into eight (8) important CSFs on the basis of ‘similarities and relationships’ of information,
issues, and challenges inherent between them.
Therefore, the top three priorities out of eight important CSFs that could provide the most improvement to the
cost management and controlling practices – the CMCPs of construction project overheads, are:
1st. The requirement for a robust method and tool – METOOL implies that the project managers substantially
considered the availability of appropriate methods and effective tools and techniques in order to improve the
CMCPs of construction project overheads.

2nd. Understanding the market condition – MARCON will inform the actual resource prices to forecast
realistic project costs and expenses to avoid financial losses, and in turns maintain project benefits including
construction project overheads.

3rd. Managing project complexity - PROCOM provides the real challenges to be faced by project managers,
as well as the opportunities to create individual and organizational competencies and effective CMCPs of
construction project overheads.

2. The CMCPs’ tools and techniques (Jaya Thesis)

The cost management and controlling practices – the CMCPs of project overheads may follow analysis
procedures, and include three important aspects in construction activities, they are:

activity costing, activity scheduling, and activity monitoring.

Activity costing is a systematic process for aggregating costs that has followed the method of cost measurement
and analysis procedures of the ABCC model described in Section 5.4.3.

Activity scheduling is a process of approximating activity rates per unit of duration and determining a requirement
of total time durations for completing particular activities (refer to Section 5.4.3.6).

Activity monitoring focuses on managing and controlling a technical process and physical progress for updating
the status of the project and cost performance regularly in respect of activity cost schedules.

The effective tools and techniques of the Cost Management and Cost Practice’s (CMCP) incorporate the most
important Critical Success Factors (CSFs) and the Activity-Based Cost Controlling (ABCC) model to improve the
management of project overheads during the construction stage of construction projects.

The CMCPs of project overheads during the construction stage may consider two major processes of cost
management,

These are construction cost budgeting and operational cost controls (Concept 33).

Construction cost budgeting is the process of aggregating an individual cost of activities to establish authorized
costs that normally take place prior to the construction operation,

While Construction cost control is the process of monitoring the status of cost performance and managing cost
changes to update authorized costs that are generally carried out during the construction stage.

These two typical cost management processes (cost budgeting and controlling) provide a substantial relationship of
cost measurements enabling the development of the ABCC model for improving the management of project
overheads and examine the implementation of the CMCPs’ tools and techniques.
 3. The ABC system

The Activity-Based cost control (ABC)

Is system offers greater accuracy in product costing but requires more resources to generate this information. The
justification for adopting an activity-based costing approach must rely on the benefits of improved decisions resulting
from more accurate product costs. (Hansen, Guan, and M. Mowen,)

This method helps managers understand the real cost drivers and make more informed decisions about pricing,
product mix, and resource allocation. On the other hand, activity-based cost control extends this approach by using
the activity-based costing information to actively manage and control costs. (Werner & Xu, 2012)

ABC Users

 The Goodmark Company example also helps us understand when ABC may be useful for a firm. First, multiple
products are needed.

 ABC offers no increase in product-costing accuracy for a single-product setting.

 Second, there must be product diversity.

 If products consume non-unit-level activities in the same proportion as unit-level activities, then ABC assignments
will be the same as functional-based assignments.

 Third, non-unit-level overhead must be a significant percentage of production cost. If it is not, then it hardly
matters how the overhead is assigned to products. Thus, firms that have plants with multiple products, high product
diversity, and significant non-unit-level overhead are candidates for an ABC system.

 One survey studied these conditions.1 Of the firms surveyed, 49 percent had adopted ABC to some extent.

 Firms that had a higher potential for distorted costs were more likely to adopt ABC.

 Adopting firms also reported a greater need or utility for accurate cost information for decision making.

The Goodmark Company example highlights several conditions under which Activity-Based Costing (ABC) may be
particularly useful for a firm:

1. Multiple Products: ABC is beneficial in environments where a firm produces multiple products. In single-
product settings, the complexity added by ABC does not enhance product-costing accuracy.

2. Product Diversity: For ABC to be advantageous, there must be a variety of products that consume resources
differently.

If all products consume non-unit-level activities (activities that don't vary directly with the number of units
produced, such as machine setup or quality inspections) in the same proportion as unit-level activities
(activities that vary with the number of units produced, such as direct labor or materials), then ABC
assignments will mirror traditional cost assignments.

3. Significant Non-Unit-Level Overhead: ABC is most effective when non-unit-level overhead costs constitute
a significant portion of total production costs. If non-unit-level overhead is minimal, the method of assigning
 overhead costs becomes less impactful.

Application in Firms:

A survey examining these conditions found that 49 percent of firms had adopted ABC to some extent. Firms more
likely to experience cost distortions due to diverse product lines and significant non-unit-level overhead were more
inclined to adopt ABC. Additionally, firms that had adopted ABC reported a greater need for accurate cost information
to support decision-making processes.

Conclusion:

ABC is particularly useful for firms that:

 Manufacture multiple products.

 Have high product diversity.
 Incur significant non-unit-level overhead costs.

These factors ensure that the increased accuracy in cost allocation provided by ABC can significantly enhance
decision-making and improve cost management.

ACTIVITY-BASED COSTING SYSTEM

AIM

This research seeks to develop an Activity Based Cost Controlling (ABCC) model through the identification of overheads
in construction projects, the analysis of Critical Success Factors (CSFs), and application of the ActivityBased Costing
(ABC) system for improving the Cost Management and Controlling Practices of construction project overheads.

OBJECTIVES

 To identify construction project overheads

 To analyse the most important CSFs

 To investigate the ABC system

 To develop the ABCC model

 To justify the ABCC model through project case studies and expert interviews

METHODOLOGY

 The critical realist philosophical stance with multiple case studies was adopted.

 Data collection used survey questionnaires, project documentation, observations, and interviews.

 Data analysis utilised descriptive statistics,

Analytic Hierarchy Process (AHP), the ABC system and Earned Value Measurement (EVM), content analysis and
cognitive mapping.

RESULTS

 About 47 item overheads were identified.

Only 39 overheads are often present in construction projects and are categorised in :Unit, Batch, Project, and Facility
levels.

 The 40 CSFs were analysed and grouped

into eight, from which the three were prioritised (requirement of a robust method and tool-METOOL, understanding
the market condition-MARCON, and managing project complexity-PROCOM).
  The ABCC model was developed using

three themes (the construction project overheads, the ABC system, and the CMCPs).

 The three CSFs are incorporated into the

CMCPs’ tools and techniques for implementation of the ABCC model.

 The Opinions of experts (senior and operational management levels) were used for validating the ABCC model.

In contrast, activity-based cost control is a broader approach that utilizes the insights gained from activity-based
costing to actively manage and control costs within an organization.(Cheng, 2009)

This method helps managers understand the real cost drivers and make more informed decisions about pricing,
product mix, and resource allocation. On the other hand, activity-based cost control extends this approach by using
the activity-based costing information to actively manage and control costs.(Werner & Xu, 2012)

Activity-based cost control involves identifying the key activities that drive costs, establishing performance measures
for those activities, and implementing control mechanisms to optimize the efficiency and effectiveness of the
activities. This enables organizations to better understand their cost structure, identify areas for improvement, and
make strategic decisions to enhance profitability and competitiveness.

The application of activity-based costing and activity-based cost control can be particularly beneficial in
manufacturing environments, where indirect and overhead costs often make up a significant portion of total costs.

Activity-Based Cost Controlling is a method of cost accounting that identifies and analyzes activities that drive costs
in an organization.(Jaya et al., n.d) It aims to allocate overhead costs more accurately to products or services based on
their actual consumption of resources. Do you want to know more about ABCC?

Activity-Based Cost Controlling combines the principles of Activity-Based Costing with the concepts of controlling
to manage project overheads more effectively(Jaya & Pathirage, n.d). Essentially, it uses ABC to get a more accurate
picture of costs and then applies controlling mechanisms to manage those costs. This can be particularly useful in
industries like construction, where overheads can be significant and complex(Jaya et al., n.d).

Prompt Inspiration

 Can you explain the concept of Activity-Based Cost Controlling (ABCC) and how it differs from
traditional cost control methods?

 What are the main objectives of implementing an Activity-Based Cost Controlling (ABCC) model in
construction projects, according to the research mentioned in the PDF?

 How does the Activity-Based Cost Controlling (ABCC) model contribute to improving the
management of project overheads in the construction industry, based on the information provided
in the PDF?

You're right to point out that while ABC lays the groundwork, ABCC takes it a step further. Let's illustrate with a
case study and then delve into the nuanced differences:

Case Study: Furniture Manufacturer

Imagine a furniture manufacturer producing both standard and custom-designed pieces. They've been using
traditional costing but suspect it's leading to inaccurate pricing, especially for their custom line. They decide to
implement ABCC:

1. ABC Phase - Identifying Activities & Costs:

 Activities: They identify activities like design consultation, material cutting, assembly, finishing, quality
control, and packaging.
 Cost Assignment: They meticulously track costs associated with each activity, including labor, materials,
equipment depreciation, and facility costs.

2. ABCC Phase - Controlling Costs:

 Cost Driver Analysis: They analyze what drives the cost of each activity:
o Design Consultation: Number of design revisions, complexity of customization.
o Material Cutting: Types of materials used, cutting patterns, material waste.
o Assembly & Finishing: Labor hours, skill level required, type of finish.
o Quality Control: Number of inspections, defect rate.
 Control Measures: Armed with this knowledge, they implement targeted cost control measures:
o Standardize Design Elements: To reduce design revision costs, they create a library of standard
components that can be customized, reducing design time.
o Optimize Material Usage: They invest in software that optimizes cutting patterns to minimize
material waste and negotiate bulk discounts for frequently used materials.
o Training & Skill Enhancement: They provide training to improve assembly efficiency and reduce
defects, lowering quality control costs.
o Continuous Improvement: They regularly review activity costs and driver data to identify further
opportunities for improvement.

ABC vs. ABCC: The Key Differences

FeatureActivity-Based CostingActivity-Based Cost ControlPrimary FocusCost assignment: Accurately allocating

costs to products or services.Cost management: Understanding and controlling the factors driving
costs.ScopePrimarily focused on product costing and pricing decisions.Broader scope, encompassing process
improvement, performance measurement, and strategic decision-making.Action OrientationProvides cost
information for decision-making.Goes beyond information to drive actions that reduce costs and improve
efficiency.Time HorizonOften used for periodic cost analysis and reporting.Emphasizes continuous monitoring and
improvement of cost drivers over time.

In essence: ABC is like getting a detailed map of your costs, while ABCC is using that map to navigate towards cost
efficiency and better business outcomes.

That's a great example! Let's explore how Cold Stone Creamery, with its made-to-order ice cream creations, could
implement ABCC:

Case Study: Cold Stone Creamery

1. ABC Phase - Identifying Activities & Costs:

 Activities: We'd first identify the key activities involved in serving a customer at Cold Stone:
o Customer Greeting & Order Taking: Explaining options, taking custom orders.
o Ice Cream Scooping & Mixing: Handling different ice cream flavors and mix-ins.
o Preparation of Waffle Bowls/Cones: Making fresh waffle bowls/cones.
o Serving & Presentation: Presenting the final product.
o Cleaning & Sanitation: Maintaining hygiene standards.

 Cost Assignment: Next, we'd track costs associated with each activity:
o Labor: Wages of employees involved in each activity.
o Ingredients: Cost of ice cream, mix-ins, cones, toppings.
o Utilities: Electricity for freezers, water for cleaning.
o Supplies: Cups, spoons, napkins, cleaning supplies.

2. ABCC Phase - Controlling Costs:

 Cost Driver Analysis: Now, we'd analyze what drives the cost of each activity:
o Customer Greeting & Order Taking: Complexity of orders, customer wait times.
o Ice Cream Scooping & Mixing: Number of mix-ins, portion control, ice cream waste.
o Preparation of Waffle Bowls/Cones: Batch sizes, cooking time, wastage.
o Serving & Presentation: Speed of service, presentation standards.
o Cleaning & Sanitation: Frequency of cleaning, amount of waste generated.

 Control Measures: Based on the analysis, Cold Stone could implement these control measures:
o Streamline Order Taking: Implement a digital menu board with clear visuals to speed up order
taking, potentially reducing wait times and labor costs.
o Optimize Portion Control: Provide standardized scoops and training to minimize ice cream waste
and ensure consistency.
o Improve Waffle Production: Analyze optimal batch sizes and cooking times for waffle cones/bowls
to reduce waste and energy consumption.
o Incentivize Efficiency: Implement performance-based incentives for employees who maintain high
service speed and presentation standards without compromising quality.
o Reduce Waste: Implement a waste management system to track and minimize ingredient and supply
waste, potentially lowering costs and promoting sustainability.

Benefits for Cold Stone:

 Cost Savings: By controlling cost drivers, Cold Stone can reduce operational expenses and improve
profitability.
 Consistent Customer Experience: Standardized portions and efficient service lead to a more consistent and
satisfying customer experience.
 Increased Efficiency: Streamlined processes and optimized workflows improve overall operational
efficiency.
 Data-Driven Decisions: ABCC provides valuable data to make informed decisions about pricing, menu
offerings, and process improvements.

By adopting ABCC, Cold Stone Creamery can move beyond simply knowing its costs to actively managing and
optimizing them, ultimately leading to a sweeter bottom line.
Let's take to the skies and explore how ABCC can be implemented within an airline, a sector known for its complex
operations and cost pressures:

Case Study: Budget Airline

Imagine a budget airline aiming to maintain its competitive edge by keeping operating costs low without
compromising safety or customer satisfaction. They decide to implement ABCC to gain better control over their
maintenance, repair, and overhaul operations:

1. ABC Phase - Identifying Activities & Costs:

 Activities: They identify key activities within their MRO operations:

o Routine Inspections: Regular checks for aircraft airworthiness.
o Scheduled Maintenance: Planned component replacements and overhauls.
o Unscheduled Maintenance: Addressing unexpected repairs and technical issues.
o Parts Procurement & Management: Sourcing, ordering, and managing aircraft parts.
o Technical Documentation & Compliance: Maintaining records and ensuring regulatory compliance.
 Cost Assignment: They meticulously track costs associated with each activity:
o Labor: Salaries of technicians, engineers, and support staff.
o Parts: Cost of replacement components and consumables.
o Hangar & Facility Costs: Rent, utilities, and maintenance of hangar facilities.
o Tooling & Equipment: Depreciation and maintenance of specialized tools and equipment.

2. ABCC Phase - Controlling Costs:

 Cost Driver Analysis: They analyze what drives the cost of each activity:

o Routine Inspections: Aircraft type, age, inspection checklist complexity.

o Scheduled Maintenance: Maintenance schedule adherence, availability of parts.
o Unscheduled Maintenance: Frequency of technical issues, diagnostic accuracy.
o Parts Procurement & Management: Lead times for parts, inventory management efficiency.
o Technical Documentation & Compliance: Complexity of regulations, documentation processes.

 Control Measures: Based on the analysis, the airline implements these control measures:

o Predictive Maintenance: Invest in sensors and data analytics to predict potential issues before they
become major problems, reducing unscheduled maintenance costs.
o Optimize Inventory Management: Implement just-in-time inventory systems to minimize holding
costs while ensuring timely availability of critical parts.
o Streamline Documentation Processes: Adopt digital documentation systems to reduce paperwork,
improve accuracy, and streamline compliance reporting.
 o Negotiate Bulk Discounts: Leverage their purchasing power to negotiate better prices on frequently
used parts and consumables.
o Training & Skill Development: Invest in continuous training for technicians to improve diagnostic
accuracy and first-time fix rates, reducing labor costs and aircraft downtime.

Benefits for the Airline:

 Reduced MRO Costs: By controlling cost drivers, the airline can significantly reduce its overall maintenance
expenses.
 Improved Operational Efficiency: Minimizing unscheduled maintenance and downtime improves aircraft
utilization and on-time performance.
 Enhanced Safety: Proactive maintenance practices and efficient parts management contribute to a higher
level of safety.
 Data-Driven Decision-Making: ABCC provides valuable data to make informed decisions about fleet
planning, maintenance scheduling, and resource allocation.

By embracing ABCC, the budget airline can maintain its competitive edge by operating a safe and efficient fleet
while keeping costs in check.