Introduction to Target Value Design and the Importance of Setting Targets
A common concept in the construction industry is that there are three legs to a project: Schedule, Cost, and Quality. An owner is advised to pick any two, and thereby sacrifice the third (i.e., you can have cost and schedule, but not the quality you want. Or vice versa, you may get the quality and schedule that you want, but not within your budget.)
One of the most powerful and misunderstood components of Integrated Project Delivery is the systematic thinking of Target Value Design or Target Value Delivery (TVD). The primary concept of TVD is to drive down the cost (or maintain cost and increase value) of a project through the design and delivery phases without reducing the quality provided or the schedule for completion. In essence, TVD is a process to make sure that the owner receives all three legs of schedule, cost and quality.
In order to drive down cost while maintaining schedule and quality, teams set cost targets for design and construction that are usually below the current estimates. These targets are usually set up as stretch goals to push the teams to innovate new ways of delivering projects, not just to be more efficient in doing things by traditional means.
Targets can have two effects: they can either motivate a team to get amazing results, or they can break down the culture of a team and push members into traditional behaviors.1
FIVE THINGS TO CONSIDER WHEN SETTING TARGETS FOR A SUCCESSFUL TVD PROCESS:
1. Do not set targets arbitrarily. There should be some logic to support the targets.
Targets can be set in many different ways. They can be set as a percentage reduction to the current budget or the owner’s allowable cost, as a cost per square foot, a cost per unit (i.e., per exam room or per bed in healthcare), with a comparison to a similar project, or other methods. Pick types of target that make sense for the project and that are relevant to the team. Many teams will push back against a target with a large lump sum reduction without some justification to support the reasoning behind the target.
2. Involve the team in setting targets, don’t set them in a vacuum.
The more you can involve the individual team members and companies in the rationale behind the targets, the more buy-in the team will have to the targets. Even if the targets seem like a stretch, understanding how a target is set is the first step in engaging the team to go after the target. Without this belief and understanding in the targets, teams can become disconnected and go back to traditional project delivery behaviors.
3. Make them within reach, not something so aggressive it seems impossible.
Targets should be a stretch goal to motivate the team to innovate. If the target is too easy, the teams will achieve them by being slightly more efficient, but the culture will not change and true innovation will not occur. If the targets are too aggressive, the team will find them to be unobtainable and will instead focus on protecting their profit and limiting their risk.
4. Focus on optimizing the whole, not any one piece.
If targets are set by company or by individual system, team members will be driven to optimize their given piece without considering the project as a whole. Setting target by system (i.e., MEP, Core/Shell, etc) can allow for give and take between team members to drive down the overall cost or increase the value delivered on the project. This transfer of scope and reimaging of delivery methods is often what allows a team to reach an aggressive target.
5. Focus on the process, not just the numbers.
The process of setting targets drives a deeper understanding of the project for all participants. By setting construction targets which stretch the team, it will free up the team to think about how projects are delivered and allow them to come up with new solutions. The process of understanding cost drivers is one of the early steps in actually hitting the targets. Once a team deeply understands what drives cost, they can focus on finding levers to lower the risk and drive down the cost to deliver the project.
Without intentional management, projects tend to increase in cost through the scoping, design, and construction phases. Target Value Design / Target Value Delivery offers strategies to manage a project’s costs through its development and construction. Setting cost targets for a team can align thinking and motivate members to innovate. How those targets are set and who is involved in setting them is just as important as what targets are actually set on the project. Through a focused strategy, projects can achieve the desired scope, schedule, and cost.
This post was originally published at The Lean Construction Blog.
James is an expert in the set-up and structure of large, complex capital projects using Lean and Integrated Project Delivery to drive highly reliable results.
He has negotiated IPD contracts and delivered over $650M in complex healthcare projects as an Owner's Representative with multiparty contracts, aligned team incentives and collaborative delivery models.