Colorado Real Estate Journal - July 1, 2015
There is a growing consensus in the world of commercial development, design, and construction that an integrated and collaborative team approach to design and construction (IPD philosophy) can improve a project’s ability to remain within budget and schedule, mitigate risk and deliver the same quality as the more “traditional” design-bidbuild approach. The question becomes “What about value?” If the development or project is unique (and most are) how do we objectively and confidently achieve good value? One of the most difficult aspects of delivering (or purchasing) integrated design and construction services is the subjective perception of value. What does value really mean? Who on the team really makes the decision as to how value is defined – the owner/developer, or the end user, an investor or all stakeholders? The challenge then becomes how can the team make the approach objective and subsequently manage value. What does value mean? In the simplest terms, value equals what you get divided by what you pay. There are numerous variations of this value equation in the marketplace, but overall this basic premise resonates among industry players. In commercial real estate, most projects are customized and are generally difficult to precisely compare to another project due to variations in design, fluctuations in the marketplace as to when they were delivered, etc., thus making it very difficult to determine if any one project achieved a higher value perception over another. For example, if you build two elementary schools for the same district and they are generally a prototype layout and one school is built for $1 million less than the other, on the surface, the $1 million savings seems like a great value. This scenario is often not easy to replicate for some private real estate developers because what they build is generally unique. Industry leaders such as the Design Build Institute of America have recently determined that value is so important it deserves to be identified, measured and managed similarly to scope, schedule or cost. There are software tools in the marketplace that are designed to enable a group or team of stakeholders to walk through a process that defines aspects of the development’s or physical building’s value by scoring certain perspectives identified as important by the stakeholders. Teams will then, and only then, initiate the value management process. The classic example of this type of thought can be demonstrated with an elementary school. All the stakeholders (from the owner’s or end user’s perspective) may have very different views regarding their perception of value. For instance, a facility manager tends to fight for a higher quality and less maintenance-intensive mechanical HVAC system, while a parent might believe a high value item is a safer pickup/drop off area and wide open lines of sight for child safety reasons. Who is right? They both are. Taking the time to truly explain the expectations and compile (as a team) a list of important value perspectives means making decisions early that will guide the team and help decide which features to enhance and those which can be compromised on during the early and middle design phases. As a designer or construction manager-general contractor in the integrated delivery process, it is dangerous to assume what might be valuable on any given project. It is really not up to the designer or CM/GC to speculate what is value to the owner. It is, however, the role of both the designer and CM/GC to lead the other stakeholders through this collaborative process defining value for the specific project. In addition, there are many other benefits included in this value determination process. For instance, the team embarks on the first steps toward true integration, which is absolutely essential to being able to effectively collaborate. This value process forces the designer and CM/GC to say (without saying) that they are checking their ego at the door and make no assumptions toward their client’s desires for their building. “Checking one’s ego at the door” is important, arguably a critical factor, in being able to become an integrated team member and can enable the team to begin to trust not only each other, but also the value process itself. The other part of the value equation deals with cost. Making scope and design decisions in the design process always, with the emphasis on always, has an effect on cost. A significant mistake made in the integrated process is that we rush to make decisions to change the design and keep designing while attempting to determine accurate costs that impact the project. A CM/GC that understands its role in participating in the value management process ascends in its leadership role and directly assists in managing this early design decisionmaking process. Experience, education and instinct drives it to tell the team to stop designing until the true cost (in dollars and project impact) implications are determined so the team can decide if those desires are worth the cost. This is true value management in action. Our industry likes to use the term “value engineering” many times for what is really “scope reduction” or “cost reduction” strategies once a project is designed and is over budget. Why does this happen? Because developers and designers make cost assumptions based on obsolete or incorrect cost information. Most of the time “value engineering” is a reactive approach, trying to fix a process that could have been mitigated with a simple change in philosophy (IPD philosophy) and approach (team integration and collaboration). The idea is to determine what value really means to the owner and operator stakeholders from the outset and then make decisions that can potentially enhance that value during design. Sometimes this can be done while keeping the budget static, while other times budgets fluctuate. Despite these dynamic project variables, one factor holds true in that it is possible for the owner and user stakeholders to develop a clear and objective measurement of the value of their investment by way of an integrated and collaborative process.