The prevalent theory of construction is a hindrance for innovation

It is argued that construction innovation is significantly hindered by the prevalent theory of construction, which is implicit and deficient. There are three main mechanisms through which this hindrance is being caused. Firstly, because production theories in general, as well as construction theories specifically, have been implicit, it has not been possible to transfer such radical managerial innovation as mass production or lean production from manufacturing to construction. Direct application of these production templates in construction has been limited due to different context in construction in correspondence to manufacturing. On the other hand, without explicit theories, it has not been possible to access core ideas of concepts and methods of these templates, and to recreate them in construction environment. In consequence, theory and practice of construction has not progressed as in manufacturing. Secondly, it is argued that the underlying, even if implicit, theoretical model of construction is the transformation model of production. There are two first principles in the transformation model. First, the total transformation can be achieved only by realising all parts of it. Thus, we decompose the total transformation into parts, finally into tasks, ensure that all inputs are available and assign these tasks to operatives or workstations. Second, minimising the cost of each task, i.e. each decomposed transformation, minimises the cost of production. It is argued that these principles, in which uncertainty and time are abstracted away, are counterproductive, and lead to myopic control and inflated variability. Practical examples show that these deficiencies and related practical constraints hinder the top-down implementation of innovations. Thirdly, empirical research shows that also bottom-up innovation - systematic learning and problem solving - is hindered by this deficient theory. Thus, the advancement of construction innovation requires that a new, explicit and valid theory of construction is created, and business models and control methods based on it are developed

Last planner and critical chain in construction management: comparative analysis

This paper endeavours to compare the Last Planner System of production control and the Critical Chain production management method. This comparison is carried out in the context of construction management. The original prescription and the evolution of the practice are examined regarding both approaches, and the similarities and differences are noted. Based on these considerations, gaps in the two approaches are identified and the potential of a synthesis of them is explored

Is agile project management applicable to construction?

This paper briefly summarises the evolution of Agile Project Management (APM) and differentiates it from lean and agile production and ‘leagile’ construction. The significant benefits being realized through employment of APM within the information systems industry are stated. The characteristics of APM are explored, including: philosophy, organizational attitudes and practices, planning, execution and control and learning. Finally, APM is subjectively assessed as to its potential contribution to the pre-design, design and construction phases. In conclusion, it is assessed that APM offers considerable potential for application in predesign and design but that there are significant hurdles to its adoption in the actual construction phase. Should these be overcome, APM offers benefits well beyond any individual project

Irreversible Investment under Interest Rate Variability: New Results

The current extensive literature on irreversible investment decisions makes the assumption of constant interest rate. In this paper we study the impact of interest rate and revenue variability on the decision to carry out an irreversible investment project. Given the generality of the considered valuation problem, we first provide a thorough mathematical characterization of the problem and develop some new results. Contrary to what previous literature has suggested we establish that interest rate variability may have a profound decelerating or accelerating impact on investment demand depending on whether the current interest rate is below or above the long run steady state interest rate. Moreover, and importantly, allowing for interest rate uncertainty is shown to decelerate rational investment demand by raising both the required exercise premium of the irreversible investment opportunity and the value of waiting. Finally, we demonstrate that increased revenue volatility strengthens the negative impact of interest rate uncertainty and vice versa.irreversible investment, variable interest rates, free boundary problems.

A General Approach to the Stochastic Rotation Problem with Amenity Valuation

This paper presents a new approach to study the optimal rotation policy with amenity valuation under uncertainty. We first postulate the stochastic forest value and assume plausibly that monetary value of amenities is a continuous and non-negative function of forest value thus presenting the trade-off between timber revenues and amenity values. Second, instead of using a dynamic programming approach, we derive a recursive representation of the total forest value and solve the optimal rotation threshold by applying ordinary non-linear programming techniques. Third, we characterize under certain set of conditions how the properties of both the expected cumulative value and the expected marginal cumulative value, accrued from amenity services, depend on the precise nature of the monetary valuation of amenities and what is the impact of volatility on these concepts. Finally, we illustrate our results explicitly in models based on logistic growth by focusing on the role of amenity valuation and volatility of forest value in the determination of Wicksellian and Faustmannian thresholds. Our theoretical and numerical findings emphasize the crucial importance of the nature of amenity valuation for the impact of higher volatility of forest value on the rotation thresholds.amenity valuation, optimal Faustmannian and Wicksellian rotation policy, stochatic impulse control

Progressive Taxation and Irreversible Investment under Uncertainty

We analyze the impact of progressive taxation on irreversible investment under uncertainty. We show that if tax exemption is lower than sunk cost, higher tax rate will decelerate optimal investment by increasing the optimal investment threshold, while if tax exemption exceeds sunk cost, three different regimes arise. For "small" volatilities the optimal investment threshold is a positive function of volatility, but independent of tax rate. For "medium" volatilities it is independent of both tax rate and volatility. Finally, for "high" volatilities the optimal investment threshold depends positively on volatility, but negatively on tax rate so that we have "tax paradox".irreversible investments under uncertainty, progressive taxation

Taxation and Rotation Age under Stochastic Forest Stand Value

The paper uses both the single rotation and ongoing rotation framework to study the impact of yield tax, lump-sum tax, cash flow tax and tax on interest rate earnings on the privately optimal rotation period when forest value growth is stochastic and forest owners are either risk neutral or risk averse. In the case of risk-neutral forest owner higher yield tax raises the optimal harvesting threshold and thereby prolongs the expected rotation period. The same qualitative result holds for lump-sum tax and for the tax on interest rate earnings, while the cash flow tax is neutral. Under risk aversion the optimal harvesting threshold is lower and the expected rotation period shorter than under risk neutrality both in the single and ongoing rotation cases. Comparative statics of taxes are similar as under risk neutrality with the exception of cash flow tax, which may not be neutral anymore. Numerical results indicate that the optimal harvesting threshold both as a function of the yield tax and the forest value volatility increases more rapidly under risk neutrality than under risk aversion.optimal rotation, taxation, stochastic forest value, risk aversion