Target Value Design


 

 

5 Things to Consider When Setting Targets For Target Value Delivery

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.)

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7 Ways to Make Shared Risk and Reward Sustainable in the Construction Industry

Around the world, shared risk and reward contracts are becoming more prevalent. In the United States several forms of agreements for construction projects including: Sutter Health’s Integrated Form of Agreement (IFOA), the ConsensusDocs 300, and American Institute of Architects (AIA) contracts have provisions for sharing the profit and the losses of a construction project between the owner, contractor, architect, specialty trade contractors, and other service providers.

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How Target Value Design Works. A Theoretical Model

Research on Target Value Design (TVD) has found that TVD projects are delivered 15% to 20% below market price1. Additionally, TVD projects are more likely to achieve predictable cost performance outcomes while carry less contingency than projects that do not use TVD2. This post introduces a theoretical model to explain these results.

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Target Value Design as a Method for Controlling Project Cost Overrun

Project cost overrun is a common problem around the world. A study of 258 projects in 20 nations revealed that cost escalation occurred in 9 out of 10 projects. The study found that on average the final cost was 28% higher than the forecasted cost. Cost overrun is a serious problem because it makes construction investment projects risky due to the unpredictability in the final cost.

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Using Target Costing as a Competitive Advantage

The use of target costing can be a promising approach to achieving a more proactive cost management. Developed over the past 40 years by a number of Japanese companies, Target Costing differs from the cost-plus approach traditionally used in the construction industry. The cost-plus approach starts by estimating the costs of production, adds a profit margin and then derives a market price. If the client is unwilling to pay the price, then some activities are put in place, such as lowering specifications, reducing quality, and trimming profit. On the other hand, the target costing approach implies that an allowable cost is determined by a target price less an appropriate profit margin.

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