Target Value Delivery (TVD) is “a management practice that drives the design [and construction] to deliver customer values within project constraints” (Ballard, 2009). It is an application of Taiichi Ohno’s practice of self-imposing necessity as a means for continuous improvement (Ballard, 2009). Using TVD, the design and construction is steered towards the target cost. A continuous and pro-active value engineering process is utilized during the design phase to quickly evaluate the cost implications of design options. Cost is a [one of many] constraint rather than an output of the design process.
To understand the importance of TVD, we first need to look at the project cost of a typical design-bid-build project (Figure 1). On a DBB project, the estimated cost of the project rises over time. Rarely is the first estimate that the owner receives the final cost that they pay for. The problem of cost and schedule overrun is a systemic one that affects the AEC industry around the world (Flyberg 2003).
TVD differs from traditional capital project delivery in that the team is incentivized, has an alignment of interests, and the lean tools necessary to continuously innovate during the project to bring the expected cost down over time. This is a revolutionary idea and one which is unheard of outside of the Lean Construction community. It is also why owners with large capital project expenditures and contractors who work with these owners are turning to TVD as a means to maximize value delivery while minimizing cost and schedule overruns.
The main objective of TVD is to achieve the “holy grail” of construction management - to have reliable cost, schedule, and scope. The Last Planner System, developed by Glenn Ballard and Gregory Howell in the early 1990s has helped countless projects deliver to a reliable schedule. The goal of TVD is address cost reliability, value delivery, and continuous improvement on large capital projects. With TVD, projects have lower likelihood of cost overruns, better cost predictability, and a more predictable investment for owners.
In order to understand TVD, it is important to address our perspective of project cost (Figure 2). The traditional view of project cost is that the price we charge the customer is based on our cost of work plus a profit mark-up. In this view, the more work that we do the more profit we can obtain. With target costing, we reverse this equation. The profit, which is afterall our end goal, is the price that we charge the customer minus the cost of work. If we are able to decrease our cost of work, we can increase our profits.
Cost of work + Profit = Price
Profit = Price - Cost of work
The traditional view of project cost leads builders to bid low and increase the cost during the project at every opportunity through change orders. The later aligns the financial incentives of the builders with the incentive of the owner - build a project that meets the requirements of the end users while seeking for ways to decrease the project cost.
Below is a chronology of a typical TVD project. Notice that the key project delivery team are assembled early in the design phase. They first work to validate the business case of the project and then work collaboratively on the TVD process from the design phase until the end of construction.
With TVD, we perform something that is counter-intuitive in the AEC industry. Rather than estimate the cost of the project at set discrete points in time, the project cost is tracked continuously and the total estimated cost is updated every 4 to 6 weeks. The traditional view of project management is that estimators are expensive and that their time should be used in pursuit of new projects. With TVD, we are utilizing the estimator’s experience along with BIM and VDC processes to continuously estimate the cost of the project. This process is coupled with a proactive value engineering process where the team comes up with ideas to decrease the cost and the risk of the project.
How do we know if our TVD application is successful?
There is only one key metric for TVD - the expected cost over time. If the cost decreases as you continue in the design process and your team is able to maintain or reduce the cost further until the end of construction then you have successfully implemented TVD.
If you are successful in your TVD application, you will notice that:
- Each successive project becomes more efficient through applied lessons learned and kaizen
- There is proactive rather than reactive problem-solving
- Less fighting and more ‘real’ collaboration
- Better value delivered for the money
- More satisfied clients - designs that fit stakeholder values
- Better work-life balance for contractors and architects
- Continuous improvement and kaizen within projects and between projects
How to apply TVD
Now that we have understood the objectives behind TVD and have a clear understanding of what a successful outcome looks like, we are ready to start learning about TVD. Just like other Lean Construction methods, TVD is a well-researched system with many components that work seamlessly together to produce the results that we want. In order to apply TVD, we need a systematic view. I have broken the TVD process into 10 essential components:
1. Early involvement of the builders in the design phase
2. Alignment of commercial incentives of the project delivery team (owner, contractor, architects, etc.). There needs to be an incentive for cost savings.
3. Continuous cost estimating throughout the project (BIM & VDC)
4. Breaking down the total cost into cross-functional clusters (MEP, core and shell, etc.)
5. Co-location and Big Room Meeting
6. The ability to move money and scope between the team. Reallocate scope, responsibility for scope, and work sequence (process design)
7. A risk and opportunity log, cost tracking, spending to date, and profit tracking
Join me for an upcoming webinar through the Lean Construction Blog on June 12, 2019. In the webinar I will go over each of these components in detail. I will explain how and why TVD works, go over some common misconceptions behind TVD, and share with you the economics of a TVD project.