Development of target cost – By the owner or together with Contractors - Target Value Design

Abstract

Cost growth and cost overrun of projects is a well-researched topic, but still a recurring problem. Some of the problems may be attributed to the difficulties of setting a realistic cost estimate in the early phase of the project. This paper aims to give insight o the challenge of setting realistic cost targets. We particularly focus on large and complex infrastructure projects in the context on the Norwegian construction industry. Four large infrastructure projects have been examined, all used a variation of target cost and was more or less successful in their implementation of this approach. Through interviews and document study we identified that when setting cost targets for projects, both allowable cost and target cost should be considered. Allowable cost should be defined by the project owner, implying that the allowable cost should be set before the start of design. Furthermore, the target cost should either be set by the project owner or in dialogue with the design and contractor team. The study concludes that it is important that the target cost is set 12 – 20 % below allowable cost so that it is possible both to drive innovations through the design process and to be able to handle risks during construction.