Value Management Redefining CM At Risk

Key Message Points

State of the Industry Traditional CM at Risk Three Trends that are changing and improving Value Management Methodology

State of the Industry

Increases in productivity lag far behind other industries Strained/ Limited Resources Traditional Lack of Common Understanding of the Project Misalignment of Objectives among the Project Team members Unsafe Construction Environments

Non-productive Time On Job Sites

Waiting 25% { Information { Prerequisite Work { Materials { Equipment & Tools Unnecessary Travel & Movement 13%
{

Low reliability Big batch thinking Individual interests not aligned with project success Lack of formal production process

NonProductive Time 58%

Productive Time 42%

{ {

Unnecessary Material Handling 12% Rework 8%

State of the Industry

Value management - primary battlefront for years-has realized significant improvement in procedures and processes Improvements in Technology and Communication Greater Risk Real and Perceived Owners are smarter today and are demanding and rewarding better delivery methods that result in lower costs, more predictable schedules, and safer projects Three new trends are emerging that will enhance Value Management and improve productivity significantly

Traditional CM at Risk

Qualifications/Fee based CM Selection Separate agreement between Owner and AE and Owner and CM CM provides budgeting, scheduling, constructability studies, VE at design intervals Design to budget instead of budgeting a design Partnering Sessions improve communication and collaboration Subs may or may not be on board during precon phase Better job of risk sharing than Design Bid Build

Major Industry Trends

Building Information Modeling (BIM)

Better Visualization, Clash Detection Improves Value, Reduces Waste Risk and Reward Sharing, Better Collaboration

Lean

Integrated Project Delivery

BIM

BIM During Design

More than 3 - D Imbedded with specs and data 3-D = Design 4-D = Design + Schedule 5-D = Design + Schedule + Cost Better Visualization Excellent Tool to Test concepts Clash Detection Staging and Layout

BIM During Construction

Better visualization increases productivity Clash detection for changes produces more accurate pricing and increases productivity Excellent tool to develop project staging plans

BIM for Building Management

As-builts Maintenance Parts and repair

Better Visualization

{ { { {

Detecting constraints and clashes Designing operations Optimizing preassembly Pulling value to the jobsite

Staging

{ { { {

Detecting constraints and clashes Designing operations Optimizing preassembly Pulling value to the jobsite

Clash Detection/Layout

Lean

Lean is

A systematic approach and commitment to customer value that identifies and eliminates waste by making work flow across the entire value stream, at the pull of the customer, with an unwavering commitment to the continuous pursuit of perfection

Lean Project Delivery

Toyota transformed manufacturing with Lean philosophy and principles Lean is a cultural change, not a set of tools Application to the design and construction industry is in its infancy, although has produced exciting results

What are the Benefits

Creates stability/predictability on our projects Removes waste in current design and construction practice thus improving productivity and reducing cost and time to build Results in safer projects Makes the building process fun again

Lean Tools

Target Value Design Value Stream Mapping Lean Construction Planning & Scheduling

Target Value Design

The Cardinal Rule of Target Value Design

The target cost of a project can never be exceeded.

Target Value Design

Goal Deliver the project at or below the target cost, and with increased value to the customer. Objective Weekly estimate trends that represent savings by design and innovation. Uncompromised value & quality in functional program & facility design. Tasks Daily sharing of design and budget information. Set based design practice. Weekly Target Cost status updates. Weekly or daily update of cluster group progress reports.

Creating Target Cost Teams and Systems Allocation

Target Value Design

Starts with better definition of project objectives creates Common Understanding of the Project Early creation of Project Team Definition of Roles/Accountabilities Highly Collaborative, Open and Trust-Based Process Utilization of Relational Contract that supports this approach. Integrated Form of Agreement Better Understanding and Balance of Risk and Reward Co-located owner, designer, and contractor teams

The Big Room

Our Big Room

Co-location of cross functional team members Designers Programmers Estimators Constructors Suppliers Target Costing / Target Value Design Co-location in Cluster Groups Combination of Small Group and Large Group Meetings Sharing Incomplete Information Often Set Based Design

Concept Selected

Create a broad range of possibilities from the outset

Evaluate concepts against risk. Resolve conflicts utilizing customer criteria.

Combine pieces from different concepts and converge upon a final solution.

The final concept is frozen much later in the process but emerges almost risk free and requires few changes.

Set Based Concurrent Design

Visual Workplace

Design Estimate Schedule Last Planner including PPC and Reasons for Variance A3 Reports Innovation Information Multiple Locations Updated weekly, sometimes daily

Visual Workplace

Lean Design Principles

Set Based Design An iterative process of developing sets of solutions that satisfy cost, function and quality. Sets of solutions are advanced until the last responsible moment Sharing Incomplete Information Often Willingness of team members to continuously share incomplete information. Daily or at least weekly sharing of design and budget information. Design and budget evolve simultaneously Simultaneous design of Product and Process Product and process design decisions are made simultaneously. 3D Design / Modeling, and Digital Prototyping Use digital prototyping to integrate design and cost characteristics. An integrated product and process design including real time budget updates as design changes. Provide widespread access to the design model as it evolves.

Lean Design Principles

Detailed design by specialty contractors and vendors Designers and engineers produce only those deliverables needed for permitting and needed by specialty contractors or other suppliers for detailing. Production Planning and Management Production Planning and Management is applied during the Design phase using Constraints Analysis, and Weekly Work Plans. Design and budget production is planned and managed to emulate a continuous flow process. Project Based Production Management is formally applied using standard Lean Processes and Principles

Lean Design Principles

Multidisciplinary Design Teams work together early in Design to simultaneously develop the design and budget.

Major specialty contractors and suppliers are contracted early Value based proposal process. Multidisciplinary teams meet at least weekly.

Lean Design Principles

Target Costing Systems, Components, and Subcomponents

Value Engineering

Distribute the project target cost. Form Target Cost Teams Use Value Engineering to assist with evaluation of solutions. Design to budget The budget as an influence on design and decision-making, rather than an outcome. Negotiate cost/value trade off occurs to ensure the Project Target Cost . Structured methodology. Function Analysis Life Cycle Costing

Implementation

Target Value Design

Continuous Tracking & Reporting

The Weekly Target Value Design Cycle

Wednesday

AM Target Cost Team Meetings Designing & Budgeting PM Core Team Meeting Design and ongoing communication Design and ongoing communication Design and ongoing communication End of Day Design Updates Distributed Pricing/Cost Modeling Design and ongoing communication AM Target Cost Team Meetings Designing & Budgeting PM Core Team Meeting

Thursday

Friday

Monday

Tuesday

Wednesday

Features and Benefits of Target Costing

Scope of Work Document based on Quantity, Quality, and Cost Commitment from the entire project team to design and build according to the scope and budget Committed Target Cost for design and construction Clear translation of the Voice of the Customer into technical design, and ultimately to product delivery The basis of Financial Management and Investment Decision Making throughout the project

The assurance of Lowest Product Cost and Highest Customer Value

What Target Value Design Avoids

Waiting for the bids to come in to know the cost of the project VE options arriving late disrupting design Waiting for design batches Waiting for budget batches Design schedule defined by arbitrary milestones Surprises

Pull Scheduling

Pull Scheduling Overview

Work tasks, information flow, and material deliveries are planned based on the request (or pull) of downstream customers. Pull scheduling will often expose the need for smaller batches, just in time delivery, improved leveling of resources, and reduced lead times. Workflow becomes more reliable and efficient as the waste of waiting, redundancy, and over-processing are eliminated.

Pull Scheduling Steps

1. 2. 3.

4. 5. 6.

Define the phasing of the work. Determine completion dates for the phases. Using team scheduling and stickies on a wall, develop the network of activities required to complete the phase working backward from the completion date. Apply durations to each activity with no contingency or float in the estimates. Re-examine logic to try to shorten the duration. Determine the earliest practical start date.

Pull Scheduling Steps

7.

8.

Decide what activities to buffer or pad with time contingency. Which activity durations are most fragile? Rank order by degree of uncertainty. Allocate available time to the fragile activities in rank order. Is the team comfortable that the available buffers are sufficient to assure completion within the milestone? If not, either re-plan or shift milestone as needed and possible.

a World Record in Pull Scheduling Setting Paper Machine Rebuilds Safety Speed of Delivery Cost

Last Planner

Last Planner

Foreman/Superintendents are the closest to the work and are the Last Planners Weekly Stand and Deliver planning sessions build accountability and reliability Commitments or Reliable Promises are made during the Last Planner Sessions Weekly Work Plans and Six Week Look Ahead schedules are prepared and inserted into master schedule Extremely effective in improving productivity

The difference between We already do this and making the Lean transformation.
The industry is trying to work better within an existing environment and set of rules. Lean gives us the opportunity to significantly change how we

deliver value.

Successes

Target Value Design

Ongoing Implementation, Development & Success
300 280 280 260 240 220 $ / S.F. 202 200 180 180 160 140 120 100 Oncology Center 12,178 s.f. Traditional Project Delivery Process Surgical Center 13,000 s.f. Traditional Project Delivery Process Heart Institute, 45,645 s.f. Traditional Project Delivery Process Medical Clinic, Architectural Enhancements, 12,177 s.f. (No Med Gas, No Imaging) Traditional Project Delivery Process Medical Clinic Wood Frame 18,182 s.f. (No Med Gas, No Imaging) Traditional Project Delivery Process Shawano Clinic & Surgery Center BENCHMARK with Med Gas & Imaging Projected Based on Traditional Past Projects Shawano Clinic & Surgery Center 75,362 s.f. with Med Gas & Imaging -Actual Utilizing Lean Project Delivery Process 155 148 153 Benchmark 251

Benchmarking

Results of Lean Design, Target Costing, and Production Management

Lean Project Non Lean Project
April 2000 24 months 85,414 $13,533,179

Completion Date Project Duration Gross Square Feet

August 2002 14 months 114,000 $11,716,836 $102.79

Total Cost (incl. A/E & CM fees) Cost per square foot

$158.44

Target Value Design

3.5 months ahead of schedule 70 additional days of clinic revenue translating into nearly $1 mil. in the expanded imaging service line functions and additional revenue in the first year. Under the Target Cost in spite of additional equipment costs and added service line

Measuring Productivity

Hours per cubic yard

4

Productivity (HRS/CY)

3.5 3 2.5 2 1.5 1 0.5 0

Lean Projects

Non-Lean)Projects

Integrated Form of Agreement

IFOA

Integrated Form of Agreement created by Sutter Health Counsel Will Lichtig & Sutter Director of Project Management Dave Pixley AGC Tri-Party Collaborative Agreement ConsensusDocs Integrated Project DeliveryA Working Definition AIA Fundamental Change in Business Model

IFOA

Relational Contracting Sets Performance and Results Expectations Creates a Collaborative Environment Creates an Integrated Team Optimizes the Project Superior Risk Management

Integrated Agreements

Sutter Fairfield MOB $22 million Sutter Cathedral Hill Hospital $920 million California Prison Healthcare $4.5 billion

IFOA

Owners Business Plan as the basic design criteria Incorporates Lean Project Delivery Incorporates language of Reliable Promising/ Commitments Establishes a Collaborative Governance Structure

IFOA Structure

One Agreement signed by Owner-ArchitectCM/GC Joined by jointly selected Team Members Integrates General Conditions Provides for formation of:

Core Group Senior Management Group Integrated Project Delivery Team

Project Team Organization

Core Group Other Civil Site Mechanical Mechanical Plumbing Plumbing
Arch. PM CM/GC PM Owner Rep

Integrated Project Delivery Team Landscape Other Framing Structural Steel Electrical Electrical Landscape

User Rep

Core Group Deliverables

Communication Protocols BIM Strategy Commitment Management Process Validated Budget (Basis for Target Value Design) Target Value Design Plan Joint Site Investigation Plan Incentive Sharing Plan Built-In Quality Plan

Create Collaborative Design Environment

CM/GC and Trade Contractors have a seat at design table IPD Team has a Common Understanding of Project Parameters, Objectives and Constraints Constant sharing of intermediate, incomplete design documents Collaboratively create Install-Level 3D Model Value analysis throughout design process, not at the end! Design-to-budget: Design and Cost stay in balance Real Time

New Financial Provisions

A/E Compensation/Risk Fees developed from Resource Loaded Work Plan (fees to support quality effort) Identify and fix profit component Shift Working Drawing production to construction partners Some A/E fees will be GMP rather than fixed fee (e.g.: CA Phase) Negotiated standard of quality rather than negligence

New Financial Provisions

CM/GC Risk Mitigation

CM/GC/ participating trades on Cost Plus with Fixed Fee, with or without GMP Risk reduced by IPD Contingency during Construction Phase - access based upon recoverable extra cost for which change order not available (e.g. buy-out gap, missed coordination)

New Financial Provisions

CM/GC Cash Flow risk mitigations:

Pencil Draw process review by Core Group Bi-weekly or 36 hour turnaround Lower retainage and/or early release

New Financial Provisions

Reward:
Incentive Sharing Pool funded by Contingency preservation and Cost-of-Work savings IPD Team collectively participates in Pool with Owner (typically 50/50) IPD Team determines participation

New Financial Provisions

Party-controlled dispute resolution (hierarchy) Parties negotiate Core Group Senior Management Group Independent Expert appointment DRBs Mediation

New Construction Provisions

Requires the Implementation of Lean 5S Plan

Site logistics using sort, set in order, shine, standardize, sustain

Zero RFI Goal

conversation first, pursue reliable promise for resolution RFI to confirm solution (not to initiate inquiry)

New Construction Provisions

Built-In Quality Plan

CII study suggests that up to 10% of construction cost is rework Inspections often fail to improve quality at hand-off from trade to trade Plan seeks to directly attack root causes of quality failures Capture experience for tracking & improvement

Benefits: Anticipated and Observed

Reduce Waste! Measured by CII at 57%! Lower cost, higher value projects Higher profitability for our design and construction partners Safer projects Higher productivity in design and construction less negative iteration Less tension = more fun!

What will challenge success?

Gravitational Pull of Traditional Practice Lack of Lean Leadership Lack of Lean Knowledge and Skills Organizational Systems and Processes

BIM is here to stay

In Conclusion

Lean improves productivity, shortens schedules, and we see no end to our journey. IFOA More testing in the market place will be required to prove it as a successful delivery method. It will take courageous owners willing to shoulder some of the risk and financial burden to help drive innovation and increase value in our industry.

Contact Information
Jay Harris jay.harris@boldt.com 916-583-5600 Lean Principles in Construction http://www.leanconstruction.org/