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Akron Children’s Hospital 2015 Gerry Haggerty Annual Leadership Institute The Power of Lean Construction Methodologies NEO HFMA Friday, May 15, 2015
Akron Children’s Hospital
2015 Gerry Haggerty Annual Leadership Institute
The Power of Lean Construction Methodologies
NEO HFMA
Friday, May 15, 2015
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AgendaMinutes Speaker
10 IntroductionDon Taylor, Welty
14Describe how lean techniques can be used in
healthcare construction projects to drive down costs
Sheryl Valentine,
ACH
15 Describe the Integrated Project Delivery modelTim Ziga, ACH
6 Implications on financing the project
Michael Trainer
Alicia
LaMancusa, ACH
10 The Contractor’s Point of ViewDon Taylor, Welty
5 Questions
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Integrated Project Delivery:
A contracting method that removes
traditional barriers to collaboration, by
forming durable partnerships, with a shared
profit amongst those partners, thereby
aligning the interests of all partners
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– Lean Design Principles Allowed Reduction in Service Line Build-outs by
34,000 SF or $12.2M
– Reduction in Construction Costs of $45M
• “Comparable Facility” Control Estimate : $160M
• TVM Budget : $115M
– Reduction in Overall Construction Schedule of 2 Months
• 24 Months to 22 Months in spite of 37.5 weather day delays
– Fully funded Incentive Compensation Layer of $5.2M
• Shared Amongst Owner, A/E, CM, Trade Partners
– Fully Funded Owner Profit Payment of $1M
Overall Results at Akron Children’s
Hospital
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Welty Building Company
• 1945 Henry D. Welty Co. is established – serving for
70 years strong
• 4 offices – Akron, Cleveland, Columbus, Houston
• Services offerings include Construction Management,
Lean, IPD, Design-Build, General Contracting, Facilities
Management
• Two subsidiaries: environments 4 business, inSITE
Advisory Group
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Akron Children’s Hospital
Kay Jewelers Pavilion
366,000 SF New Construction
$180M Target Cost
Delivery Method : Integrated Lean Project Delivery
Includes:• A 100-bed neonatal intensive care unit with private rooms for each of our tiniest
patients and their parents. The current Level III NICU is nationally ranked but has
outgrown its space.
• High-risk delivery area that includes labor, delivery and recovery rooms to keep at-risk
newborns close to the high-tech care they need.
• An emergency department with enough room to meet our current and future patient
volumes. Annual ER visits of more than 60,000 to the Akron campus strain the hospital’s
resources in a facility built to accommodate 44,000.
• A new outpatient surgery center designed to accommodate a more than doubling of
outpatient procedures in the past 20 years.
• An enclosed concourse that takes patients and staff from the new 1,250-space parking
garage to the new building and beyond into the existing hospital
About Akron Children’s Hospital
Awards and RecognitionsRanked a Best Children’s Hospital by US News & WR
8th largest children’s hospital in the country*
Magnet Recognition for Nurse Excellence
Health Care’s Most Wired Hospital Award
Largest Pediatric Provider in Northeast Ohio2 hospital campuses
25+ primary care locations
80+ specialty locations
Nearly 5,200 employees
800+ medical staff with over 380 of them employed
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Our Goal • An outpatient surgery center
• NICU with single patient rooms
• New Emergency Department
• Special Delivery Unit
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What does our staff think about this
process?
Video here of Milo and Farid
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5-Party Agreement
Owner
Children’s Hospital Medical Center of
Akron(Akron Children’s Hospital)
Architectural Team Construction Management
Team
Hasenstab Architects, Inc
Akron, OH
HKS, Inc.
Dallas, TX
Welty Building Company,
LTD, Akron, OH
The Boldt Company
Appleton, WI
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• Party commits to becoming a member of the IPD Team
• Party agrees to be bound by the contract documents
• Party agrees to participate fully and openly in all IPD Team
functions
• Party agrees to participate in the risk sharing and incentive
compensation plan if invited
• Party agrees to abide by determinations made by PLT
• Party agrees to adhere to the principles of collaboration based
on mutual trust, confidence, good faith and fair dealing
• Party agrees to utilize lean project principles and methods
Joining Agreements
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• SET - Senior Executive Team
ACH, Welty, Boldt, HAI, HKS
• PLT - Project Leadership Team
ACH, Welty, Boldt, HAI, HKS, KLMK
• PIT - Project Implementation/Innovation
Teams
Architects, Designers, Engineers, Trade-Partners
Project Leadership
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• Waive liability and claims against each other
• Indemnify each other against a limited number
of acts or omissions
• Have profit for Project fixed
• Place 100% of profit at risk
• Participate in the Incentive Compensation Plan,
if invited
• Are covered by a Project specific insurance
program
• Agree to a binding dispute resolution process
All IPD Team Members
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• Reimbursable Costs → Owner’s right to audit
• Project Contingency → Shared pool of funds
• Project Profit → Fixed and tied to Target Cost
Three Main Components
of the Project’s Target Cost
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[Expected Profit] x 1.5 = [Potential Reward]
e.g. $66.67 x 1.5 = $100.00
Potential Reward = Profit-at-Risk (60%) + Incentive
Compensation (40%)
e.g. $100.00 Potential Reward = $60.00 Profit-at-Risk +
$40.00 Incentive Compensation
Incentive Compensation Plan
Calculating Reward Components
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1. Safety2. Local Participation3. Energy Efficiency4. Team Performance5. Schedule6. Quality7. LEED8. Staff and Family
Satisfaction
Maximum points are 100.
Project Success Matrix
Allocation of Savings
Incentive
Compensation
Component
Owner
$2,000,000 or less 50% 50%
More than $2,000,000 but
less than or equal to
$7,500,000
100% 0%
More than $7,500,000 10% 90%
If the total Reimbursable Costs plus the total Profit-at-Risk component
(the “Actual cost”) is less than the Target Cost, then a part of that
difference between the Target cost and the Actual cost (the “Savings”)
shall be used to fund the Incentive Compensation component of the
Project provided for in Section 8 of the IALPD. The Savings will be
allocated between the Owner and the Incentive Compensation component
as follows:
TABLE 1
Incentive Compensation Component
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Target Cost$180,000,000
Profit @ Risk$9,000,000
Contingency Pool$10,000,000
Reimbursable Costs Approx
$160,000,000
Incentive CompensationProfit @ Risk = $1,000,000
+Preserved Contingency
Total Profit
$10,000,000
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Target Cost$180,000,000
Profit @ Risk$9,000,000
Reimbursable Costs
$170,000,000
Incentive Compensation
$1,000,000
Scenario 1: Actual Cost equals
Target Cost
Incentive Compensation
Up to $2,000,000 – 50/50
$500,000 to Owner
$500,000 to Team
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Target Cost$180,000,000
Profit @ Risk$9,000,000
Reimbursable Costs
$162,500,000
Incentive Compensation
$8,500,000
Scenario 2: Actual Cost Below
Target Cost
Actual Cost = $171,500,000
Incentive Compensation up to
$2,000,000
• ACH 50% - $1,000,000
• Team 50% - $1,000,000
$2,000,000 to $7,500,000
• 100% to Team -- $5,500,000
Above $7,500,000
• ACH 90% - $900,000
• Team 10% - $100,000*All Incentive Compensation subject to meeting
Measures of Success
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Reimbursable Costs
$195,000,000
Scenario 3: Actual Cost Exceeds Target Cost
Actual Cost $195,000,000
-----------------------
•Owner Pays all Reimbursable Costs•All contingency used•No Profit-at-Risk Paid
- ICL Participants return any Milestone Distributions paid out by owner
•No Incentive Compensation Paid
ProfitIncentive
Compensation- 0 -
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Target Cost$180,000,000
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Financing the Project
Prepared Children’s forecast of the
financial statements to see what can be
paid from equity versus financing
Determined our debt
capacity and implications
on our bond ratings
Engaged an experienced bond
underwriter and convince them of this
style of construction and develop the
timeline for selling the bonds
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Financing the Project Continued
Engaged the remainder of the bond
team
Obtained the approvals from the
Board of Directors/Committees
as necessary
Had weekly status calls
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Scheduled visits to our facility for rating
agencies
Monitored progress and watched
the markets
Sold the bonds
Financing the Project Continued
Developed process for
reimbursement of invoices and
document retention
Closed out the project when asset is ready for
use and placed in service
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Financing the Project Continued
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Our Industry Has A
Problem:
– Construction Costs
are Consistently
Rising
– This is a Major
Concern for Our
CustomersAnd Not All of This is Material Cost,
Which We Don’t Control…
Construction Labor-Force
Productivity is Decreasing
(Becoming Less Efficient) Data Courtesy of Bureau
of Labor & Statistics
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A Comprehensive Study of Hundreds of Projects
Nationwide Showed that Only 40% Of the Average
Construction Worker’s Day Was Value Added :
Lean Construction Institute
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There are 8 WASTES.
Once you know them, you’ll see them everywhere:
Defects - Do it right the first time
Overproduction - Make what you need...nothing more
Waiting - Create flow to eliminate waiting
Not Utilizing Human Resources - Use everyone’s talents To Their Fullest
Transportation – Minimize the amount and distance you and material travel
Inventory - Only stock what you need. Just in time deliveries.
Motion - Have what you need at your side
Excess Processing - Only do what is required...nothing more
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Productivity
Preserved
Contingency
Innovation
Lean Success
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Challenge Statement: At the onset of the project, the
structure team was challenged to reduce structure duration.
The team indicated that form tower placement was the
longest duration activity, and was moving as fast as the
crane allowed.
CASE STUDY: CONCRETE CYCLE
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Step 1: Game Tape Analysis
Our team utilized 2 GoPro cameras positioned at 2 locations to observe
the operation over a period of 4 hours.
It was observed that there were two unique operations:
1- Strip Tower and Prepare for Flying (On Lower Level)
2- Receive Tower and Set in Place (On Upper Level)
CASE STUDY: CONCRETE CYCLE
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Step 2: Workstream Mapping
A Field Engineer charted the operations of both operations to
establish a baseline, and to identify opportunities.
It was noted that the make-ready operation took much longer than
the placing operation (Waiting waste) and was highly variable.
CASE STUDY: CONCRETE CYCLE
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Step 3: Tradesman Kaizen
The shoring crew was brought in
for a lunch/review session. They
observed their work and brought
up several potential
improvements, especially to the
make-ready operation, and
suggestions that would improve
the consistency and safety of the
rigging operation. A revised
standard work was developed.
CASE STUDY: CONCRETE CYCLE
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Step 4: Check
1 Week Later, the
gametape analysis was
repeated after the
improvements had been
implemented.
While the safety
improvement to the rigging
step added on average 2.5
minutes to the operation,
other improvements
reduced time.
CASE STUDY: CONCRETE CYCLE
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Step 5: Sustain
The End result was a net
reduction of 2 minutes per
average crew cycle, a 15%
improvement.
This standard work was
sustained and improved
several more times.
CASE STUDY: CONCRETE CYCLE
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Results:
2 Minutes May not Sound Like a Big Improvement, but:
There are 1,440 Tower placements for every slab
X 6 Elevated decks completed after this study
= 8,640 cycles
X 2 minutes improved per cycle
= 288 Crew Hours or 36 Work Days
For this 6 person crew, that’s $95,000 in savings
PLUS
Schedule reductions and General Conditions Savings
CASE STUDY: CONCRETE CYCLE
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Other Tools
There are many other tools that we
implement to reduce waste, including:
– Target Value Design
– Built In Quality
– TAKT Planning
– Small Wins Program
–Innovation Teams
–Last Planner System
–Lean Delivery Rules
–Safety Awareness
Program
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IPD Success: Root Cause Analysis
People Ask Us What Allowed Our Team To Be Successful:
1. Visionary Owner Organization That Demands Better
Outcomes; Embraces Innovation
2. Design Firm With Leadership and Personnel that Can Work
Outside Their “Comfort Zone”; Put Owner’s Vision Before
Theirs
3. Construction Manager That Is Willing to Truly Invest In
Planning; Is Flexible; Can “Control With” (Vs. Control Over)
4. An Understanding From All Of These Parties That In Order
For the Project to Be Successful, ALL Parties must be
successful, and There is No Place for Blame on a High-
Performing Team
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To receive a copy of the
book compiled by the
ACH Kay Jewelers
Pavilion team, please
give your business card
to Don Taylor after the
session, or email him at
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Questions
As you leave, please remember:
Lean and IPD will give you the maximum
return on your investment.
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Name Title Contact Information
Don Taylor President & CEO, Welty Building
Company
234-678-1114
Michael Trainer Chief Financial Officer,
Treasurer, Akron Children’s
Hospital
330-543-4251
Alicia LaMancusa Vice President Finance, Akron
Children’s Hospital
330-543-8171
Tim Ziga Associate General Counsel,
Akron Children’s Hospital
330-543-4960
Sheryl Valentine Deployment Leader, COE,
Akron Children’s Hospital
330-543-8923
