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Optimizing project development speed – planning, design and construction –is more important today than ever. To advance beyond competition, industrial companies need to maximize the product they receive from their project investment.
One solution is to change the delivery method. Conventional forms of delivery have many recurring challenges that often go unnoticed due to the diversity of projects an industrial manufacturer undertakes.
Early adopters of new concepts, such as Lean Project Delivery (with a capital L, P, & D), see trends playing out across multiple projects and see opportunities to optimize efficiency. While there can be difficulties getting stakeholders on board with an unfamiliar methodology, lean project delivery is a strategy guided by Lean methodology – familiar to industrial leaders.
The ultimate goal of lean project delivery is to define and deliver a collective vision of success for a project by eliminating waste, compressing schedules, lowering cost, and improving satisfaction from all team members. This approach provides leaders with measurements they can use to validate costs and demonstrate the success of a more efficient process.
While lean project deliveryconsists of multiple components, one key that offers leaders significant opportunity to maximize the success of their project is shared risk and reward. All projects have risk that must be managed and the goal is to align the interests of all parties so they are all incentivized to manage that risk. A positive outcome of that aligned interest is shared cost savings. Here are the key elements of lean project delivery and ways to optimize efficiency through shared cost savings.
Essential elements that define a lean project delivery project are:
Early selection of collaborative partners brings the owner together with design and construction teams who are able to set aside individual agendas to achieve the shared goals of the project—often called Conditions of Satisfaction.
Conditions of Satisfaction must be clearly articulated and formalized to avoid cutting corners when financial incentives reward coming in under budget.
Co-location between design, construction, and Owner ensures input is incorporated as the project is designed rather than during reviews, resulting in better solutions and less rework.
Commitment-based planning relies on bringing all parties together during design and construction phases to ensure all participants are committed to meeting milestones.
Virtual Design & Construction (VDC) allows design and construction teams to capture constraints through detailed modeling that directly impacts real-time estimates.
Target Value Delivery (TVD) leverages early collaboration between design, construction, and Owner to integrate budget and constructability requirements as the project is designed rather than waiting for this input at a bid meeting or, even worse, in the form of change orders.
Shared Risk and Reward is a concrete way to ensure all team members are motivated by the success of the project, rather than individual success, by setting up financial reimbursement to reward the success of the project. Establishing an Integrated Form of Agreement (IFOA) contract that makes all contributors part of one entity is one way to accomplish this. Short of this formal entity, other means of shared cost savings can be developed to incent proper behaviors.
While elements of lean project delivery can be utilized on any project, benefits are directly related to delivery methods that allow design, construction, and Owner to work toward common goals as early as possible in the project. While sharing cost savings motivates project teams toward success, here are insights to optimize this component of lean project delivery.
This approach can be best realized with an Integrated Form of Agreement (IFOA) contract, but elements of lean project delivery can be realized through other contractual types. Whichever contracting method is used, the most significant benefits are realized when design and construction teams begin collaborating at the start of the project where the largest opportunities to get everyone working toward a common set of project goals exists.
Shared Risk/Reward Contracts. One concrete way to ensure all team members are motivated by the project’s success is by establishing a contract that incentivizes the individual parties to work together as a team to meet the project goals. An effective approach is a contractual agreement that specifically identifies the collaborative behaviors and project goals that each party is agreeing to strive for.
The likelihood of achieving these behaviors and project goals is increased when each party’s financial risk and reward is directly connected to measurements of the team’s execution against both the collaborative behaviors and project goals.
IFOA contracts can establish a formal partnership between the primary parties of a project that includes the client, construction manager, architect, engineer and the trade contractors that make up the majority of the scope. Typically these agreements assure the parties that their costs will be reimbursed with contingencies, and profit put into a shared pool.
The contingency and profit pool will typically grow naturally as the team exhibits the agreed upon collaborative behaviors focused around working together to minimize waste and improve the flow of the project. Research into actual project performance shows that projects that exhibit a high degree of these Lean behaviors are three times more likely to be completed on time and two times more likely to be completed under budget than projects that do not exhibit those behaviors.
With an IFOA type agreement (or other shared risk/reward approach) in place the result is that the owner is more likely to get their project completed on time and at a lower price. It also means that the professional architects, engineers, construction managers, and trades that deliver the project for the owner are much more likely to achieve the profit goals that allow them to be sustainable partners to the owner over the long term.
More and more companies that are regularly engaged in construction are fed up with the missed deadlines, increased costs, and litigious behaviors that have become the norm in traditional project delivery. The healthcare industry has been leading the way and helped develop many of the approaches discussed in this article.
In one example, a project for stakeholders in the technology sector utilized a shared cost savings approach that incentivized the team to look for opportunities to improve the productivity of the entire team. Working together toward fiscal responsibility, the team chose a modular solution for a large piping trestle that had traditionally been stick built on the site.
During the build planning phase, they decided the best solution was to build the module on the ground and lift it into place. With a shared incentive, the team collaborated to make a mutually beneficial decision and achieve savings across the board.
When project teams adopt this approach, it prompts behavior changes and subsequent projects begin to naturally follow this pattern. Through incentives and shared goals, the culture of the project team changes to promote a collaborative approach, netting not only savings, but a much better work environment for the team and the client.
Project scorecards add focus to Conditions of Satisfaction. Project scorecards that rate all team members’ performance toward meeting established Conditions of Satisfaction (CoS) are a critical part of a collaboratively delivered project. The Conditions of Satisfaction should be developed collaboratively from the outset of the project.
It is important that they go beyond the usual Owner’s requirements and consider the goals of the team delivering the project as well. The team should ask themselves what kind of working environment will give them the best opportunity to not only meet the client’s goals, but also allow them to meet their collective profit and employee satisfaction goals and get those items included in the Conditions of Satisfaction. When the shared financial incentives are directly connected to performance against the collaboratively developed Conditions of Satisfaction, the chances of meeting those goals is greatly increased.
There is no right or wrong answer to what type of arrangement will work best for a lean project delivery. Taking your culture, risk tolerance, purchasing guidelines, and project objectives into consideration, industry leaders can work with stakeholders before the RFP is ever written to help determine the best strategy for your project. Industry leaders savvy in these approaches will help stakeholders select a shared cost savings plan that could be the decisive factor in the success of the project.
About the Author
Greg Brogley, PE, PMP, is Division Manager, Automotive and Manufacturing at SSOE Group (www.ssoe.com), a global project delivery firm for architecture, engineering, and construction management. Greg has a proven track record of ensuring project due diligence, responsiveness to clients, and driving teams to evaluate their process to maximize value and efficiency into the projects he oversees. His overall responsibilities include the direction of industrial facility engineers and architects, as well as direction of the business unit with respect to administration and operation of all manufacturing client projects. He can be reached in SSOE’s Toledo, Ohio office at 567.218.2209 or by email at Greg.Brogley@ssoe.com.