22nd Annual Conference of the International Group for Lean Construction - Oslo, Norway - 2014

Target Value Design as a Method for Controlling Project Cost Overruns

Doanh Do1, Chao Chen2, Glenn Ballard3 & Iris D. Tommelein4

1PhD Student, Civil and Environmental Engineering. 407 McLaughlin Hall, Univ. of California, Berkeley, CA 94720-1712, USA, Phone +1 (714) 622-9754, [email protected]
2PhD Candidate, Civil and Environmental Engineering. 407 McLaughlin Hall, Univ. of California, Berkeley, CA 94720-1712, USA, Phone +1 (510) 816-0766, [email protected]
3Research Director of the Project Productions Systems Laboratory (p2sl.berkeley.edu), 215-A McLaughlin Hall, Univ. of California, Berkeley, CA 94720-1712, USA, Phone +1 (510) 530-8656, [email protected]
4Professor, Civil and Environmental Engineering Department, and Director of the Project Production Systems Laboratory (p2sl.berkeley.edu), 212 McLaughlin Hall, Univ. of California, Berkeley, CA 94720-1712, USA, Phone +1 (510) 643-8678, [email protected]

Abstract

Since its introduction in 2002, Target Value Design (TVD) has become more commonly used and accepted by the construction industry in the United States. Several researchers have reported that TVD projects are good at maintaining a predictable project cost and controlling cost overruns. The case studies, reported in the literature, show that TVD projects have generally been completed at 15% to 20% below market price without compromising schedule or quality. Little research, however, has been conducted to generalize the findings to the wider population of TVD projects. No statistical analysis has been conducted to compare TVD projects with projects that do not use TVD. In this paper, we present the results of several statistical analyses on a sample set of 47 TVD projects. We compared cost overrun (spent-budget ratio) and contingency percentage of these TVD projects with a dataset of non-TVD projects from the Construction Industry Institute. The results show that TVD projects are less likely to go over budget even though the contingency of TVD projects is less than that on non-TVD projects. A theory is introduced to explain the findings from the statistical analysis. The theory and the findings were presented to industry leaders in the AEC industry and their feedback was incorporated into this paper.

Keywords

Target Value Design, Lean Construction, Target Costing, Cost Overrun

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Reference

Do, D. , Chen, C. , Ballard, G. & Tommelein, I. D. 2014. Target Value Design as a Method for Controlling Project Cost Overruns, 22nd Annual Conference of the International Group for Lean Construction , 171-181. doi.org/

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