Target value design: using collaboration and a lean approach to reduce construction cost

Abstract

Target costing is an effective management technique that has been used in manufacturing for decades to achieve cost predictability during new product development. Adoption of this technique promises benefits for the construction industry as it struggles to raise the number of successful outcomes and certainty of project delivery in terms of cost, quality and time. Target value design is a management approach that takes the best features of target costing and adapts them to the peculiarities of construction. The concept of target value design is introduced based on the results of action research carried out on 12 construction projects in the USA. It has been shown that systemic application of target value design leads to significant improvement of project performance—the final cost of projects was on average 15% less than market cost. The construction industry already has approaches that have similarities with elements of the target value design process or use the same terminology, e.g. partnering and target cost contracts, cost planning, etc. Following an exploration of the similarities and differences target value design is positioned as a form of target costing for construction that offers a more reliable route to successful project outcomes.

Keywords:

• Cost planning
• lean construction
• target cost
• target value design

Notes

1. Royal Institution of Chartered Surveyors (www.rics.org).

2. Integrated Form of Agreement (IFoA)—a relational type of contract developed by Will Lichtig of McDonough Holland & Allen. A generic form of the IFOA is provided free to the industry by the Lean Construction Institute. Other forms of relational contract include project alliancing, PPC2000, certain contract formats of the New Engineering and Construction Contracts, the American Institute of Architects’ Integrated Project Delivery forms of contract, and certain contract forms offered by ConsensusDocs.

3. The project definition stage is typically covered by a separate agreement.