Transformation of the Project Delivery System: Change Your

Approach, Change Your Outcome

Dean Kashiwagi, PhD, PE, IFMA FellowArizona State University

August 19, 2015

Introduction

• Please don’t take anything personally

• Don’t know any of you

• Change of paradigm

• Person next to you

Industry Structure

High

I. Price Based

II. Value Based

IV. Unstable Market

III. Negotiated-Bid

Wrong person talkingManagement, direction, and controlNo transparency

Buyer selects based on price and performanceVendor uses schedule, risk management, and quality control to track deviationsBuyer practices quality assurance

Perceived Competition

Perf

orm

ance

Low

High

Minimized competitionLong termRelationship basedVendor selected based on performance

Utilize Expertise

Manage, Direct and Control [MDC]

High

Low

Perf

orm

an

ce

Owners

“The lowest possible quality

that I want”

Contractors

“The highest possible value that you will get”

Minimum

MDC Systems result in adversarial environment and reactive behavior

High

Low

Perf

orm

an

ce

Maximum

5

What Is Needed?• Paradigm shift• Natural laws• Understand and accept reality• Owners/buyers/bosses should replace

management, direction and control (MCD) with the utilization of expertise

• Thinking, decision making, influence and MDC increase risk and cost and decrease value

Introducing new concepts

• Replace management, direction and control with the utilization of expertise

• Utilize expertise to reduce project cost and improve quality

• Best value is the lowest price

• Not a legal issue, but a change of paradigm7

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

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1.04M950K

1.33M1.31M

700K

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$ A

mou

nt A

war

ded

(Mill

ions

)Performance Based Studies Research Group

$16M Research, 22 years, 1800+ tests, 98% Satisfaction

Best Value Leadership Research#1 Worldwide

Criteria Metrics Originator and Start Date Dean Kashiwagi (IFMA Fellow, Educator of

the Year) [1993]Director Dean Kashiwagi

College Ira A Fulton School of Engineering University Arizona State UniversityYears of Operation 23 years

ExpertiseOptimization of Supply Chain, Performance

Leadership, Procurement, Organization Performance

Projects and Services Delivered 1800 + Projects and Services Delivered $6.4 Billion Customer Satisfaction 98% Client Rating of Process 9.5/10 Research Funding $15.9 Million

9

Best Value Leadership Research#1 Worldwide

Construction Projects 1,634

Construction Projects ($) $4.1B

Non-Construction Projects 170

Non-Construction Projects ($) $2.2B

Projects on Budget 96.7%

Projects on Time 93.5%

Largest Awarded Client ASU

Total $ Award to Date at ASU $1.7B

Longest Awarded ClientsMEDCOM, ASU, States of Oklahoma

University of Minnesota, Rijkswaterstaat

AzTech Technology Licenses 43 [most licensed Technology at ASU]

Testing in Number of States 31

Testing in Number of Countries 6

10

Best Value Leadership Research#1 Worldwide

Construction Projects 1,622 Construction Projects ($) $4B Non-Construction Projects 95 Non-Construction Projects ($) $2B Projects on Budget 96.7% Projects on Time 93.5% Largest Awarded Client ASU Total $ Award to Date at ASU $1.7B Testing in Number of States 31Testing in Number of Countries 6

12

• 1800+ projects and services delivered

• $6.4B Construction services

• 98% customer satisfaction

• $15.9M Research Funding Generated

• 112+ Clients [Public and Private]

• 43 Arizona State University Licenses

• 384+ Papers Published

Research Effort Supporting Class(Performance Based Studies Research Group)

George Ang 2004• George Ang,

Rijksgebouwendienst (Dutch Government Building Agency), 2004

• Heard the Best Value PIPS message in Singapore and Tel Aviv in the previous three years

Early Visionary

• Marc Gillissen, Heijmans, 2005

Dutch Visionaries• Rijkswaterstaat

– Carlita Vis– Wiebe Witteveen

• Scenter/Delft University– Sicco Santema– Jeroen van de Rijt

© 2011, Arizona State University, PBSRG

Dutch Implementation

• Over-management of vendors• Procurement and execution takes too

long [12 years]• Infrastructure repair is critically needed

[drivers spend 1-2 hours on road going and coming]

16

• 16 project, 6 awards, $1B test of best value PIPS

• Goal is to finish 10 projects in 3 years

16

1717

• Program results: 15 projects finished (expectation was 10)

• Delivery time of projects accelerated by 25%

• Transaction costs and time reduced by 50-60% for both vendors and client

• 95% of deviations were caused by Rijkswaterstaat or external [not vendor caused]

• NEVI , Dutch Professional Procurement Group [third largest in the world] adopts Best Value PIPS approach

• Now being used on complex projects and organizational issues

Results

Observation of Current Practices• Practices makes practitioners work harder and thinking more,

increases their stress, and tells practitioners this is “good for them”

• Increased stress leads to minimized performance

• Increasing transactions [admin and details] leads to reactive behavior

• Communicating complex ideas identifies that practitioners may not understand what is going on

• This method proliferates the “make it complex” practice and we need experts to know an expert

18

Best Value [BV] PIPS concepts

• Owner minimizes decision making• BV structure is set in RFP• Vendors submit metrics that show who is the

best value for the lowest cost• Competitive Range is set for price submittals

and looking at the best value prioritization• Vendor sets the final scope [must be

acceptable to client/buyer]

19

Concepts of Best Value• Don’t make me think• Don’t make me make decisions• Keep it simple• If it is complex, then I am not talking to an expert• Take me into the future without needing details• The more we talk, the more trouble we will get

into

20

Best Value [BV] PIPS concepts

• Owner minimizes decision making• BV structure is set in RFP• Vendors submit metrics that show who is the

best value for the lowest cost• Competitive Range is set for price submittals

and looking at the best value prioritization• Vendor sets the final scope [must be

acceptable to client/buyer]

21

= =Past Present Future

# of Natural Laws

# of Natural Laws

# of Natural Laws

100% 100% 100%

Natural Laws

Natural Laws are discovered and not created

Conditions Always Exist

23

Conditions are unique and change according to natural laws

Unique Conditions

PAST

Unique Conditions

PRESENT

Unique Conditions

FUTURE

Past Conditions Present Conditions Future Conditions

100% 100% 100%

Unique Conditions Are Related

Unique initial conditions

Unique final conditions

Time (dt)

Natural Laws Natural LawsNatural Laws= =

Event [by Observation]

Unique Final Conditions are Set by Initial Conditions [No controlling of event, Minimizing

Decision Making]

Natural Laws

• No exceptions• Predictable• No influence or control over any entities

[contracts]• No chance or luck• MDC is inefficient• Majority of people are blind

EnvironmentEnvironment

More Likely to:

1. Believe in luck and chance2. Blame others3. Be surprised4. Be emotional5. Try to control others6. Feel controlled by others7. Be reactive

More Likely to:

1. Plan things in advance2. Be accountable3. Have vision4. Listen to others5. Think of other people6. Be at peace7. Be organized

Influence No Influence

Influence vs. “No Influence”

By Success model, NO control or Influence is reality

1976 (39)

Traditional Risk Model [DM/C]

29

50% 50%

Whose Fault?• Decision Making• Transparency• Risk• Accountability

Challenge: Minimize Decisions

• Decision Less Structure

• Results– Transparency– Metrics– Non-experts and experts understand– Minimize management, direction and control

30

Risk Model: Minimize DM

31

100%0%

EnvironmentEnvironment

More Likely to:

1. Believe in luck and chance2. Blame others3. Be surprised4. Be emotional5. Try to control others6. Feel controlled by others7. Be reactive

More Likely to:

1. Plan things in advance2. Be accountable3. Have vision4. Listen to others5. Think of other people6. Be at peace7. Be organized

Influence No Influence

Influence vs. “No Influence”

By Success model, NO control or Influence is reality

System Created to Assist People to See

System Created to Increase Value and Performance

Autonomous Cars Minimize DM

Structure to Decrease Decisions

Self-Driving Cars

BV Structure

• Experts simplify to create transparency• Experts minimize client’s thinking and decision

making• Utilize the language of metrics• Identify experts by performance metrics

37

Sugata Mitra: The harm in making others think

• Ran experiments with poor Indian kids [no English]

• Removed teachers• Used “granny’s” to replace teaching with encouragement to improve

performance• Students improved from 30-50% on test scores in 2 months• Created Self Organized Learning Education [SOLE]• Dewang Mehta Award for Innovation

38

“Hole in the Wall”

Experiment

“Almost” No Rules• Developed Lumiar Foundation [3 Brazil schools]• Teacher’s role is moderator vs. dictator• Use “older” people to educate• Use “experts” to teach subject matter• Children come up and enforce rules• No age silos per category• No disciplinary silos

39

Ricardo Semler Video

Flanburg: The value of relaxing the mind

40

• Scott Flansburg’s brain computes faster than a calculator

• Ran hundreds of tests against speed of calculator(s) [never loses]

• Doctor’s ran tests– Scanned normal brain while computing

[control]– Scanned Scott’s brain while computing

• Results identified Scott’s brain:– Less active but more efficient than control– Used non-traditional areas of the brain for

computing

Superhuman Episode

Best Value

• Simplify a complex technical project

• Utilize expertise

• No trust model

• Create transparency

41

Approach: Best Value

321Selection Clarification Execution0Pre -Qualification

DominantSimpleDifferential(non-technicalperformancemeasurements)

Clarification Technical reviewDetailed technical scheduleMilestone schedule

Risk ManagementQuality ControlQuality Assurance ( WRR / DR)

EducationPre-qualify

Level of Expertise Submittal

Claim: best project manager in company, does only clean room projects, best in the Midwest areaVerifiable performance metrics: 1.last 10 years2.20 clean room projects3.scope $50M4.customer satisfaction 9.55.cost deviation .1%6.time deviation 1%

How Buyer Communicates Project Requirement

• Software package for ERP System• Number of entries per year: 20,000• Number of existing software/platforms integrated

into system: 6• Number of heavy users: 20• Number of organizations using system: 10• Average number of trained personnel: 2

Vendor Submittal

• PM has completed two projects in the last three years with following metrics:

• ERP systems for two government organizations, $25M scope, time and cost deviation is less than 1%, customer satisfaction at 9.5/10.0

• Each project has average of five existing platforms that need to integrate into, 10 organizations, 5 heavy users, 20K transactions per month, 1 maintenance manager

45

Close the Gap• Requirement: ERP System

• $30M• 2 year duration• Integrate with 6 existing

software/platforms• 5 organizations• 20K transactions/month• 10 heavy users

• Vendor: 2 system installation last 3 years, 9.5 CS, 1% cost/time deviation

• $25M• 2 year duration• Integrate with 4 existing

software packages• 3 organizations• 15K transactions/month• 7 heavy users

46

Transparency• Keep it simple.• Minimize trust• Minimize decision making.• Minimize thinking.• Minimize communications.• Minimize risk.

47

Expert Plan• Detailed schedule from beginning to

end• Expertise used in areas where there

is insufficient information• Risk that cannot be controlled

[requirements]

48

Deliverables[metrics]

Milestones [metrics]

Lack of Info

Risk Risk

Lack of Info

Expertise Expertise

Mitigation Plan

Mitigation Plan

Approach: Best Value

321Selection Clarification Execution0Pre -Qualification

DominantSimpleDifferential(non-technicalperformancemeasurements)

Clarification Technical reviewDetailed technical scheduleMilestone schedule

Risk ManagementQuality ControlQuality Assurance ( WRR / DR)

EducationPre-qualify

Case StudyOverall ASRAC Performance

ADEQ Professional Services• Identify performing

professional services for Environmental Quality Plans and Actions

• Take action to clean up property to make it environmentally safe so land can be developed

Yuma Operational Difference

ADEQ PM Criteria Pinal County

Yuma (In-progress)

Total Cost of Projects $400K $138KProject Duration (days) 730 352% Total Schedule Deviation 150% 23%% Schedule Deviation Due to ADEQ - 23%% Schedule Deviation Due to Vendor - 0%% Cost deviation 300% 0.5%*% of Milestone Deliverables Requiring ADEQ Revisions 100% 0%

% of ADEQ Time Required to Support Vendors 50% TBD

ADEQ Overall Metrics

Criteria % Diff Traditional Best Value

Required time to evaluate proposals - 95% 286 hrs 13 hrs

Protests 0% 0 0

Avg. Customer Satisfaction of process (1-10) 63% 5 9

ADEQ Administration Cost - 96% $ 98,520.00 $ 3,840.00

ADEQ Admin. Cost Savings $ 94,680.00

Major ImprovementsTraditional ASRAC

• Non-transparent

• Lack of vendor accountability (reactive)

• Inability to filter out non-experts

• Inability to track and measure project performance

• Spent up to 50% of budget

• Client required to make decisions

• All external/internal stakeholders were not on the same page

BV based ASRAC• Transparent (DR and WRR)

• Increased vendor accountability (proactive)

• Process to identify and filter out non-experts

• Measures internal and external performance (DR and WRR)

• Spent 100% of budget

• Minimizes decision making and risk. (Streamlined Processes)

• Accurate progress and budget projection

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Overall Program Performance

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No. Criteria Traditional Best Value

1 Total # of projects 35 60

2 Total cost of projects $5.5M $5.8M

3 % of projects SOW completed in fiscal year 50% 97%

4 # of ADEQ PMs to manage projects 7 5

5 Customer satisfaction of vendor performance 6.9/10 9/10*Data was adjusted due to project de-scoping (24 projects, $1.2M (17.32%), 355 days (10.14%)

• ADEQ PMs increased work capacity by 140% [5 PMs do work of 7]

• Contractors performed 94% more work in 33% less time [did 12 months of work in 8 months and finished 47% more work].

• ADEQ customer satisfaction of vendor work increased by 30%

Site Phases Performance

56

No. Criteria FY14 FY151 Total number of PI sites increased 0 262 PI sites listed 0 4/263 Total number of PI reports completed 0 8/254 Total number of RI reports completed 3/3 7/125 Total number of GW & MS reports completed N/A 5/76 Total number of PRAP reports completed 1/1 5/77 Total number of FS reports completed 3/3 6/118 Total number of ERA reports completed 1/1 3/39 Total number of ROD reports completed 1/1 0/1

*Best estimates according to ADEQ PM and Vendor

No. Criteria FY11 FY12 FY13 FY14 FY15

10 Total O&M cost [$K] $202 $377 $651 $59K $1.2M

Detailed Project Breakout Total Project budget $5.8M

Total Projects 60

% Over Awarded Budget 5.43%

% over budget due to Client 6.65%

% over budget due to Vendor -0.08%

% over budget due to unforeseen -0.57%

% over budget due to Other -0.57%

% Delayed 6.72%

% Delayed due to Client 6.75%

% Delayed due to Vendor -0.28%

% Delayed due to unforeseen 0.46%

% Delayed due to Other -0.21%

57

Case Study

City Of RochesterMayo Civic Center

March 2015

Background• Budget: $67M | 188,000 SF

• Two-story convention facility addition – 40,000 SF Ballroom– Meeting rooms – Hold two 1,000 person conventions - simultaneously – Why? In 2008, Rochester lost out on over 70 conventions ($74M revenue)

• Schedule– RFP Released on 11/21/2014– 61 calendar days to submit proposals– 12 calendar days to evaluate– 29 calendar days for clarification and award

Evaluation CriteriaCATEGORY WEIGHT

Cost 250 PointsInterview 350 Points

Risk Assessment PlanGeneral Contractor (105 Points)Mechanical (HVAC) Subcontractor (30 Points)Mechanical (Plumbing) Subcontractor (30 Points)Electrical Subcontractor (30 Points)Low Voltage Subcontractor(s) (30 Points)

225 Points

Value Assessment PlanGeneral Contractor (75 Points)Mechanical (HVAC) Subcontractor (25 Points)Mechanical (Plumbing) Subcontractor (25 Points)Electrical Subcontractor (25 Points)Low Voltage Subcontractor(s) (25 Points)

175 Points

Advance Identification and Retention of Critical SubcontractorsMechanical HVAC Subcontractor (5 Points)Mechanical Plumbing Subcontractor (5 Points)Electrical Subcontractor (5 Points)

15 Points(Bonus)

Prioritization Comparison (Top 2 Ranking Vendors)

NO CRITERIA WEIGHTS FIRM A FIRM D FIRM A FIRM D

1 Cost 250 65,605,923$ 60,394,872$ 230 250

2 Risk Assessment 225 7.9 8.4 212 215

3 Value Assessment 175 8.8 8.6 172 164

4 Interviews 350 8.2 7.6 350 324

1,000

Price Points (250): 23% 25%

Performance Points (750): 73% 70%

TOTAL POINTS (1,000): 96% 95%

RAW DATACRITERIA & WEIGHTS PRIORITIZED DATA

Best Value Explanation• In last 2 City projects that we won, we were about 5% below the average.• Due to experience of BV, we included no contractor contingency ($1 Million) • Preferred numbers from subcontractors working with our team ($700K)• Self-perform demolition, concrete, and carpentry with no mark-ups ($500K) • All of our personnel are from the Rochester area ($300K)• We did not include a tower crane for this project ($400K)• Contracted with multiple mechanical and electrical subs to minimize mark-ups ($320K)• Did not use excavator / driven pile contractor which all other contractors used ($300K)• We did not assume a full staff for the entire 2.5 years. During certain phases of the project

a full staff will be dedicated to this project. However, during smaller phases our staffing will be adjusted to fit the scope ($250K)

BV Approach• 90% of project risk [time and cost deviations]

caused by client MDC, thinking and decision making

• Minimize MDC [thinking and decision making by owner]

• Utilize expertise to minimize cost and increase value

• Use natural laws and common sense to understand issues

63

Questions and Answers[We need visionaries]

Linked inDean.kashiwagi@asu.eduYouTubePbsrg.comksmleadership.com

Jan 18-21, 2016Tempe, AZ2015 Best Value Education and Training

• Paper of BV model• Manuals• Further education