Robert Springer's presentation on IPD, developer risk, and the cost of money has prompted the following email from Sandy Zirulnik. Sandy is past president of On Line Consulting and Guidepost Solutions.
Bob Springer's presentation outlines some hurdles to expending considerable design effort early in the development process of a project. Sandy suggests that we should look at "just in time delivery" as another layer on Bob's presentation.
Let me propose a particular terminology that might be helpful to consider.
In terms of industrial logistics, we are familiar with "just-in-time" delivery of various elements of the supply chain. "Just-in-time" delivery to wholesaler or retailer means less capital outlay and less inventory on shelf, reducing costs of doing business. "Just-in-time" also is applied in factory assembly work, with "just-in-time" delivery of parts to the assembly line, also reducing necessity to have capital tied up in material sitting on shelves; also the cost of shelves. This methodology also reduces risk by not requiring a big cost commitment to parts that might not be used due to lack of demand for the predicted level (or type) of product. Reduction of risk is a big element of the Springer presentation and rightly so.
If we apply "just-in-time" to the development process, we can look at how that works with design, financing, and construction, and this will overlay well with the charts in the presentation.
Just-in-time financing means we would like to defer spending money, particularly if we think the costs of funds are stable or may decline. Just-in-time design means we would like to defer design decisions until the last practical moment. Why? This allows us to continue to adjust the building to meet our possibly changing ideas of the ideal building configuration, methods, materials, etc. which may be getting more efficient, sustainable, less costly, etc. We do not save money by doing design early if we are not confident that our design decisions are perfect. Otherwise we increase risk by locking-in the design before we know as much as we can know about the building we want. (An aside: a good design process acknowledges that building use may (will) change over the course of the design and occupancy of the facility, and incorporates design elements which provide flexibility in terms of use. I have not seen this requirement well-incorporated into the IPD projects I have worked on. Rather, I have seen the push to wring out any costs associated with construction which results in greatly reduced future flexibility)
There is a special requirement to utilize just-in-time design for technology elements of a building, which due to product evolution will not be the same on design day one as they will on construction completion day, no matter how fast the design and construction process.
Just-in-time concept continues into the construction phase. Let's call that more broadly the procurement phase, which involves construction material and labor, as well as furnishings, commissioning, etc. So there is an art here to decide if it is possible or desirable to devise means for the developer or owner to lock-in costs of procurement early. A big factor is the quality of the crystal ball used to anticipate the cost of capital for construction. Going to go up or going to go down? Have it in hand or need to borrow at some future time? This risk factors cannot be eliminated or even fully quantified. Nothing new there, but as correctly noted in the presentation, a front-loaded IPD project does start spending more money earlier than the conventional process, so the risks must be managed differently.
I think it is possible to apply just-in-time design to IPD process. We should not set as a goal to have the fully developed design documents before a shovel goes into the ground. Compression of the design and construction process will reduce the duration of exposure to financial uncertainty and risk. This is an advantage not fully considered in the Springer presentation.
Finally, what does "just-in-time" mean in terms of other risks such as required entitlements or shifting markets? Good "just-in-time" means those risks (identification, quantification, mitigation strategy) are given early consideration, and this generates factors to be put on the project timeline. Cathedral Hill Hospital (two years of design effort prior to entitlement, which ultimately required large changes) is a great example of failure to properly schedule certain entitlement risks. As a result the design activities got out of sequence to these risks. The word "time" in "just-in-time" means the last responsible moment when the activity can occur, considering not just the designer or builder's sequence of work, but also all other material activities, including entitlement approval, capital commitment, business plan, etc.
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