INTEGRATEDOPTIMIZATION
"Optimize human enjoyment in the act of production and you optimize production" — W. Edwards Deming
The construction industry often mounts initiatives to increase efficiency and productivity, but assumes the initiatives will gain traction within what is arguably a fragmented and therefore dysfunctional industry. The reality is that a healthy, integrated industry needs to first be developed, and then optimized. Increased efficiency and productivity will follow. The three-fold aim of this paper is that the reader understand:
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First, the organizational structure is optimized. In the performance paradigm, this includes the clarity of structure, roles and responsibilities — all of which need to be reorganized. This enables lasting and integrated team life (as opposed to reshuffling the team from project to project). The supply chain is also to be consolidated in order that the manufacturers, building products and systems are part of the team.
Next, the processes are to be optimized. This will be accomplished through: (1) Lean Building, (2) Production Quality, and (3) Process Integration and Automation.
Finally, the object of the performance paradigm — the building itself — is optimized. This requires a management re-orientation toward the total true cost of a development, and the building producers accepting responsibility for the performance of the building operations.
While construction productivity has been stagnant — even declining — laments over productivity have been increasing. Productivity is, of course, a function of the optimization of the production process (productivity = measures of output from process per unit of input). So, to make a given system more productive (whether it's the producer, process or product), the system is "optimized" to produce more units of output per units of input. With the goal of decisively reversing the productivity decline and the lament incline, this paper proposes some optimization strategies for building systems that create an optimized, efficient and super-productive high performance industry producing high performance buildings.
When someone proposes to "optimize" something, it's assumed that there's already a good system to be improved. Few, for example, would talk seriously about "optimizing anarchy" or an "optimized neurosis." There are systems that few would optimize for ethical reasons (e.g., Nazism), and there are simply outdated systems that few would optimize because better systems have replaced them (e.g., record players). The current construction industry has a number of outdated systems that must be replaced before optimizing.
That is, why optimize an industrial paradigm when there's a new performance paradigm that can be optimized to a much greater effect? Why optimize a record player when you can optimize an iPod? Or, why optimize a fragmented system that doesn't produce value or innovate, when you can optimize an integrated and consolidated system that does both?
An optimized system is characterized by high productivity, high quality and high performance. Building Optimization is therefore both a process and a goal and — eventually — a result and a reward. Nevertheless, the premise here is that optimization is not only possible, but probable, given encouraging trends showing a willingness to push the industry forward. As a contribution to this optimization movement, this paper analyzes obstacles and proposes a series of structures and practices that will promote the optimization of the Building Organization, the Building Process, and the Operating Building.
To this end, the paper first situates optimization within the wider context of the performance paradigm shift. The specific analysis begins with Building Organization Optimization, and describes the fragmentation that impedes all dimensions of the building organization before proposing structures and practices of leadership and multi-dimensional integration. Such structures and practices would strengthen project management, integrate and extend project teams across disciplines and multiple projects, and would consolidate and empower the supply chain. From the optimization of building organization, the analysis proceeds to the Building Process Optimization, where Lean Principles are already setting a great example of value-centered process optimization. The Production Quality section makes a strong case for replacing much of inspection-based quality control that currently dominates building processes and return to Total Quality Management (TQM) practices -- but under the performance rather than the industrial paradigm. The analysis concludes with Operating Building Optimization and a discussion of problems attending the current system of planning and budgeting, which is based on initial capital expenditure (CapEx) and which therefore fails to represent the true expenditure over the life of an operating building. TruEx is the value representing a comprehensive, long-term, "true" expenditure that needs to become the basis of performance planning and budgeting. Other measures of the operating building performance are to be similarly evaluated on a long-term, "true" basis.
Naturally, because these three optimized systems interact in many ways (the product, the producer and the process), the lines of demarcation often blur.This is one in a series of white papers presenting a comprehensive solution for construction's productivity and innovation problems. The solution begins with understanding how construction still operates according to an industrial paradigm; the solution ends with an industry-wide shift to the emerging performance paradigm. While the industrial paradigm is characterized by linear logic and fragmentation, the performance paradigm uses computational science and systemic thinking to produce high performance. With new technology systems, building performance is no longer a vague marketing slogan, but a quantifiable quality. Building performance is the quality of a building’s operation when measured against a standard. Consequently, without a standard, performance is guesswork. Because standards and measures are currently non-existent for whole buildings, building producers and building processes, no one can know quantitatively what the industry's performance is, much less how and where to fix it. Why don't systemic standards and measures exist? Construction is massively complex. It has so far been impossible to collect, organize and standardize sufficient building data for a comprehensive analysis. However, new technologies are emerging that use computational modeling to convert construction's complexity into useful data models. For the sake of the economy, the environment and energy independence, the industrial paradigm is no longer viable for construction. Conventional buildings tax the environment, and conventional “green” buildings tax the economy. As political, social and marketplace forces begin to demand high performance buildings; the low performance industry must change. Construction must shift in order to perform. So, the performance paradigm shift revolves around five key transitions in the industry's structures and practices: When these transitions have been made, then the construction industry can be said to have entered the performance paradigm. The benefits of such a shift are many, and include high performance "green" buildings produced by a high performance industry, as well as the national and global recognition — and hopefully emulation — that will attend successful examples of innovation and optimization in such a complex industry. Like all phenomena of the performance paradigm, optimization absolutely depends on systems thinking and computational science. Without systems thinking and computational science, there would be no Performance Standards and Measures, and without standards and measures there would be no way to measure and evaluate a system, which are the first steps to optimizing a system. In the rough chronology of transitions, optimization follows innovation because building products manufacturers are ready to innovation. This will reshape the manufacturers’ markets, which will necessitate new project organizational structures. That is, the new integrated high performance products and systems will confront fragmented assembly and installation organizations. At this point, building teams will be obliged to restructure with optimized organizations and processes. Company organizational structures aren’t discussed much in the construction industry. The project organizational structure is what is important, and project organizational structures in construction tend to follow project delivery systems. The Building Performance Institute does not promote a particular project delivery system because it predicts that new delivery systems will emerge from transitions one through four — performance standards and measures, function-based computation, operating building focus, and innovation — respectively. Rather, the institute promotes a "defragmented" organization structure with clear lines of structure and responsibility. Structure, Responsibility and Clarity If all disciplines and sub-disciplines stand to gain from organizational optimization, then HVAC, which is notoriously complex, will be the test. This sub-discipline of the mechanical discipline is used as a primary example, but it's understood that other disciplines have organizational needs, and that these needs are best met by clarity of structure and responsibility. The "Traditional Chart - HVAC Sub-Discipline", shows a conventional project organizational structure, which cannot answer the key question: “Who is responsible for the successful operating performance of the HVAC system?” It is not clear whether everyone, or no one, is responsible. When the clarity of structure and responsibility within the disciplines extended to the project as a whole, the clarity of structure and responsibility remains — it’s merely magnified. The project "Optimized Organization Chart" below shows clear lines of responsibility and accountability for planning, design, engineering, procurement, and construction. Although this schematic does not comprehend the sub-discipline level, it provides a model point of departure from which these should be formed. This structure does not accommodate the traditional design-bid-build or conventional construction management, though some structural re-shaping could be considered to mitigate much of the confusion of responsibility that exists in those two delivery approaches. All other forms of design-build and integrated project delivery could institute variations on this structure. The optimal organizational structure is a comprehensive building producer (with its associated consultants, contractors) that: (1) is interdisciplinary — internally integrated in all four dimensions (discipline, process tier, life-cycle and team-life) and, (2) has "standing relationships;" i.e., extends team relationships (including relationships with vendors and manufacturers) over multiple projects. Here, the lines between producer and process blur a little. It's important to note that the organizational structure of the producer directly affects the process -- that is, without good organization, the process has no chance. Most of the principles underlying Integrated Team-Life are derived from W. Edwards Deming's work on productivity and optimization in management. Deming's emphasis on systems thinking and leadership is opposed to current construction norms, including the fragmentation of discipline and the practice of repeatedly reshuffling the project team. Nevertheless, these practices are so normalized that rarely does anyone question them. Note that until performance replace commodity standards, these practices can’t be improved (See “Performance Standards and Measures”). However, for the sake of industry optimization, disciplines must be integrated, and the practice of shuffling project teams must be replaced with a practice of "standing relationships," in which a team collaborates over multiple projects. Among other benefits, such a structure eliminates the issue of a “learning curve” that slows productivity in organizational structures where different vendors and manufacturers are brought in for each project. A lot of time and change is needed between now and the day when a completely integrated building producer is the construction norm. Still, some steps can be taken now to promote the lasting relationships between disciplines and process tiers—whether internally integrated, or done so through joint venture or other sustained business relationships. Supply Chain Consolidation: bringing key manufacturers on the team Consolidated supply chains are supply chains with stable, direct, long-standing relationships between the building producers and with key manufacturers and fabricators. Most other industries have already established direct relationships with manufacturers and fabricators for the sake of saving some portion of the distribution costs and mark-ups. There are many other good reasons for bringing various manufacturers and fabricators directly on the team -- when possible and practical. By consolidating and integrating, a collaborating team can direct more energy to improving quality, performance, cost reduction (first and life cycle), and speed to delivery. Although the establishment of this supply chain consolidation will not be easy, it is critical for higher productivity in the overall project delivery. An obvious example of the success of supply chain consolidation is the practice of retail and restaurant chains and many other multi-project owners who buy material directly. Supply chain consolidation is also practiced by an increasing number of larger or specialized construction managers and design-builders. Supply chain consolidation is another example of organizational consolidation directly affecting process consolidation, or organizational efficiency causing process efficiency. As the "Ordering a Fan" illustration of the traditional supply chain approach to ordering a fan shows, the structural and procedural waste is shockingly clear. Here, the process of designing, purchasing and delivering a fan can be reduced from 26 steps to 4 steps through the establishment of a national accounts program where the mechanical team selects a fan from a catalog, with pricing, submittals, etc. that were previously approved as part of the master agreement. One needs only picture this for each of the hundreds of materials that are under such a lengthy and contorted process. The fan illustration is just one example of the fragmentation and waste characteristic of the industry. However, the fan's organizational solution is the industry's organizational solution. Consolidation will have opponents (middlemen, some suppliers and distributors), but because the performance paradigm will absolutely require efficiency from producers, integration and consolidation are the only option. However, innovative middlemen, too, will have the opportunity to contribute knowledge and experience to this transition. They should work together to combine their manufacturers and systems providers into an integrated team. These middlemen, in fact, may be most capable of using their knowledge of specialty contractors and manufacturers to advance significant process improvement, lean practices, and research and development. In sum, Clarity of Structures and Responsibility, Integrated Team Life and Supply Chain Consolidation will defragment the current organizational dysfunction, which will in turn streamline project processes and generally promote efficiency and effectiveness. PROCESS OPTIMIZATION Because productivity is a function of process (productivity = measure of output from production process per unit of input), increasing productivity requires optimizing process. Likewise, the optimization of process depends on the optimization of organizational structures (see above). Once organizational structures are optimized, process optimization may naturally follow, but it may need some specific attention. This section on processes therefore attends to several aspects of performance processes: Lean Building, Total Quality Management, and Process Integration and Automation. Lean Building A lean building or lean principles is synonymous with optimized building performance and principles of performance optimization. Both pursue the production of value for customers, with the understanding that such a pursuit leads to waste reduction at all stages of the delivery process through the constant examination of the value of a given task with respect to the total system goal. As Lean Building advocate Koskela has written, lean construction is a “way to design production systems to minimize waste of materials, time, and effort in order to generate the maximum possible amount of value" (Koskela et al. 2002).1
In a recent article in the Lean Construction Journal, Alan Mossman is careful to emphasize that waste elimination is not a goal in itself, but is a "by-product" of lean building, the goal of which is "creating value for customers." Mossman observes that these lean building principles are firmly founded in Deming's ideas linking value and productivity: "focusing on quality is the only way to consistently both reduce cost and improve productivity." Lean Building has formulated its own version of performance standards and measures in the "Last Planner" system, or "Responsibility-based project delivery." The value PPC measures the Percentage of Promises Completed as a way of holding individuals responsible for what they commit to by recording and tracking their commitments and their success rate in meeting them. This is, therefore, the perfect realization of two Deming principles: (1) the productivity of standards and measures, and (2) the importance of leadership. Lean principles need to be applied not only to the construction delivery process, but also to construction organization and to the operating building system. The Lean Construction Institute currently provides leadership in best practices, including the development of the Last Planner technique. Visit www.leanconstruction.org to learn more about lean design and construction. Production Quality In the 1990's, Total Quality Management (TQM) migrated from the manufacturing (inspired by the work of W. Edwards Deming) to the construction industry with the purpose of improving quality. In the end, however, construction had to abandon TQM, which was incompatible with construction's fragmented organizational structure. As TQM failed in construction, the industry reverted to the traditional mode of guaranteeing quality through elaborate programs of oversight, controls and inspections. The increasingly complicated oversight programs are huge capital and time costs, and usually end in frustration for everyone involved (with the possible exception of the inspectors). A system in which quality is Inspection Based is a system that inherently assumes quality is poor or reduced and therefore needs to be inspected. As this illustration (derived from Deming) shows, a cycle begins with reduced quality, which leads to increased rework, delay, decreased productivity and so on.
By contrast, a system based on TQM actually supports lower cost by reducing rework and delay, which increases productivity. In true TQM, quality is measured at the point-of-production, and therefore TQM requires the active integration and collaboration of tradesmen, foremen, material men, manufacturers, managers and designers. Interestingly, BIM has naturally encouraged this kind of integration as examples of tradesmen working directly with engineers and modelers in the design process attest to. Under TQM this collaboration will extend across both the discipline and production dimensions. In this optimized organizational structure, the craftsman — or his foreman — becomes responsible for improvement processes involving constructability, interference detections, and other innovations that increase productivity by increasing quality. The key here is the replacement of inspection-based oversight with a measurement apparatus at the point-of-production; i.e., the replacement of inspection-based quality control with true computational TQM that is empowered by statistical samplings, measurement and process improvement techniques. True TQM begins with educating and empowering leaders within the organization who will accept and welcome responsibility for design, construction, quality and performance of their project portion. Importantly, the benefits of TQM go beyond the quality and productivity of a specific discipline or production stage, and extend to the quality and productivity of a building system, i.e., to total building performance. When a team is focused on total project productivity, an individual's work is no longer an isolated part, but is part of a coherent project system. Individual workers are as interested in protecting another’s work as in protecting his/her own, because every part is evaluated in relation to the performance of the total system. Furthermore, when the terms of a contract are based not on the completion of a service (or installation of a product), but based on the long-term performance of a product, the entire design and production process organizes itself around the long-term performance. A tradesperson's objective is no longer to have a low bid within a trade; rather, the object is to make a product of such quality that it will perform as long as the building performs -- at the lowest possible cost. At present, fragmented structures and inspection-based quality practices rotate the industry on in a downward cycle. To revert the cycle to a track of quality, productivity and performance, fragmentation and inspections must be replaced by structures of responsibility and integration and Total Quality Management practices.
Process Integration and Automation The construction industry has developed many processes and software applications to deal with variation, defects, inconsistencies, etc. These include RFI's, punchlists, submittals, inspection reports, changes, claims, disputes, etc. Because all these documents are constantly in a state of revision, document management has become an issue. The constant revision is, per usual, due to fragmentation. The answer, as always, is computational systemic thinking. Just as function-based modeling uses computational science to simulate data models and predict and validate the performance standards and measures starting in the early planning stages, the procedure-based modeling tools will conduct most of the transactions that have to be manually processed through a number of disconnected manual and semi-automated systems. Progress payments, for example, may be automatically generated through the schedule or model updating procedure. OPERATING BUILDING OPTIMIZATION
As the final section in the final paper, it's necessary to discuss the final product: cost-effective, high performance "green" buildings. As the final product, these buildings are preceded by a lot of time and effort, and, most importantly, five key transitions: performance standards and measures, function-based computing science, operating building focus, integrated innovation and integrated optimization of building organization and processes. Currently, construction work is transacted according to the process and completion of a complicated building process and not the performance of the completed building product. This is analogous to, say, wanting a new car and bidding out the design and production work — and then awarding to the low bidders, made up of independent designers, contractors, subcontractors, and manufacturers. This group designs and builds the car, and then you pay them for the delivery of the completed car. Two months later the brake pads need replacing. The reply you get from your first call is that the brake pads were built to specification. Next call goes to the engineer who wrote the specification. The reply is that he was given a budget for his work to design the brake system and a budget for the cost of the brake system, and not a budget or requirement for brake pad life — and that he could not design the longer lasting pads within the budgets that he was given. When the focus is on the design and production of the product, and not the performance of the functioning-operating product, then performance and quality become a matter of speculation and accident. Performance Standards and Measures
Optimized TruEx (Life-Cycle) Management This graph shows the relationship of the depreciation (and interest) or lease expense plus the OpEx (operating expense) for the three drivers in building planning, design and construction: traditional CapEx, improved CapEx, and the improved (optimized) TruEx. To achieve sustainability objectives, the industry needs to shift towards the improved (optimized) TruEx driven approach. Traditional CapEx, Improved CapEx and Optimized TruEx: Traditional CapEx management is the current industry standard and leads to the highest first costs as well operating costs. Improved CapEx management applies innovations and optimizations to reduce first costs, but does not improve long-term operating expenses. Improved TruEx management realizes that the first cost of sustainable solutions may require additional investment, but that the additional investment will be less than the savings generated by higher productivity and performance. The Improved TruEx savings include a short-term break-even, a positive ROI, and progress towards true sustainability.
Of course, because the TruEx is a function of the CapEx, the CapEx must be calculated and tracked even though the project is programmed, designed and delivered according to the TruEx baseline budget goals.
This modeling technology can assess building functions, occupancy and climate factors and accurately predict the consumption of energy and other resources for a given building. This consumption rate would become the standard for that project, against which the eventual operating building's consumption could be checked. The accuracy of this function will come from the collection of historical data from representative sampling or from actual projects. This is presented in the white paper, "Function-based BIM." Responsibility for the operating building performance Possibly the most controversial premise of the performance paradigm is that building producers could become responsible for the performance of the operating building. It will be controversial, even though the majority of industries operate according to this premise. The reason behind resistance will be, of course, construction's complexity: there are too many variable standards to be held to. However, because computational-systemic thinking can process such complexity, such responsibility is possible. Through high technology systems, the necessary prediction, validation, calibration, adjustment, and improvements will be applied. When building producers are equipped with performance standards and measures, and when they accept responsibility for total building performance, then buildings enter the performance paradigm. Before, it was impossible to talk concretely about building performance, because the standards and measures weren't based on quantitative performance. For this reason, high performance buildings don't merely "improve" industrial buildings, but so far surpass them that a different system of measurement is necessary. The difference between performance buildings and industrial buildings would be similar to the difference between a record player and an iPod: it's absurd to say that the iPod "improved" the performance of a record player. With an iPod, performance had to be measured differently, and the same will happen for construction. The role of the building producer, too, will change, as the responsibilities merge into roles of facility manager, as well as maintenance and operation service technicians. The transition toward this paradigm should include a lot of carrot and a little stick, with the emphasis on rewards and incentives rather than penalties. As this performance paradigm gains acceptance and adoption, there will be a surge of technologies and systems that will automate and optimize the service, maintenance, and operation as well as energy consumption and environmental impact of buildings. A Planning Vision beyond the Real Estate
Although TruEx management is discussed here mainly in the context of real estate-related capital and operational costs, it's important to note that total operation of any business, institution or enterprise has much more impact than the facility operation costs. The total real estate costs are generally a fraction of the total business or institution’s overhead cost: the ongoing flow of human and material resources ultimately generates the most cost. The form and function of the facility can determine, to an extent, the effectiveness and efficiency of the business or institution. This is true for office buildings, where space planning can affect the performance of employees, but it's especially true for spaces where customers come for service: hospitals, restaurants, retail, etc. With 90% of people’s time spent indoors, the function, aesthetics and performance of the built environment is a significant aspect of what occupants experience in it. In the context of the total expenditure of an operating business, another consideration is the increasing cost of people (wages, benefits and taxes) and other resources. The vision is this: Future top-down modeling technologies will be instrumental in overall business or institution plan. This technology will predict and process the total operation income and expenses, under any number of case studies, scenario trials or other forecasting and analysis techniques. This degree of total enterprise budgeting and planning is the next stage of TruEx. CONCLUSION In the past, optimization wasn't possible for construction because the system was not ready to be optimized. Previous attempts were necessarily hampered by fragmentation and inspection-based quality. However, under the performance paradigm shift, the establishment of performance standards and measures will re-orient the industry according to units of performance. High performance products will come. The various building systems will have to respond both to these innovative products and to economic and environmental pressures to improve. To this end, organizations and processes will integrate and consolidate, and, in their finally optimized state, will finally be able to produce the high performance industry the performance paradigm requires. 1Mossman, Alan. "Creating Value: A Sufficient Way to Eliminate Waste in Lean Design and Lean production." Lean Construction Journal, 2009. Pg. 13-23.
THE NEW PERFORMANCE PARADIGM
Performance Standards and Measures —The organization and analysis of the performance of the building product, the building project team, and the building delivery process. It requires collection and standardization of construction data.
ORGANIZATION STRUCTURE OPTIMIZATION: Optimizing the Producers
In the course of design and construction, there is no one agent responsible for the overall completion, testing and acceptance of the HVAC system. To deal with the inevitable liabilities, a system of inspectors, testing and commissioning agents evolved whose job it was to tie the system together before handing it over to the owner. The inefficiency inherent in this kind of post-hoc inspection should be obvious, especially when compared to a system in which one agent is responsible for gauging HVAC performance from design to operation. There are forms of design-build and integrated project delivery that address some of these issues, but the benefits derived from the design-build response is a matter of conjecture without operating performance measures. Perhaps the main problem with this system, of course, is that once construction ends and the building life begins, the owner must assume responsibility for the HVAC system performance.
The "Optimized Chart - HVAC Sub-Discipline" shows how both streamlining and responsibility are achieved through the optimized organization structure — where the design, construction, controls and products and systems manufacturers are all under one leader and organization.
The white paper, “Function-based BIM,” presents the Virtual Project Development process using the BIM technologies, including the procedure-based BIM where processes will be automated.
The white paper, “Performance Standards and Measures” describes how this will occurs within the industry and particularly in relationship to the performance of the completed and operating building. Today, information and technology systems have sufficiently advanced to be able to manage the complexity and multi-variability of buildings and the building process.
When a project is based on capital expense, all planning and production decisions aim at reducing the initial capital expenditure. This would make sense if the life of a building ended when the construction ended. However, because a building life begins when the construction ends, and because over the course of a building life, the operating costs increase due to a number for factors including inflation — moreover, because a building accrues other non-capital costs (to the environment, or to a local community) — the true cost of the building is only partially reflected by the CapEx value. Moreover, because all planning and production decisions try to reduce the misleading CapEx value and not the true expenditure, those decisions inadvertently create long-term increases in the building operation's overhead. The CapEx system is therefore a fine example of the limitations of compartmentalized industrial-era logic: the CapEx value reflects only one cost dimension, but a building is a phenomena operating in space and time, and therefore requires a cost value that reflects its four dimensions.
