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 products 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. In this paper 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 uses 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 projects outcomes.Keywords: target cost, lean construction, cost planning, target value design. IntroductionTarget Costing (TC) appeared in the manufacturing industry in the early 1930s (Feil et al., 2004) and has proved to be a powerful strategic instrument for management and profit planning (Cooper and Kaplan, 1999). Since then it has been used in manufacturing to achieve cost predictability during new product development so that new products and services both meet market determined price and provide financial returns. The main principle of Target Costing is to make cost and value drive the design process instead of calculating the cost after design is complete.Similarity in manufacturing product development and construction project delivery processes opens an opportunity for Target Costing in construction. However in spite of potential benefits there is no evidence of this practice being taken up by the industry of Europe or the USA. In Japan about 15% of construction companies use Target Costing from manufacturing (Jacomit et al., 2008). Academic literature provides only scarce reports on theoretical and practical issues of the method (Nicolini, 2000;Pennanen et al., 2010;Knott, 1996).Insights into the adaptation of the manufacturing Target Costing method to the project-based environment of construction can be drawn directly from 12 practical cases of Target Value Design (TVD). TVD takes a view of construction as a complex system which includes project definition, design and construction stages. It correlates closely with lean thinking in design and construction.Many construction cost and project management practices already use "target costing" terminology or repeat TVD in some part of the process. "Target costing" stands for a range of techniques and methods applied ...

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