Complex capital projects across all industries, from health care, oil, gas, mining, manufacturing and power generation all have at least one thing in common. According …
This post is the 2nd of a 3 part series looking at Integrated Project Delivery. The first post focuses on IPD agreements (contracts), this post focuses on IPD as a Lean Operating System, and the final post focuses on culture.
When a team is aligned financially, traditional operating systems are not efficient for strong team performance (note: the operating system development starts with the earliest negotiations of the contract.)
To maximize the value of the contract structure, teams require a new work philosophy focused on efficiency and reliability. A Lean Operating System delivers customer value, through streamlined processes practicing continuous improvement.
We will focus on lean processes and tools for each part of this definition first by looking at ways to define and document customer value, then at processes for efficient value creation and finally at feedback systems to allow for evaluation and systematic improvement of processes used by project teams.
To successfully deliver a project with minimal waste, the project team must clearly define the customer’s expectations.
IPD teams are included at the start of a project, often prior to finalization of the owner’s business case. Understanding why a project exists prior to developing conceptual designs, teams have freedom to explore diverse options to deliver value. The final business case, budget, schedule, and program are captured in a collaborative report called a Validation Study.
Set Based Design:
Traditionally, teams look to make decisions about options before detailing them. Set Based Design is a concept of advancing multiple designs in order to make the best decision based on additional information gained from further design development.
Instead of picking a structural system for a new building prior to detailing it, a team may advance three systems into the Design Development phase along with floor plans and shaft layout. By continuing to advance multiple sets, the team can make a better decision with significantly more information. This process also reduces or eliminates negative iterations that occurs when one of the options becomes unviable.
An A3 is a structured process of documenting a problem, options, proposed solution, and action plan on a single sheet of paper (A3 refers to a standard 11”x17” paper).
Developing an A3 is done collaboratively with all stakeholders. The process generates consensus around the proposed path forward by first gaining consensus around the problem statement. You can learn more about A3 here.
Choosing by Advantages:
Choosing by Advantages (CBA) is a systematic decision making process developed by Jim Suhr which focuses on advantages of options. While most systems focus on pros and cons, CBA removes cons by recognizing that a con can also be expressed as an advantage for one or more of the other options.
CBA works well to gain consensus with a large group of people with differing goals and values. The system also makes the decision-making process more transparent and more collaborative. With CBA, the advantages and the cost are shown separately so that the team can see the cost vs advantages trade-offs of their options. You can learn more about CBA here.
Traditional processes for communication and accountability contain inherent waste, leaving much room for improvement. Integrated teams are driven to work in a manner that levels workload and reduces waste.
Last Planner ® System:
IPD teams use the 5 connected conversations of the Last Planner ® System to manage activities from early feasibility studies through construction and commissioning. Projects are started with high level milestones, then phase pull plans are created as the work proceeds. Look ahead planning, weekly work planning, and learning (measured through PPC and variances) are implemented to manage the weekly work of the team.
To better align teams and remove barriers to collaboration, large IPD teams use a single office space, co-location space, for the owner, designers, and builders. There may be people from 5 to 15 or more companies all working together in this shared office environment.
Smaller projects will develop a way of working collaboratively in shorter sessions (ex: 1 day every two weeks) or through online tools. Designers and builders work directly with each other in an effort to break down traditional silos.
Building Information Modeling:
Many complex projects use Building Information Modeling or BIM during design and construction for coordination, prefabrication, scheduling, cost estimating, and facilities management. Smaller projects may not use the full capabilities of a multi-trade model, only designing the architecture in 3D.
Teams start with a discussion of what elements of BIM will be used on the project. This collaborative discussion between the owner, designers, and builders focuses first on desired outcomes (risk mitigation, prefabrication, operation efficiency, etc), then which elements and systems will be modeled (level of detail, etc).
With an integrated team, flow and control of information can still be wasteful. Teams implement a central point of storage for each type of project information, usually a cloud based documentation platform with a systematic naming structure.
Processes for using and sharing project information are developed by the team, documented and displayed for members to review.
High performing teams maintain a commitment to continuous improvement. Teams are self-aware of their processes and breakdowns, allowing them to reflect and improve.You can learn more about Continuous improvement here.
Teams create a feedback loop by implementing 4 steps in series: Plan, Do, Check, and Adjust. A process is implemented with an expected outcome. The actual outcomes are measured against the expected outcomes. A deep dive is done to discover the drivers of the measured variance and a countermeasure is integrated into the revised process. You can learn more about PDCA here.
To truly understand the root cause of a deviation from the expected outcome, teams implement a process called 5 Whys. This process involves asking Why 5 times, each time drilling down into why the previous activity occurred. The goal of this process is to arrive at the driver of an issue, to treat the cause and not just symptoms of a problem.
A specific way to drive positive change is to implement a plus/delta improvement cycle. A team takes 5 minutes or less to capture Plus / Deltas at the end of each meeting and event.
- Plus: Something that went well and should be repeated.
- Delta: Something that didn't go well and should be changed or altered next time.
Teams assign each delta to a specific individual with an action plan and commitment for completion. With a commitment to identifying and adjusting deltas, processes will improve over the life of a project or team and lead to outstanding results.
Aligning teams with a contract provides motivation to collaborate but does not guarantee it. A Lean Operating System is needed to remove traditional silos, speed up communication, and reduce rework.
While Lean processes are integral to successful projects, they don’t work without a collaborative culture, which is the topic of the next blog post.
James Pease will be presenting this content in a webinar on May 3rd. REGISTER HERE
This is Part 2 of a 3 Part Series on Integrated Project Delivery.
See part 1, The Contract
A recording of Part 1 is available here: View Part 1
This post was original published on the Lean Construction Blog.
This is a 3 part series focusing on Integrated Project Delivery as a contract, a lean operating system and a culture.
Integrated Project Delivery (IPD) is gaining popularity among owners, contractors and design teams as a means to unlock creativity, drive reliability, and successfully deliver complex capital projects.
With all of the recent hype about the success of IPD and many large owners looking to pilot their first IPD projects, what exactly is Integrated Project Delivery? This series will explore Integrated Project Delivery as a contract form, a lean operating system and as a transformational culture.
Integrated Project Delivery (IPD) is a delivery model for delivering construction projects using a single contract for design and construction with a shared risk/reward model, guaranteed costs, waivers of liability between team members, an operating system based on lean principles, and a collaborative culture.
It is often referred to as Lean Integrated Project Delivery or Lean IPD to show the strong tie between the contracting method and the implementation of lean principles in the management of the project.
There are several multiparty agreements on the market right now. For the purposes of this post, we will call the contract an IPD Agreement.
Integrated Project Delivery teams are contractually tied together differently than traditional design/bid/build, CM-at-risk, and Design/Build agreements. The typical IPD agreement includes the primary design firm, the primary builder, and the owner in a single contract for a single dollar value. The contract lays out the responsibilities of the designer, contractor and owner but also makes it clear that successful delivery of the project is the responsibility of all three.
Signatories: The contract is always signed by the owner, lead designer and lead builder. Some owners choose to have more than 3 signatories to the agreement, bringing in other design and trade partners to be primary signatories. If the other parties are not signatories, they are typically subcontracted under one of the primary signatories and language is incorporated into the subcontract to tie them to the terms of the master IPD agreement. A later blog post will explore the pros and cons of tri party vs poly party agreements (more than 3 signatories).
Some of the designers and subcontractors will agree to put their profit at risk alongside the primary designer and builder. For this post we will call firms risk/reward partners if they put their profit at risk.
Other trades and consultants will be brought into the agreement with traditional subcontract structures on either a lump sum or time and material basis. They can be negotiated or traditionally bid, typically once the design is significantly complete.
Risk/Reward Parties: IPD contracts have a shared risk/reward component based on the financial outcome of the project. The signatories and other risk/reward partners agree to put their profit at risk in exchange for a guarantee of their costs and shared savings if the project performs well. These firms agree to be reimbursed on a transparent cost plus overhead and profit basis.
For design firms, their billing rates are separated out into a direct cost component, an overhead component and a profit component. This is often calculated as a multiple of direct labor cost.
For construction firms, all labor, material and subcontracts are billed at direct cost plus an overhead percentage and profit.
For any party participating in the risk/reward pool, the rates and overhead are subject to an audit by an independent audit firm. While the audit may not take place on smaller projects, it is highly likely on larger contracts and can be a time consuming process.
Contract Amount: The contract is typically structured with costs for design, construction and a shared contingency for the team. All of the risk/reward parties have their profit fixed as a lump sum amount at the time the contract amount is negotiated and agreed to by the team.
Risk / Reward Plan: The contract will lay out the terms by which the risk/reward parties can lose some or all of their profit if the project does not meet its budget and schedule goals. If all profit is lost, the owner typically agrees to pay for the project at cost (including overhead although this may be capped), thus allowing the team members not to profit on the project but also not to lose money. There is a massive opportunity cost for firms to deliver a large project and only recover their costs.
If the project is delivered below its financial targets, the team will get all of their fixed profit and share in the savings of the project, thus improving their profit. A negotiated percentage of the savings goes back to the owner and the rest is split between the risk/reward partners.
Leadership Team: The contract defines a leadership team that is responsible for delivering the project on time, on budget and at the quality requested by the owner. Some agreements call this the Core Group or the Project Management Team (PMT) and there are surely other names. The important concept is that the project is jointly managed by a representative from the owner, architect and contractor. Others may be added to this leadership team such as a user representative (client) or other representatives from the risk/reward partners.
The primary goal of this contract model is to remove barriers to collaboration and innovation while aligning incentives for the project team.
The contract structure allows scope to transfer between firms based on who can most cost-effectively deliver the work. Design and trade partners can work together without traditional silos. Firms know that they will not lose money on the project and back charges among risk/reward partners are eliminated.
Through the IPD agreement, the major parties are contractually aligned to “sink or swim together.” Success is based on the overall financial and schedule outcomes of the whole design and construction team instead of individual successes or failures. While the IPD agreement is a major deviation and improvement from typical contracting structures, it is only part of Integrated Project Delivery.
This Material was presented in a Webinar on Feb 8th, 2018. A recording of the webinar and pdf copy of the slides are available. Purchase Here.
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.