TARGET COSTING BASED ON THE ACTIVITY-BASED COSTING METHOD ...
Target Value · PDF file · 2012-11-01Target Value Costing The Scenic Drive Success...
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Target Value Costing The Scenic Drive Success Story Applying Target Costing Principles in VE to Capital Construction Projects David Wilson, P.Eng., CVS-Life, FSAVE, CPF 2012 CSVA Annual Conference – October 2012 Calgary, AB
Transcript of Target Value · PDF file · 2012-11-01Target Value Costing The Scenic Drive Success...
Target Value Costing
The Scenic Drive Success Story
Applying Target Costing Principles in VE
to Capital Construction Projects
David Wilson, P.Eng., CVS-Life, FSAVE, CPF 2012 CSVA Annual Conference – October 2012 Calgary, AB
This Presentation…
Five Aspects:
The Key Question: Why? Target Costing Principles Example – Scenic Drive N Tips, Tricks, and Traps Closing Thoughts
The Key Question: Why?
In VE we often see…
– Too big
– Too small
– Too complicated
– Too simple
– Too expensive
Why?
The Key Question: Why?
Apparent assumptions
– Owner knows best
– Planners/designers will
innovate
– Funding can always be
found
– Best is always better!
How valid are these?
Why?
The Key Question: Why?
VE is often used to…
– Optimize the project
Functionality
Cost-effectiveness
– Generate new solutions
– Build stakeholder
consensus
– Rescue a project (overrun)
Why?
The Key Question: Why?
Why can VE not accomplish more?
Target Costing Principles
Target costing
– Typically applied in
manufacturing
Target Costing Principles
Survival Triplet Cost/Price
Quality Functionality
Minimum
Maximum
Target Costing Principles
Approach focuses on…
– Right-sizing the solution to
fit the need
– Maintaining future flexibility
– Adaptable functionality
over time
– Consistent value
(function/cost relationship)
Target Costing Principles
Infrastructure design…
– Standards rule
– More function/cost variance
– High costs
What happens if…?
Example
Scenic Drive North Extension Lethbridge, AB
Project Overview N
“Usual” Project Challenges
Path system
– Maintain/expand
Topography
– Deep coulees
– Eroding/unstable soils
– Abandoned mine
Environmental
– Rare at-risk species
Major utilities/WWTP
Financial/Schedule Challenges
Federal/Provincial
funding
– Complete by 2013
Schedule
– Grading in 2012
City budget
– $20M approved
Design estimate
– $36M (April 2012)
Cost Model - Pre-Design
Mainline WWTP
Pre-Design Pre-Design
Grading $10,993,000 41.11% $8,981,000 $2,012,000
Watermains $5,000 0.02% $5,000 $0
Sanitary $1,788,000 6.69% $1,788,000 $0
Storm sewers/ponds/ditches $632,000 2.36% $572,000 $60,000
Culverts $2,370,000 8.86% $2,370,000 $0
Shallow utilities + lights $270,000 1.01% $207,000 $63,000
Roadworks $7,368,000 27.56% $6,712,000 $656,000
Line Markings $50,000 0.19% $37,000 $13,000
Pedestrian Crossing+Handrails $2,000,000 7.48% $2,000,000 $0
Pathway $123,000 0.46% $123,000 $0
Retaining walls $360,000 1.35% $360,000 $0
Guardrail $150,000 0.56% $30,000 $120,000
Concrete barrier $630,000 2.36% $630,000 $0
Subtotal $26,739,000 100.00% $23,815,000 $2,924,000
General Requirements $2,949,000 $2,657,000 $292,000
Contingency $4,453,000 $3,971,000 $482,000
Total Markups $7,402,000 $6,628,000 $774,000
Total (before taxes) $34,141,000 $30,443,000 $3,698,000
Taxes $1,707,000 $1,522,000 $185,000
Total after taxes) $35,848,000 $31,965,000 $3,883,000
Major ComponentPre-Design
Total
Objectives
Address Mismatch in Objectives
– Project initiated to improve mobility
– Substantial funding earmarked for
asset renewal (WWTP road and infrastructure)
asset additions (new pathways and tunnels)
future needs (additional traffic lanes)
Establish a Way Forward
– What do we really need to do now (priorities)?
– What can we afford to do?
Target Costing Approach
Focused on key project objectives
Define cost target
Original Target
Subtotal $26,739,000 $14,500,000
General Requirements $2,949,000 $1,599,000
Contingency $4,453,000 $2,415,000
Total Markups $7,402,000 $4,014,000
Total (before taxes) $34,141,000 $18,514,000
Taxes $1,707,000 $926,000
Total (after taxes) $35,848,000 $19,440,000
Major ComponentPre-Design
Target Costing Approach
Interactive value assessment
Suggested Strategy
Scenic
N
Tips, Tricks, and Traps
Planning process
– Set cost targets upfront
– Actively
Plan-to-need versus
Plan-to-exceed
VE process
– Earlier is better
– Decisionmakers in the room
– Prepare to make tough decisions
Functionalit
y
Life Cycle Cost
Poor Value
Best Value
Exceeds Need
Closing Thoughts
Target Costing for Capital Projects
– Reverses traditional Bottom-Up planning/design
process to Top-Down approach
– Challenges “the way we’ve always done it”
– Ensures a Right-Sizing focus
What can we afford? When can we afford it?
What do we really need?
How can we ensure flexibility for the future?
In Summary…
Five Aspects:
The Key Question: Why? Target Costing Principles Example – Scenic Drive N Tips, Tricks, and Traps Closing Thoughts
Contact
David C. Wilson, P.Eng., CVS-Life, FSAVE, CPF
President NCE Value Engineers Inc.
2800 Fourteenth Avenue, Suite 406
Markham, ON, L3R 0E4
T 905.943.4443
F 905.943.4449
