total value optimization pmi pdd 2014building(s) will meet all appropriate building and zoning...

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Copyright © 2013 by Value Management Strategies, Inc.

Total Value OptimizationTotal Value Optimization

Presenter: Mark Watson, PE, CVS‐Life, PMP

Presentation Outline

• Obstacles to Achieving Best Value

• Traditional Value MethodologyTraditional Value Methodology

– VM Job Plan

– Function Analysis

• Advancements To Traditional VM

– Value Metrics


– Cost and Schedule Analysis Techniques

– Risk Analysis

• Why use VM and who is using it?

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Value Theory – Obstacles to Value


Incorrect Assumptions


Poor Project Handoff

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Perceptions

Are the squares marked A and B different shades of gray?shades of gray?


Obstacles to Value

• If we have trouble judging simple things like color, one must ask what other mistakes are we making in perception?

• Can we really believe everything we think we see?

• How do our perceptions affect our value d ?


judgments?

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Habitual Behavior


Obstacles to Value

• Habits and Attitudes

– The number one reason for poor value!p

“It is our habits that take us where we were yesterday, and our attitudes that keep us there!”


p

- Confucius

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Obstacles to Value

• Obstacles to Achieving Best Value:– Poor communication

– Customers’ needs/wants change

– Outdated design standards or changing technology

– Incorrect assumptions

– Fixation with previous design


– Temporary circumstances

– Honest wrong beliefs

– Habits and attitudes

What is Value Methodology?

The application of systematic techniques by a multi-discipline team to improve value by

evaluating its functions to meet the project’s required performance at the lowest overall cost.


q p

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Terminology

Value Engineering

Value Analysis (VA)

(VE)

Value Management

(VM)


Value Methodology

Value Engineering Process

Presentation

Implementation(Post‐Study)

Value StudyValue Study

Speculation(Creativity)

Evaluation

Development

Speculation and Evaluation tends to be cyclical in nature


Preparation(Pre‐Study)

Function (Analysis)

Information

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“If I ’ h d I’

Value Methodology

“If I can’t get the product, I’ve got to get the function. How can you provide the function by using some machine or labor or material that you can get?”


Larry MilesCreator of Value Analysis

• Equations for Value

– According to Miles:

Value Theory

– According to Miles:• “All cost is for function”

Value =Function

Cost + Time


Cost + Time

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Defining Functions

• A function is the basis for why something exists.

• In Function Analysis, functions are described using two words:

VERB NOUN+


What does it do? What does it do it to?

Function Analysis


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Function Analysis


Defining Functions

What is the basic function of these hammers?


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Functions or Activities?

• Both functions and activities can be described as a verb + noun

Activity Function

Construct Bridge Span River

Process Invoice Allocate Funds

Weld Joint Connect Components

Install Wall Retain Earth


• Which statement tells us more?• Which statement is more likely to lead to innovation?

Install Wall Retain Earth

Function Analysis

• Helps create joint understanding of project’s purpose and need

• Clarifies and builds consensus of project‐specific objectives

Aid i hi i di i i f ifi


• Aids in achieving dissociation from specifics

• Reduces possibility of faulty communication and misunderstanding

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Matagorda Ship Channel VE


Matagorda Ship Channel VE


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VE Developed Solution


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i l i d i i


Function Analysis and FAST Diagramming



Value Theory


Value =Function

Cost + Time


Cost + Time

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Cost Analysis Techniques


Cost Analysis Techniques

• Pareto Modeling

– 80/20 Rule/

• Activity based costing

• Life Cycle Cost Analysis

• Component costing

– Individual project elements


p j

• Parametric Cost Modeling

• Cost‐Function Allocations

• …and many more!

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Why use LCC?Typical conflicts in most companies:• Project Engineering wants to minimize capital costs as the only criteria,costs as the only criteria,

• Maintenance Engineering wants to minimize repair hours as the only criteria,

• Production wants to maximize operation hours as the only criteria,

• Reliability Engineering wants to nullify failuresas the only criteria,


• Accounting wants to maximize project net present value as the only criteria,

• Shareholders want to increase stockholder wealth as the only criteria.

Life Cycle Cost Considerations

Initial Costs

Maintenance Implications

Salvage Externalities

Life Cycle Cost

Analysis


Operational Performance

y

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Cost Estimate and LCC Analysis



Initial Cost and Life Cycle Cost Analysis

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Cost-Function Analysis



Cost‐Function Analysis Worksheet

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Value Theory


Value =Function

Cost + Time


Cost + Time

Schedule Analysis Techniques

• Critical Path Method

• Detailed Work Breakdown StructureDetailed Work Breakdown Structure

• Horizontal and Vertical Schedule Integration

– Milestone‐based Planning

• Activity Based Scheduling

– Early Start / Late Start


y

– Early Finish / Late Finish

• …and many more!

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Value Theory


Value =Function

Cost + Time


Cost + Time

How do you quantify or measure a function?

Value Theory

• Functional Value


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Value Metrics

• Value Metrics provides a proven process and set of techniques to effectively measure

fperformance.

• Creates a model of the value‐based information

• Provides an important means of communication

E bli h f b i


• Establishes preferences between options through measurable criteria

• Allows comparisons to be made based on total value

Value Metrics Process

• Identify Performance Requirements and Attributes – Performance consists of two elements:

• REQUIREMENTS – Non‐Discretionary (no flexibility)

– Binary response – yes/no

• ATTRIBUTES– Discretionary (there is flexibility)


– Range of potential values

– Attributes and Requirements must be discretely defined and should not overlap

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Performance Requirement?

Current Electrical Endurance Rating: 10,000 cycles


Min. Required Endurance Rating (Eur): 6,000 cycles

Min. Required Endurance Rating (US): 4,000 cycles

What does the customer really need?

Customer Performance…

0.9

1

Customer Preference for Electrical Cycles

0 1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Perform

ance Rating

What are we paying for this additional

performance?


0

0.1

0

10

25

50

75

100

200

500

1,000

5,000

10,000

Electrical Cycles

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Value Metrics

• Define Performance– Define performance attributes and requirements

l l f b– Develop scales for attributes

– Determine relative importance of attributes

• Assess Performance– Measure performance of alternative concepts

• Estimate Cost and Schedule


• Assess Value– Compare the relative value of all alternatives

Value Metrics Example - New VA Hospital

• 283,000 GSF Renovation project

• Multiple Layout Alternatives being considered

• Objective: Assist stakeholders in


selecting a preferred alternative

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Performance RequirementsPerformance Requirement Definition

Code Requirements Building(s) will meet all appropriate building and zoning codes/regulations, including the London Specific codes. The most restrictive codes will be the minimum codes met.

Critical Schedule Milestones

The project must meet the following critical milestones. July 2017 is the minimum date acceptable for beneficial occupancy.

LEED Certification / Sustainability

Project must meet LEED Gold Certification. The design team is striving for LEED Platinum and utilization of 20% renewable energy for the facility.


Accessibility Must meet ADA requirements for new construction.

Environmental Approvals

The project must adhere to all applicable environmental laws and regulations.

Performance AttributesAttribute Description

Construction Impacts

A measure of the impacts to ongoing operations and/or to the public in general. This attribute considers delays, disruptions, noise, vibration, dust, visual and temporary environmental impacts related to construction.

Program Compatibility

An assessment of how well the building’s interior spaces meet their intended function and the objectives of the overall program. This attribute considers the size and shape of spaces; sound attenuation; lighting characteristics; and special amenities (i.e., data, audio/visual, storage, etc.).

Aesthetics An assessment of the building’s aesthetic appeal. This attribute considers how well it responds to the site, surrounding structures, the locale and the building’s function.

MaintainabilityA measure of the efficiency for long‐term operations and maintenance


Maintainability considering a 50‐year service life.

Sustainability An assessment of the sustainability of the project in its efforts to reduce consumption of non‐renewable resources, minimize waste, and create healthy, productive environments.

Future Flexibility An assessment of the flexibility and adaptability of the interior building spaces to meet future program needs.

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Performance Prioritization

24 0%

30.0%


Program Compatibility

7.0%

12.5%

18.5%

24.0%

Maintainability

Aesthetics

Site Organization



3.3%

4.7%

0% 5% 10% 15% 20% 25% 30% 35%

Future Flexibility

Sustainability

Performance Comparison

Baseline

Alt. 2

Alt. 1


0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

Alt. 3

Program Compatibility Site Organization Aesthetics Sustainability

Maintainability Future Flexibility Construction Impacts

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Comparison of Value3.76

3 00

3.50

4.00

0 70

0.80

0.90

1.57

1.90

3.00

1.50

2.00

2.50

3.00

0.30

0.40

0.50

0.60

0.70

Chan

ge in

Value

Relative Scores


0.00

0.50

1.00

0.00

0.10

0.20

Baseline Alt. 1 Alt. 2 Alt. 3

Performance Cost/Time Rating Value Index

(What happens to most presentation handouts from conferences)


Value Metrics

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Risk Analysis


Traditional Risk Management


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Response

Analysis

Problem Focused


Identification


ISSUES/PROBLEMS OBSERVED:

• Limited number of risks identifiedLimited number of risks identified

• Risks identified tended to be too “general” and not relative to project specifics

• Low priority risks can take a majority of PM’s time

• Limited number of Risk Response Strategies


Limited number of Risk Response Strategies identified

• Risk Response Strategies not effective at managing risk

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Function Driven Risk Management

RResponse

AnalysisSolution Focused


Identification

Function Driven Risk Response Planning

Risk Object Identification

Brainstorming of Risk Response Strategies by Function

Secondary Risk Analysis


Evaluation of Risk Response Strategies

Development of Action Plans for Risk Response Strategies

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Function Driven Risk Response Planning


Pier 36, San Francisco– Risk Analysis


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Risk Management Plan


Caisson removal rate

Western gulls nest in the project area


Schedule Risk Ranking

Unforseen HAZMAT materials encountered

Salvaging and/or recycling of existing materials

Earthquake occurs during construction

Cultural resource is found during construction

Herring spawning is observed

Award of follow‐on construction contract prior to demolition completion

Bids come in higher than the budgeted amount

BCOE finalization is delayed

Construction contract award is delayed


‐1 ‐0.8 ‐0.6 ‐0.4 ‐0.2 0 0.2 0.4 0.6 0.8 1

0

0

Contractor unable to complete project

Public protest of project


Opportunities <‐‐‐‐‐ Index ‐‐‐‐‐> Threats

Pre‐Response

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Project Functional Overview

• Remove Obstacles

– Demolish Warehouse/Abate HAZMAT/

– Demolish Deck and Beams

– Remove Caissons/Piers

• Prepare Site

– Remove Marginal Wharf


– Maintain Seawall Integrity

• Meet Schedule Requirements

– Coordinate Concurrent Projects

Caisson removal rate

Western gulls nest in the project area


Schedule Risk Ranking – Post‐Response


Salvaging and/or recycling of existing materials

Earthquake occurs during construction

Cultural resource is found during construction

Herring spawning is observed

Award of follow‐on construction contract prior to demolition completion

Bids come in higher than the budgeted amount

BCOE finalization is delayed

Construction contract award is delayed


‐1 ‐0.8 ‐0.6 ‐0.4 ‐0.2 0 0.2 0.4 0.6 0.8 1

0

0

Contractor unable to complete project

Public protest of project


Opportunities <‐‐‐‐‐ Index ‐‐‐‐‐> Threats

Pre‐Response Post Response

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0.7The Cumulative Risk Score is next to each bubble

Schedule Risk Magnitude – Post-Response

0.30

0.21

0.3

0.4

0.5

0.6


0

0.1

0.2

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

Impact Score ‐‐‐‐>

Likelihood Score ‐‐‐‐>

Pre‐Response Post‐Response


Risk Analysis and Risk Response Planning

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Value Theory

How well?

Performance

TimeCost VALUEHow much? How long?


Risk

How certain?

Concepts of “Best Value”

• The Best Value results when the necessary functions to meet the required performance q pat the lowest overall cost and least amount of delivery time are performed in the least uncertain way. – Performance, Cost and Schedule are Uncertain

– Performance includes requirements and


qattributes

– Risk in costs and durations are comprised of estimating risk and event risk

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Why use Value Methodology?

Improve project value

Solve problems and innovate

Identify the “best value” alternative

Build consensus among stakeholders


Validate the baseline concept

In some cases, it’s the law!

How is Value Methodology different?

Solves problems by focusing on functionsSolves problems by focusing on functions

Utilizes multiUtilizes multi‐‐discipline teamsdiscipline teams

Organizes concepts and techniques into a specific Job PlanOrganizes concepts and techniques into a specific Job Plan


Seeks to achieve total value improvementSeeks to achieve total value improvement

Consensus basedConsensus based

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Who is using Value Methodology?

Federal GovernmentFederal Government



State GovernmentState Government


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Local GovernmentLocal Government




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Conclusion & Take Aways

• Value is a combination of performance, cost, time, and risk

• The analysis of all these elements and application of VE techniques can enhance value of any project, process, or product

• “Good” VM always increases value, it does h


not cheapen projects

Value Theory

How well?

Performance

TimeCost VALUEHow much? How long?


Risk

How certain?

total value optimization pmi pdd 2014building(s) will meet all appropriate building and zoning...

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