Setting the target outturn cost in industrial project alliances

Abstract

Determining target outturn cost (TOC) in industrial project alliances is a crucial but challenging task for business owners. Industrial projects are capital-intensive and commonly complex entities, making it difficult to predict and control costs accurately. In this master’s thesis, I investigate the factors influencing the formation of the target outturn cost in industrial alliance projects. The research questions for this study are:

1. What factors influence the setting of Target Outturn Cost in industrial project alliances?

2. When is the optimal time to make the investment decisions and establish the Target Outturn Cost for the construction phase of industrial project alliances?

To address these research questions, I conducted a literature review to identify the relevant factors and gather insights from previous studies. Then, using the Action design research (ADR) method, I executed theory-Ingrained problem formulation and iteratively built and evaluated a theoretical model. In the empirical part of the study, the developed model was evaluated in interviews with external project management professionals and practitioners.

The results of this study provide an overview of the factors influencing the formation of the target outturn cost in industrial alliance projects. Based on these findings, I developed a model to assist business owners in setting the optimal level of uncertainty in the target outturn cost and finding the optimal time to form the TOC. The model takes into account the following identified factors and merges these with the progression of uncertainty:

1. Availability of resources and capabilities before the construction phase

2. Availability of resources and capabilities after the construction phase

3. Criticality of project schedule

4. The strategic criticality of the project

5. Potential for innovations

6. The complexity level of the project

Overall, the study’s results contribute to a better understanding of the factors influencing the formation of the target out-turn cost in industrial alliance projects and provide a practical tool for business owners to optimize the level of uncertainty in industrial alliance projects. The study also has the potential to improve the overall decision-making process and the outcomes of industrial projects.