Target Price Management
Target Price Breakdown and Management
To explain the problem that target price management solves, examining how a traditional construction project is tendered and what should be changed is necessary.
Traditionally, the client defines a construction project in collaboration with the architects, and then the contractor is consulted afterward "What is the price?" An approach that leaves the client to "hope" that the price aligns with the budget and that there won't be any cost overruns during execution (which often happens when the project is awarded to the lowest bidder).
With target price management, the client establishes a budget along with a set of goals and desires for the construction. Subsequently, the architect and contractor (as a unified team) are consulted. "How much can I get for my budget?" An approach that ensures the price aligns with the budget and that the project is adjusted to fit the budget so that it can be designed, constructed, and delivered without additional costs.
Data-driven decision basis
The method requires ongoing project breakdown and valuation, including potential additions and exclusions, so decisions can be based on accurate data rather than a gut feeling of whether the budget is sufficient.
At the DTU Building 208 Exigo has been responsible for the ongoing project, target price breakdown, and associated data processing and communication to support the client's prioritization decisions.
Adapting the project and building model detailing
The process follows the detailing of building models and is initially based on successive budgeting, transitioning into continuous concrete pricing (actual project quantities and unit prices). Later, this can serve as the basis for precise progress, advance assessments, and final settlement with the contractor.
The transition occurs continuously as the project becomes more defined. Therefore, it's possible to manage well-defined work packages alongside undefined ones that are still open to changes and alternatives.
For instance, the scope and cost of demolishing existing buildings are likely known early in the project. At the same time, material choices depend on budget allocation and, therefore, remain open well into the design and planning phases.
Visual and dynamic overview
You receive a link to a dashboard where the target and cost breakdown are presented for the project's subcomponents. The dashboard provides a transparent overview of how the finances are distributed in the project, forming the basis for the client's prioritization decisions. In other words, data-driven additions and exclusions can be made.
Why is target price management a great idea?
Target price management involves the early involvement of the contractor in the design and planning phases to ensure the implementation of efficient and achievable solution models. This way, risks related to the construction execution are identified and mitigated early in the project.
Concrete benefits of target price management:
- The project is aligned with the budget
- the budget is adhered to!
- Transparent financial overview as the basis for decisions
- Selection of efficient and feasible solutions in construction
- Emphasis on collaboration over disputes and additional payments
Is target price management new?
The method has several names in the literature, namely "Target Value Delivery (TVD)," "Target Cost Planning (TCP)," or "Design to a Cost (D2C)," and it originated in the early 2000s.
Why isn't the method more widespread?
Isn't it in the interest of all parties to align the construction with the budget and thus avoid unpleasant budget and schedule overruns, disputes, lawsuits, and negative publicity?
The process and data processing are new!
The likely explanation is the volume and extent of data processing. The response time for project and target price breakdown, including successive valuation based on 3D building models that continually change and become more detailed throughout the project's design and planning phases – and possibly encompass different solution models – has been too slow for the data to be made available to the client in time to form a basis for decision-making. It could take weeks to recalculate the finances (both target and cost prices) for complex projects.
With Exigo's Target Price Management tool, the response time is under 1 day. This means that any decision-making can be supported by data on a day-to-day basis.
We are also happy to assist you.
Target price management is fundamentally a relational, collaborative approach with associated incentive structures and contracting designed to support the target value delivery processes. Exigo will assist you with inspiration, incentive structuring, contracting, and subsequent data management using the target price management tool.
"(...) Exigo has been selected as a developer's consultant/specialist in the context of ICT and BIM because they can document experiences from similar projects and, therefore, have an in-depth understanding of the DNA of 3D models down to the smallest detail. They are to scrutinize our consultants' 3D models for errors and ensure they are corrected until we have reached our goal completely."