How stochastic cost estimates could be applied in relation to target value design

Abstract

Approaches like Target Value Design (TVD) has gained more and more attention in the Construction Industry. Critical issues with these principles are how the cost targets are set, how shared profit is agreed upon and made transparent, and how production costs are steered towards the target costs and tracked. Research has shown positive applications of TVD, but also remaining challenges with the approach. This paper will focus on the process of setting the cost targets in TVD. In traditional design processes, the costs are estimated based on the finalized design. In TVD, design and construction is steered towards the constraints, while maximizing the value for the costumer. Based on the client value, Allowable Cost are set. In Scandinavian countries, stochastic cost estimation methods have been applied to estimate project costs and to set cost targets for projects over many years. The cost targets are set prior to detail design. The purpose of this paper is to discuss how stochastic estimates could be applied in TVD. The method used is a literature review, in combination with a case study of cost estimation principles in two Norwegian public agencies. Findings show that stochastic cost estimates could be used both as input to set Allowable Cost and to estimate the Market Cost.