CC 607 VALUE MANAGEMENT

PN. ZARINA SYUHAIDA BINTI SHAARANIMSc. (QS), BSc. HBP (Hons) (Project Mgmt), Dip. Edu. (Civil Eng.Study)

Lecturer,

Civil Engineering Department, PTSB.

Syllabus Summary; 1.0 INTRODUCTION TO VALUE MANAGEMENT

This topic explains the concepts and background to value management and traditional cost management, the benefits, challenges in implementing and misconception about value management, the Pareto’s Law and the relation with project cost, the role of a quantity surveyor, the services offer by value management, the role of quantity surveyor in value management and the processes in value management.

 

2.0 ACTIVITIES INVOLVED IN VALUE MANAGEMENT STUDIES

This topic explains the activities involved during value management studies including pre-study phase, information phase, creative phase, evaluation phase, development phase, presentation phase and post-study phase.

 

3.0 LIFE CYCLE COSTING

This topic covers the concept of the life cycle cost, the relationship between life cycle cost and value management, the life cycle cost elements, the implementation of the life cycle cost and the importance of the life cycle cost.

 

Content;CHAPTER 1: INTRODUCTION TO VALUE MANAGEMENT 1.1 Understand the concepts of value management

1.1.1 Define Value Management. 1.1.2 Explain the background to Value Management. 1.1.3 Compare between Value Management and Traditional

Cost Management. 1.1.4 Discover the benefits of Value Management. 1.1.5 Explain the challenges in implementing Value

Management. 1.1.6 Explain the misconception about Value Management.

1.2 Understand the Pareto’s Law of maldistribution. 1.2.1 Interpret the Pareto Law and its relation with project cost.

1.3 Know the environment of quantity surveyor services to apply in value management method.

1.3.1 Justify the role of a quantity surveyor. 1.3.2 Justify the services offer by value management. 1.3.3 Justify the role of quantity surveyor in value

management. 1.4 Know the process of Value Management.

1.4.1 Explain when to use Value Management. 1.4.2 Explain the Value Management job plan.

CHAPTER 2: ACTIVITIES INVOLVED IN VALUE MANAGEMENT STUDIES 2.1 Understand the activities involved in value management studies.

2. 1.1 Explain the activities involved in Pre-study Phase. a. Orientation meeting b. Selecting the team structure c. Deciding on study duration d. Determining study location and conditions e. Gathering information f. Site Visit g. Cost estimate verification h. Models and comparative efficiency data

2.1.2 Explain the activities involved in Information Phase. a. Presentations b. Function Analysis c. FAST Diagramming

2.1.3 Explain the activities involved in Creative Phase. a.Basic principles of the Creative Phase b. Mental Processes in creativity c. Blocks to creativity d. Creative Thinking Techniques e. Role of the Value Management Team Coordinator f. Group versus individual creativity

2.1.4 Explain the activities involved in Evaluation Phase. a. Procedure b. Evaluation criteria c. Evaluation techniques

2.1.5 Explain the activities involved in Development Phase. a. Typical content of a proposal b. Estimating costs

2.1.6 Explain the activities involved in Presentation Phase. a. Establishing a good atmosphere b. Agenda c. Presentation skills

2.1.7 Explain the activities involved in Post-study Phase. a. Report preparation and review phase b. Implementation phase c. Follow up phase d. Improving VM results

 

CHAPTER 3: LIFE CYCLE COSTING 3.1 Understand the life cycle cost.

3.1.1 Define the life cycle cost. 3.1.2 Describe the concept of life cycle cost. 3.1.3 Describe the relationship between life cycle cost and Value

Management. 3.1.4 State the life cycle cost elements. 3.1.5 Describe the implementation of the life cycle cost 3.1.6 Explain the importance of the life cycle cost. 

  

What is VALUE?

Value is a multidimensional concept. What is “value” to you?

Value in construction project;

Different project shareholders with different vested interests have different perceptions about what constitute value to them.

Each shareholder sees value in the finished project, however, the measures they use to determine value are different.

Nevertheless, any attempt to enhance project value has its cost ramifications.

In the context of a Value Management Study, value is defined as; 

“an attribute of an entity determined by the perceived usefulness, benefit and importance of the entity.” (Venkataraman & Pinto, 2011)

“the creative organized approach whose objective is to optimize and/or performance of a facility or system.” (Dell I’sola, 1982)

In the context of a Value Management Study, value is defined as; 

“an oriented effort to attain optimum value in product, system or services by providing the necessary functions at the lowest cost” (Kelly & Male,1991).

“a structured and analytical process which seeks to achieve value for money by providing all the necessary functions at the lowest total cost consistent with the required levels of quality and performance” (New Zealand Standard AZ/NZS 4183:1994 )

Whatever the definition is, VM is…

A rigorous, systematic effort to improve the value and optimised the cost of projects, facilities and systems without sacrificing the needed performance level.

A creative way of working together in achieving clients’ and stakeholders’ requirements.

(Mohd Mazlan Hj Che Mat, 2002)

Therefore, “improve value” are about…

Customised Quality

(not necessarily improving quality)

Optimised Cost

(not necessarily reducing cost)

Improve

Value

Measuring Value…No management process can be said truly effective unless it is possible to measure its effectiveness. In construction industry, the main Key Performance Indicators are;  · Client satisfaction—product (what is build) · Client satisfaction—service (how well the team

performed) · Defects · Predictability—cost · Construction cost · Safety · Productivity · Profitability

SCHEDULE

QUALITY

COST

Value management provides a structured and systematic approach in achieving the necessary functions of a project at the lowest resulting cost. Therefore, VM include the whole range of value techniques available and can illustrate as the generic process that includes;

• Value Planning (VP) - apply VM during the concept or planning phases of the project.

• Value Engineering (VE) - apply VM during the design or engineering phases of the project.

• Value Analysis (VA) or Value Reviewing (VR) - apply retrospectively to completed projects to analyze or to audit the project's performance, and to compare a completed, nearly completed, design or project against predetermined expectations

Essential Features VM

Value Management focuses on enhancing project value; given cost and time constraints,

without any negative impact on the project facilities functionality, reliability and quality.

 

KEY FEATURES OF VMFEATURES EXPLANATION

1. Careful analysis and identification of project needs and scopeThe first step in effective VM lies in a clear project definition and scope analysis

2. Thorough planning of the project and subsequent worksEffective planning helps to ensure that the project is developed to maximum cost efficiency with no unnecessary steps or waste effort.3. Identification of key areas of opportunities that can influence project valueThe project team’s goal is to enhance positive features of the project while keeping control of the costs. Carefully weighing the cost/benefit analysis for a project is the key to enhance value.

KEY FEATURES OF VMFEATURES EXPLANATION

4. Development of alternatives for exploiting the identified opportunities for improving project value Multiple paths may be available for enhancing value, some of which are more cost effective than others

5. Evaluation of alternatives; development of proposals and action plans Performing a clear trade off analysis can help create alternatives and select the best choices for improving value

6. Use of a performance monitoring system for tracking project value The project team must have the means to accurately monitor the project, gain timely and actionable information, and make ‘on-line’ decisions and choices among alternatives7. Ensure a free flow of communication that cuts across organizational boundaries To effectively manage for value, a cross-functional mind-set must prevail throughout the organization, so that the ideas, alternatives and creative solutions have the widest possible arena for exploitation.

BACKGROUND TO VM

VM originated in the USA during the Second World War at a company named “General Electric Company”. Priority “war production” resulted in shortages of raw materials and companies were forced to use substitute materials.

The basic philosophy of value management as stated by The College of Estate Management (1994:5) was therefore ‘to eliminate costs which did not contribute to the performance of the required function’.

Today it is a well known practice which is almost deemed to be part of the construction process in certain other developed countries like the UK, USA, Canada and Australia.

VM IN MALAYSIA1986

• 1st introduction in Malaysia (UTM)

1991

• Introduction in Malaysia

1992

• VM facilitation service (UTM) – UNI Technologies Sdn. Bhd.

1998

• 1st VM Seminar (UTM)

1999

• 1st National Seminar on VM

2000

• Institute of VM Malaysia

Cost Mgmt VS Value Mgmt

Project cost management;

focuses on issues such as cost estimation and budgeting, cash flow management and cost control.

Project Value Management;

focuses on optimizing project value, given cost, time and resources constraints while meeting performance requirements such as functionality and quality.

The Relationship Between Cost Management & VM 

BENEFITS OF VM IN CONSTRUCTION PROJECT

Here follows a brief list of some of the benefits of VM that is somehow directly or indirectly connected with optimising the value for money for a project:

VM creates a clearer focus on the project objectives

VM works towards arriving at a more effective design

Identification of alternative methods of construction and favourable adjustments to the construction timeline

Discovery and discussion of project issues, constraints and risks involved

Clearer project brief and decision making

Identifies and removes unnecessary costs associated with the project

BENEFITS OF VM IN CONSTRUCTION PROJECT

In Malaysian construction industry, Jaapar et al. (2009) found out that the most important benefits gained from the VM applications are;

· VM able to eliminate unnecessary costs

· Produced a better value in a project

· Lowered construction cost

· The clients’ requirements were better met

· The project outcome produced a better functionality

· Produced a more satisfied client

· VM process improved the decision making process

· Produced a better working team.

CHALLENGES TO IMPLEMENT VM IN M’SIA

Malaysian construction industry faced a few challenges in implementing VM; lack of knowledge and practice of VM resistance to change by the involved parties the conflicting objectives of the project by

different parties parties involved in a construction project tended

to have negative mind-sets towards the VM process which resulted in poor team working

lack of input and poor support from the related specialists in the industry.

(Jaapar et al., 2009)

MISCONCEPTION ABOUT VMOften there are misconceptions about value management. From the definitions, it is clear that VM is not (Norton and McElligott 1995):

A conflict orientated design review

A cost cutting exercise A standardization exercise.

Pareto Law’s of Maldistribution

An Italian political economist named Vilfredo Pareto (1848-1923), observed a common tendency of wealth and power to be unequally distributed. He established that 80% of the land in Italy was owned by 20% of the population. While gardening he later observed that 20% of the peapods in his garden yielded 80% of the peas that were harvested.  

Pareto Law’s of Maldistribution

“In most distribution, more often than not, 80% of the value is invested in less than 20% of the item”

It points out that in any area, a small number of elements (20%) contain the greater percentage (80%) of unnecessary costs.

Pareto Law’s of Maldistribution

By using this law, determining the worth of every function is usually not necessary because cost data could aid in determining the priority of effort.HOW..???

Pareto Law’s of Maldistribution

Low Cost Areas – maybe not worthwhile

pursuit

High Cost Areas – may indicative

of poor valueBut, High Cost Areas should be reconsider for initial function worth determinations.

Pareto Law is also known as

Role of QS

Among others, the services provided

by a QS may include the following;  Preparing feasibility studies or development

appraisals Assessing capital and revenue expenditure over the

whole life of a facility Advising clients on ways of procuring the project Advising on the setting of budgets Monitoring design development against planned

expenditure

 

Role of QS

Conducting value management and

engineering exercises Managing and analysing risks Managing the tendering process Preparing contractual documentation Controlling cost during construction process Managing the commercial success of a project

for a contractor

 

 

Role of QS

  Valuing construction works for interim

payments, valuing change, assessing or compiling claims for loss and expense and agreeing final accounts

Negotiating with interested parties Giving advice on the avoidance and settlement

of disputes

 

VM Services

  To provide support services for engineering and technical advisers in the projects planning, design, cost estimates and project implementation.

The serve as Secretariat to the Standards and Costs Subcommittee in the National Development Planning Committee.

 To create awareness among the departments/consultants obtain cost effective projects, practical and in line with requirements.

 

VM Services

To study and evaluate the

approved scope of work in terms of the use of materials/finishes, space requirements and the rates used in accordance with building category.  To prepare guidelines on project submission

procedures based on current government circulars and practices.

To study and approve the floor rental as required by the Department from time to time. 

 

QS Role in VM Services Quantity surveyors is regarded as in great position to influence Value

Management implementation as compared to other design team member (Hogg 1999)

 A subset of construction economic which is cost management emphasizes on cost reduction or substitution (Kelly and Male 1993). It relates to the scope of services and skills offered by quantity surveyor which focus on cost savings.

The distinctive competence found in quantity surveyors relies heavily on their analytical approach to buildings and stems directly from their ability to measure construction works (Ashworth and Hogg 2007) where cost and price can be forecast, analyzed, planned, controlled and accounted for (Pheng and Ming 1997).

Their extended influence in the fields of contracting, civil and industrial engineering, construction, mechanical and electrical engineering services as well as project management provides a strong base profession to lead in effective value for money construction projects.