Construction Essays | Value Management Risk

Value Management Risk

• Rationale for Study

Throughout my 4^th year of the Honours Degree Quantity Surveying Programme, I found the Value and Risk Appraisal module very interesting especially the topic of Value Management. I had never really come across this topic before and only heard the term used a few times but didn’t really know what was involved. From undertaking that specific module, it seems that Value Management is mostly used as a tool to achieve Value for Money for Clients. Working for a Contractor for 4 and a half years now, I have only ever seen Value Management used on one Construction Project and this is the one that I am currently based on just now. From my experience, I feel that Value Management has a lot of advantages for Contractors as well as Clients and I wanted to find out why it is not being used to a great extent by Contractors.

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• Indicative Title

Value Management: A Contractors Perspective

1.3 The Aim

To determine the reasons as to why Value Management is not being greatly used by Contractors in the Construction Industry.

1.4 The Main Objectives

In order to achieve the above aim the following objectives must be met:

• To identify the key principles and elements of Value Management.

• To identify techniques and working practices adopted and to identify the benefits of Value Management.

• Examine the reason as to why Value Management is not widely used in the Construction Industry.

• Critical analysis of the views of Main Contractors about the benefits or short comings of Value Management.

• To propose recommendations for improved implementation of Value Management for Contractors.

CHAPTER 2

LITERATURE REVIEW

• VALUE MANAGEMENT

2.1.1A Definition

“Value Management is a style of management particularly dedicated to motivating people, developing skills and promoting synergies and innovation, with the aim of maximizing the overall performance of an organization.”

The Institute of Value Management [online] http://www.ivm.org.uk/vm_whatis.htm Accessed on 18 July 2007.

Value Management is a team based “process-driven” methodology. Its incentive is to deliver a product, service or project at “optimum whole life performance and cost without detriment to quality.”

By using teams of experts in the Construction Industry, this allows the Value Management process to identify “design and construction solutions which offer the best value for money with regard to the functional requirements of the Client”

Kelly, J. & Male, S. (1988) A Study of Value Management and Quantity Surveying Practice

Value Management plays a key role in the Construction Industry for continuous improvement and innovation.

• The Background &Concept

Value Management originated in the United States of America in the late 1940’s and the process was originally used in the manufacturing industry. This was soon adopted by the Construction Industry in the UK by the start of the 1990’s as various studies highlighted “between 36% and 45% savings on estimated construction cost to the Client”

Kelly, J. & Male, S. (1988) A Study of Value Management and Quantity Surveying Practice

The concept of ‘Value Analysis’ was introduced by Lawrence Miles in the 1940’s. Miles, a Purchase Engineer working for the General Election, had to find ways to tackle the material shortages which was due to the Second World War. Miles sought to find alternative materials that would provide the same function. This proved effective as Miles found that many of the alternative products he was finding were of an equal, if not better quality than that originally proposed. In addition to this he found that many of these alternatives were at a lower cost. Dallas (2006) states that a short while later, people realised that not only did the technique provide a way to substitute alternative materials but it was also an excellent way to reduce costs while still maintaining the necessary functionality. This system would involve ‘value’ and ‘analysis’ and based on this Miles developed the definition of ‘Value Analysis’.

“An organised approach to providing the necessary functions at the lowest cost.”

Kelly, J.R. & Male, S.P. & Graham, D. (2004) Value Management of Construction Projects.

To further enhance this Miles provides further definition:

“Value Analysis is an organised approach to the identification and elimination of unnecessary cost.”

Kelly, J.R. & Male, S.P. & Graham, D. (2004) Value Management of Construction Projects.

• Key Principles of Value Management

The institute of Value Management states that the key principles of Value Management are different from other styles of management in that they include attributes that are not normally found together:

Management Style

• Emphasis on teamwork and communication

• A focus on what things do, rather than what they are (functional approach)

• An atmosphere that encourages creativity and innovation

• A focus on customer’s requirements

• A requirement to evaluate options qualitatively to enable robust comparisons of option

Positive Human Dynamics

• Teamwork – encouraging people to work together towards a common solution

• Satisfaction – recognizing and giving credit

• Communication – bringing people together by improving communication between them

• Fostering better common understanding and providing better group decision support

• Encouraging change – challenging the status quo and bringing about beneficial change

• Ownership – the assumption of ownership of the outcomes of Value Management activities by those responsible for implementing them

Consideration of External and Internal Environment

• External conditions – taking account of pre-existing conditions external to the organisation over which managers may have little influence

• Internal conditions – within the organisation there will be existing conditions which managers may or may not be able to influence

• Degrees of Freedom – the external and internal conditions will dictate the limits of potential outcomes and should be quantified.

Effective Use of Methods and Tools

• Means of achieving outcomes

The Institute of Value Management [online} http://www.ivm.org.uk/vm_whatis.htm Accessed on 18 July 2007

From this we can see that Value Management brings Construction teams together and gets them to communicate more effectively with each other, this in turn will have a beneficial effect on the Project. The functionality of a Project will be more focused on being able to achieve Value for Money.

• Value Management Techniques

• Function Analysis

‘Function Analysis is a powerful technique in the identification of the principal functional requirements of a project’

Seeley, I. (1997) Quantity Surveying Practice. Second Edition.

Function analysis is basically a brain storming session with all people involved in the construction project and is used to determine the main needs of a project in order to focus on alternative options that are less expensive although still achieving the functionality as required.

• FAST Diagrams

Seeley (1997) states that the FAST (Functional Analysis System Technique) has evolved from the functional analysis approach as it establishes a hierarchy of functions in order of importance.

FAST diagrams are a more effective way of showing the main important functions and needs of a project.

Bolton (2002) stated that function analysis was key to success in a workshop and always uses a FAST diagram.

Pasquire and Mauro (2001) cite Norton and McElligott (1995) who suggest that the use of FAST may provide more benefit in the early stages of a project but not so much in the construction phases. It is also highlighted that FAST diagramming requires experience and training on the part of the facilitator to ensure it accurately depicts the function of the project. Another constraining factor is the time required to complete FAST diagrams.

Hunter, K. & Kelly, J. (2006) Is One Day Enough? The Argue for Shorter VM/VE Studies.

• Value Management Workshops

Value Management Workshops are one of the main techniques of Value Management. This will be discussed in greater detail in Chapter 2.2.

• Benefits of Value Management

After several post-project reviews with Contractors and Consultants, Kelly & Male identify various positive aspects of the Value Management process. The most significant of these are:

• Proof that the initial design was indeed the best

• Peace of mind to the owner that he was receiving good value for money

• Introduction to higher quality products

• Best up-to-date technology at least cost

• A clear focus on project objectives

• An alternative view of the design

• Improved project programmes

• Improved site management structures

• An opportunity for a detailed analysis of the required project

Kelly, J. & Male, S. (1988) A Study of Value Management and Quantity Surveying Practice.

The Institute of Value Management indicates that Value Management has already been successful in achieving Value for Money for such Clients as BP, British Airways, Pfizer, Stanhope and various water and rail companies. This has resulted in the public sector adopting Value Management techniques in order to cut down construction costs and achieve better Value for Money.

Benefits of Value Management according to the Institute of Value Management focus on greater communication and understanding within the Construction team but do not seem to focus on the cost benefits;

• Better business decisions by providing decision makers a sound basis for their choice

• Improved products and services to external customers by clearly understanding and giving due priority to their real needs

• Enhanced competitiveness by facilitating technical and organisation innovation

• A common value culture thus enhancing every member’s understanding of the organisation’s goals

• Improved internal communication and common knowledge of the main success factors for the organisation

• Simultaneously enhanced communication and efficiency by developing multidisciplinary and multitask teamwork

• Decisions which can be supported by the stakeholders

The Institute of Value Management [online} http://www.ivm.org.uk/vm_whatis.htm Accessed on 18 July 2007

‘Sir Michael Latham’s report ‘Constructing the Team’ (1994) states the benefits of Value Management and includes Value Management as a factor which is critical to the success of projects in providing the basis for improving value for money in construction.’

Hogg, K. (1999) Value Management: A Failing Opportunity? Nottingham, The Nottingham Trent University.

Value Management is still not being used to a great extent in the construction industry despite the great number of benefits.

‘The reasons for the apparent hesitance of the industry to adopt Value Management on a greater scale are unclear since the benefits of Value Management appear to be widely recognised and the practice continues to be promoted at a high level.’

Hogg, K. (1999) Value Management: A Failing Opportunity? Nottingham, The Nottingham Trent University.

• Value Management Workshops

‘Before a VM workshop commences information has to be gathered to determine its objectives and deliverables and therefore what shape and form the workshop will take.’

Male, S. & Kelly, J. et al (1998) The Value Management Benchmark: A Good Practice Framework for Clients and Practitioners

• Value Management Workshop Structure

Kelly (1996), details the key stages involved in a Value Management Workshop;

Value Management workshops are characterised by a three stage process:

• The Orientation and Diagnostic Phase in which the value manager prepares for the study by: meeting with the project sponsor and key players who will be involved in the study, reviewing documents, conducting interviews and briefings and preparing the agenda for the Workshop Stage.

• The Workshop Stage is where alternative or complementary views on the value problem are brought together through a structured team based activity facilitated by a value manager and progressed through the application of specific team based techniques. Innovative ideas are brought forward to satisfy the functional requirements identified against a backdrop of the value criteria uncovered. A workshop report will be produced including an Action Plan to ensure that value solutions and options will be implemented in the post workshop phase.

• The Implementation Phase in which the Action Plan is followed through by those responsible for the investigation and implementation of ideas.

Kelly, J. (1996) Value & Risk Appraisal Lecture Notes

The International Benchmarking Study (1998) identifies the Implementation Phase as one of the key areas in which Value Management fails. At this stage the Value Management team have identified and adopted various approaches to ensure that the Value Problem is minimised as far as possible through various meetings and workshops in the previous phases. At this point an implementation strategy will be discussed with the relevant parties and if possible those involved in the implementation will be interviewed and identified in the action plan at the close of the workshop phase.

• Value Management Intervention Points

There are three main stages of Value Management workshops and they all produce a great deal of information that is discussed between the Construction parties to find alternatives ways of constructing the building and focusing on achieving Value for Money. These stages are described on the next page.

• Strategic Briefing

The Strategic Briefing stage deals with identifying the broad scope and purpose of the project and its important parameters. The focus is on determining the strategic needs and wants, and the role and purpose of the project for the Client.

• Project Brief

The Project Brief translates the Strategic Brief into construction terms, specifying performance requirements for each of the elements of the project including spatial relationships and details:

• ‘A summary of the relevant parts of the Strategic Brief document

• The aim of the design. This would include priorities for project objectives

• The site, including details of accessibility and planning

• The size and configuration of activities

• Outline specifications of general and specific areas

• A cost centred budget for all aspects of the project including all elements of the construction project

• Servicing options and specification implications e.g. security, deliveries, access, etc.’

Kelly, J. (1996) Value & Risk Appraisal Lecture Notes

• Outline Sketch Design

The Outline Sketch Design (OSD) workshop is a value review of the initial plans, elevations, sections, specification and cost plan of the proposed building using the signed off Project Brief as a reference point.

Kelly (1996) explains what should be involved in an OSD Workshop:

• ‘As statement of the design direction

• The site layout and access, identifying ground conditions and planning constraints

• A detailed cost plan and schedule of activities

• Dimensioned plans, elevations and sections

• An outline specification for environmental systems

• The risks and a risk management strategy

• The procurement plan

• The project execution plan with key milestones

• Performance measure.’

Kelly, J. (1996) Value & Risk Appraisal Lecture Notes

• Benefits of Value Management Workshops

This is an extract from a journal that describes the benefits from an actual Value Management workshop that took place:

‘All team members confirmed their commitment to continuous improvement. Only three did not feel that it had been as a result of the workshops. The team unanimously believed that more options had been explored within the team and all agreed to that being as a result of the workshops. A principal finding under the section of workshop effectiveness agreed to by all members of the team, was that the workshop provided a good basis for teamwork, created and atmosphere of equality, ensured open and frequent communication and focused the participants on action and achieving results. The team members that indicated team working, cultures and communications as issues prior to the workshops agreed that they had all been resolved through the facilitated workshops.’

Hunter, K. & Kelly, J. (2006) Value Management Workshops and Partnering Conundrums.

From this extract we can see that there is a great deal of benefits for all parties by using Value Management workshops. There are also advantages to a VM workshop if the environment is isolated, these include:

• It focuses the team on ‘the project’

• Gestation occurs during the workshop process

• It commits the team

• Militates against partial attendance

• Continuity is ensured.

Male, S. & Kelly, J. et al (1998) The Value Management Benchmark: Research Results of an International Benchmarking Study

RDT Pacific (2007) stated that there are other advantages of Value Management and Workshops.

‘Value Management consistently provides significant improvements to projects:

• Average capital cost savings of 14% (NSW Government Research)

• The forging of dedicated, synergistic project teams

• Auditing on the project brief and the decision making process

• Provision of additional functionality within existing budget allocations

• Development of a structured process to move projects efficiently to the next stage and ultimately completion.’

RDT Pacific [online] http://www.rdtpacific.co.nz/services/servicesportfolio/valuemanagement.shtml Accessed on 5 October 2007

From this research we can see that there is a great deal of benefits of using Value Management for all parties involved in a Construction Project. It is the intention of this research paper to find out why Value Management is not being used a great deal by Contractors and therefore this research will provide beneficial when it comes to interviewing Contractors on their views of Value Management workshops. A comparison will be made between the benefits and disadvantages of Value Management in the Research Analysis chapter in order to suggest suitable implementation of this process for Contractors.

CHAPTER 3

RESEARCH METHODOLOGY

3.1 Secondary Method of Research

The Secondary Research Method proposed includes investigating historic papers and publications to assess the extent to which Value Management is used in the Construction Industry. Information will be obtained from books, journals, websites and lecture notes. The Glasgow Caledonian Library will be used to obtain books. The RICS (Royal Institute of Chartered Surveyors) and various websites will be used to obtain journals and information on Value Management.

These methods of research are being used as they are readily available. About 6 books from the Glasgow Caledonian Library were used for research and a lot of information was found, however, the negative aspect of using books is that the information may not be up to date. Lecture notes from the Value and Risk Appraisal were used for the Literature Review in order to explain the processes of Value Management. They were produced by Professor John Kelly who either wrote the notes from his own experience or took extracts from books. A great amount of information was found from the internet on Value Management and this was also used to prepare the Literature Review. Information from the internet can be up to date although the disadvantage is that it can be someone’s opinion and may not be entirely true. Journals on Value Management were found on the RICS website, Athens and also on the Construction and Building News websites. Some journal information was also taken from the Glasgow Caledonian Library. The advantage of Journals is that there was a lot of information available and people’s views are expressed which is helpful for determining any problems that exist in Value Management.

This research will increase the author’s knowledge and understanding of Value Management and will also give an insight into the varying views on the subject.

3.2 Primary Method of Research

The initial Primary Research Method proposed for this paper is to use actual Construction Project Case Studies in an attempt to find out how beneficial Value Management was for those projects. A few case studies were found on Projects that have used Value Management and they will be used to determine whether Value Management has been a success or not for the Project. Case Studies are useful for this research as they can be used to compare and also get people’s views on Value Management.

A second Primary Research Method proposed for this paper will involve interviews with relevant Construction Industry personnel to gain their views and perspectives of Value Management in Construction Projects. Suitable candidates will be mainly Contractors who have worked with Value Management on their previous Construction Projects and also the Chairman of the IVM (Institute of Value Management) in order to achieve the objectives of this paper.

The purpose of these interviews is to gain a greater insight into the Value Management process and how there can be an improved implementation for Contractors. It is important to choose the correct questions to collect data to prepare a relevant analysis. Interviews are better for communicating as you are face to face to a person and the interviewer is responsible for getting the quality of information that is required. A disadvantage of interviews however can be arranging meetings with the suitable candidates as they may not always be available when you are. To control this, contacting the interviewees at the earliest opportunity is always recommended.

3.3 Research Methodologies Rejected

Having chosen the above methods for research it is important to note that alternative options such as questionnaires and electronic surveys were considered for potential sources of information. However, it was felt that these options would not provide the quality of response and feedback that the other methods would for this research. Questionnaires and electronic surveys would require time to fill in and most construction personnel would probably not have the time required to complete them or would simply disregard the emails or paper copies as they would feel it would be too time consuming. Another disadvantage of these research methods is that the questions could be interpreted the wrong way or the quality of answers could not be as good as asking someone in person.

CHAPTER 4

PROGRESS TO DATE & PLANNED FUTURE WORK

• Progress to Date

At this stage, the indicative title, main aim and main objectives have been agreed. Research was undertaken throughout the summer on the topic of Value Management and the relevant materials were collected. Books, journals, case studies and website information were read and notes taken from each to form the basis for the literature review. The literature review has now been completed and also most of the information for the Date Analysis Chapter in the Final Dissertation report has been collected, such as books, journals, website information and journals. Everything required for the Dissertation Interim Report is now complete.

4.2Research Methodology

The final piece of methodology to be collected will be from interviews with Construction personnel which are still to be agreed and also the interview questions need to be created. These are both due to happen at the start of the New Year and the planned interviews should take place towards the end of January 2008 at the latest.

4.3Research Analysis and Results

Once the interviews have been conducted, an in depth analysis of the views will be undertaken, along with analysis of the information of other Construction personnel from the data collected via journals, case studies and books. This section will be undertaken from February 2008

4.4 Conclusions and Recommendations

At this stage, it will now be time to come to a conclusion and give recommendations on how to implement Value Management for Contractors. This section will be undertaken near the end of March 2008.

4.5 Structure of the Final Dissertation

Below is the structure proposed for the final Dissertation document to be submitted in April 2008.

Chapter 1 – Introduction

Chapter 1 introduces the rationale for study of the dissertation topic and the indicative title. It also determines the main aims and objectives, the research methodologies to be used and a structured breakdown of each chapter.

Chapter 2 – Value Management

Chapter 2 will focus on the background of Value Management and mainly on the key principles, techniques and advantages and disadvantages of this topic in the Construction Industry.

Chapter 3 – Value Management Workshops

Chapter 3 will focus on value management workshops in the Construction Industry and highlight the main advantages and disadvantages of this approach for Contractors.

Chapter 4 – Value Management in Previous Construction Projects

Chapter 4 will focus on case studies of previous construction projects that have used Value Management. They will be used to determine whether Value Management has been beneficial or not in the completion of the Projects.

Chapter 5 – Research Analysis and Results

Chapter 5 will analyse the information and feedback obtained from the interviews to be conducted. Chapter 5 will also compare the responses to identify the differences in opinion.

Chapter 6 – Conclusions and Recommendations

Chapter 6 will set out the conclusions that have been established with reference to previous chapter literature research and the interview feedback responses. Chapter 6 will also discuss to what extent the aim and objectives have been achieved in this research paper. The author will finally give recommendations for improved implementation of Value Management for Contractors.

References

This section provides a list of all references used for this research which are quoted within the paper and will also provide readers with the sources of views and opinions expressed as a follow-up or extended research on the topic.

Bibliography

This section will provide a list of all other references used in preparation of the paper but not directly quoted.

Appendices

The appendices section shall provide the reader with supplementary information to that provided within Chapters 1 to 5.

• Programme of Future Work

• Produce research questions for interviews – Start January 2008

• Conduct research interviews – End January 2008

• Data Analysis of interview results & other research methods – February 2008

• Conclusions and recommendations – End of March 2008

• Final Dissertation hand in – April 2008

LIST OF REFERENCES

Dallas, M.F. (2006) Value & Risk Management: A Guide to Best Practice

Hogg, K. (1999) Value Management: A Failing Opportunity? Nottingham, The Nottingham Trent University.

Hunter, K. & Kelly, J. (2006) Is One Day Enough? The Argue for Shorter VM/VE Studies.

Hunter, K. & Kelly, J. (2006) Value Management Workshops and Partnering Conundrums.

Kelly, J. & Male, S. (1988) A Study of Value Management and Quantity Surveying Practice

Kelly, J. (1996) Value & Risk Appraisal Lecture Notes

Kelly, J.R. & Male, S.P. & Graham, D. (2004) Value Management of Construction Projects.

Male, S. & Kelly, J. et al (1998) The Value Management Benchmark: Research Results of an International Benchmarking Study

RDT Pacific [online] http://www.rdtpacific.co.nz/services/servicesportfolio/valuemanagement.shtml Accessed on 5 October 2007

Seeley, I. (1997) Quantity Surveying Practice. Second Edition.

The Institute of Value Management [online] http://www.ivm.org.uk/vm_whatis.htm Accessed on 18 July 2007.

BIBLIOGRAPHY

Adam, E. (1993) Value Management: Cost Reduction Strategies for the 1990s

Dallas, M.F. (2006) Value & Risk Management: A Guide to Best Practice

Hogg, K. The Nottingham Trent University (1999) Value Management: A Failing Opportunity?

Kelly, J. & Male, S. (1988) A Study of Value Management and Quantity Surveying Practice

Male, S. & Kelly, J. & Fernie, S. & Gronqvist, M. & Bowles, G. (1998) The Value Management Benchmark: A Good Practice Framework for Clients and Practitioners

Male, S. & Kelly, J. & Fernie, S. & Gronqvist, M. & Bowles, G. (1998) The Value Management Benchmark: Research Results of an International Benchmarking Study

Seeley, I.H. (1997) Quantity Surveying Practice

The Institute of Value Management [online] http://www.ivm.org.uk/vm_whatis.htm Accessed on 18 July 2007.