Lean in Construction Financing

Lean
in
Construction Financing
Sam Spata, AIA
Owner, Principal of Method Lean

Contents
✔ Risk
✔ Mitigation
✔ Waste
✔ Lean
✔ Feedback

“Never was anything great achieved
without danger.”
- Niccolò Machiavelli
“Flawless, not fearless.”
- Dan Thurmon

Time
Quality
Money

Life
Reputation
Business
“I’ve lived through some terrible
things in my life, some of which
actually happened.”
- Mark Twain

Value to Owner
Source: Lean Construction Institute & Dodge Analytics

“Risk is the price of opportunity.”
- Sam Spata, Rule # 4

Process
1. Identify Known Risks
✔
✔
Common Causes
Special Causes
2. Allow for Unknowns
✔
✔
Insurance
Contingency
3. Assess Probability + Mitigate
✔
Risk + Opportunity Register

Identify: Common Causes of Risk
✔ Scale
– Scope
– Time
✔ Complexity
– Building Systems
– Delivery Process
✔ Innovation
– New, Unique, Untested

Dollar | Day Curve
Planning
Doing
Few People
Short Duration
Most Dollars Committed
Many People
Long Duration
Most Dollars Consumed

A Risk Identified is Partly Mitigated
Risks created here…
…become visible here

Identify: Special Causes
Problem Statement
Since project delivery is
unreliable,
Therefore the cost of
Risk is a key factor in
construction financing.
Information
Errors
Design
Unforeseen Site
Conditions
Delays
Accelerated
Schedule
Construction
Owner
Omissions
Process
Scope
Changes
Source: McGraw Hill SmartMarket Report
Managing Uncertainty and Expectations in Building Design and Construction

Allow for Unknowns
✔ Insurance
– 3rd Party
– Owner Contingency
✔ Project Delivery Method
– “Lean is the best methodology to manage
uninsurable risks.”
- Robynne Thaxton Parkinson JD, DBIA

Re-Cap
✔ 3-step process
– Identify Known Risks
– Allow for Unknowns
– Assess Probability + Mitigate (to follow)
✔ Common Causes
– Scale
– Complexity
– Innovation

Re-Cap
✔ Design (Pre-Construction) is Key
– Risks are created Early; discovered Late
✔ Special Causes
– Information
– Construction
– Process
– Design
– Owner

Theory
Waste
Flow
Value

Muda – Mura – Muri
Muda
Waste
Transportation
Inventory
Motion
Waiting
Over Processing
Over Production
Defects
Talent
Disrespect
unnecessary process movement
quantities beyond immediate need
movement that adds no value
work-in-progress, stalled
finishing beyond need
creating before need
rework
underutilized people
consuming resources
source: LCI, “Transforming Design and Construction”

Muda – Mura – Muri
Mura
Over-Burdening
Push-Plan
pressing beyond system limits
Muri
Variation
Unevenness
unreliable demand
source: LCI, “Transforming Design and Construction”

Re-Cap
✔ Although a project is undertaken to
deliver the Owner’s value
proposition, financing is risked by
another to create Return On
Investment
✔ Since waste + flow are linked threats
to ROI, therefore Lean Project
Delivery is a risk management tool

What is Lean?
1. Operations
– Lean Operations is a strategy to deliver
increased productivity via flow efficiency.
2. Project Delivery
– Lean Project Delivery System strips away
unnecessary effort, time and cost in capital
project development to deliver what the
Owner values.
3. Design
– Lean Design is a creative process to prevent
error and invent value.

What is Lean?
Construction Financing
2. Project Delivery
– Lean Project Delivery System strips away
unnecessary effort, time and cost in capital
project development to deliver what the Owner
values.

Habit
+ D
Tool
Process
Vision
Theory

Habit
+ D
Tool
ROR
Process
LPS
TVD
SBD
CBA
COS
Vision
Theory

Hierarchy of Process Need
Big Four
Choosing By Advantages
Set Based Design
Target Value Design
Last Planner System
Conditions of Satisfaction

Hierarchy of Process Value Add
Decision-Making
CBA
Problem-Solving
SBD
Budgeting
TVD
Scheduling
LPS
Programming
COS
Best Advantage
Parallel Options
Decide-to-Budget
Pull-Plan
Product + Process

Conditions of Satisfaction

Every Stakeholder Influences the COS
Warranty
Guaranty
Certification
Moral Hazard

Process
1. Identify Known Risks
✔
✔
Common Causes
Special Causes
2. Allow for Unknowns
✔
✔
Insurance
Contingency
3. Assess Probability + Mitigate
✔
Risk + Opportunity Register

Sort
Low Priority
High Risk
Risk
High Priority
High Risk
(first)
Low Priority
Low Risk
(last)
Priority
High Priority
Low Risk

Risk + Opportunity Register
✔ Item
✔
✔
✔
✔
✔
✔
✔
– Description
Classification
– Risk or Opportunity
Condition of Satisfaction
– Overarching Goal
Probability
– Risk Greater than +5% | Opportunity Greater than -20%
Raw Cost
– Reasonable Worst + Best Case Parametric Estimate
Weighted Cost
– Probability X Raw Cost
Champion
– Responsible “Owner”
Sunset
– Key Date

Risk + Opportunity Register

Prioritize Risk or Opportunity?
“Address Risks as Real;
Opportunities as Bonus.”
- Sam Spata, Rule # 5

Re-Cap
✔ All Project Delivery is Risk
– Waste is the enemy
✔ Lean Project Delivery
– A Risk Management Approach
– Big 4 + COS
✔ Conditions of Satisfaction
– Every Stakeholder is an Influence
✔ Risk + Opportunity Register
– Holistic, Methodical

Feedback
What did
you (the
audience)
takeaway?
What did
I (the
speaker)
intend?

Continuous Improvement
+ D
+
What was
helpful so far
and should
continue to be
included?
Δ
What would
you add or
subtract, to
make this
more helpful?