Best Value Performance Information Procurement System (PIPS) Dean T. Kashiwagi, PhD Director, Professor Fulbright Scholar Performance Based Studies Research Group www.pbsrg.com January 27, 2011 PBSRG GLOBAL

“Best Value” Considering other factors than price for award Many “best value” procurement processes

“Best Value” Performance Information Procurement System (PIPS) is a best value process that includes concepts that force vendors to be accountable, measure their performance, and manage and minimize risk that they do not control PIPS is a conceptual technology that anyone can do Groups come to ASU to license and learn PIPS because of the technology that is counterintuitive and simplistic is difficult to learn and apply

Best Value PIPS Transfers risk and control to the best performing vendor Do not need client expertise Minimizes client decision making Best value vendor dictates what will be delivered

PIPS: Best Value Standard Transparent Fully documented Very difficult to protest Clients did very well in the protests Outstanding results Changes paradigm of delivery Not a procurement delivery system Minimizes subjectivity “Win-win” Maximizes contractor profit Holds everyone accountable Certify and track performance of all participants

PBSRG’s Research Results (Performance Based Studies Research Group) Worldwide as a leader in Best-Value Systems Conducting research since 1994 900+ Projects $4.4 Billion Services & Construction 5% Increase in Vendor profit 98% On-time, On-Budget, Customer satisfaction PMI, NIGP, IFMA, IPMA Tests in Netherlands, Botswana/Africa ASU – investments of over $100M due to BV

Contractor minimizes risk Industry Structure High III. Negotiated-Bid II. Value Based Owner selects vendor Negotiates with vendor Vendor performs Best Value (Performance and price measurements) Quality control Contractor minimizes risk Performance IV. Unstable Market I. Price Based Specifications, standards and qualification based Management & Inspection Client minimizes risk Low Perceived Competition High

Micro-management 8

There is something wrong with an inefficient micro-managed system….. There is too much work…. Everyone has to do everything, and no one has the time to succeed…. Performance will not go up The only way to survive is through relationships This is not an efficient or successful environment

“Micro-manager’s Code” The movement of risk..... Is It Working? NO YES Don’t Mess With It! Did You Mess With It? YES YOU IDIOT! NO Anyone Else Knows? Will it Blow Up In Your Hands? YES You’re SCREWED! YES Can You Blame Someone Else? NO NO Look The Other Way NO Hide It Yes NO PROBLEM!

Event Initial conditions Final conditions Laws Laws Time (Control, impact, and influence)

Be Influenced Vs. Cannot be Influenced Believes in chance Being controlled by others Will controls others Does not adequately preplan due to perception of too many variations Blames others if something goes wrong 12

Me vs.Them Us Risks Risks Don’t Control Paradigm Shift: contractors should have minimal technical risk and minimize risk that they do not control Me vs.Them Us Risks Risks Control Technical Risk Don’t Control Control Don’t Control

Poor performance Wrong person talking Decision making on both sides Price based (transaction based) Wrong person talking Decision making on both sides Can perfectly predict the future Experts told to not think Buyer tells the vendor what to do and how to do it. Best Value (efficient, minimized transactions) Buyer says what he wants Vendors tell buyer what he can get

Price Based or Traditional Procurement vs. Best Value PIPS Wrong party doing the directing and decision making Decision making Management, direction, control Confusion Reactive More people required Non-transparent Expert doing the directing and minimal decision making Expertise Experts document own deviation/performance No confusion Proactive Less people required Transparency, simple

Perceived Competition Contractor minimizes risk Paradigm Shift Transfer risk and control to contractors Identify source of all deviations Contractors performance includes minimizing risk that they do not control WRR/RMP is an indicator of performance High I. Price Based II. Value Based IV. Unstable Market III. Negotiated-Bid Specifications, standards and qualification based Management & Inspection Best Value (Performance and price measurements) Quality control Perceived Competition Performance Low Owner selects vendor Negotiates with vendor Vendor performs Contractor minimizes risk Client minimizes risk

MANAGEMENT BY RISK MINIMIZATION Best Value System Performance Information Procurement System (PIPS) PM model, Risk Management model PHASE 1: SELECTION PHASE 2: PRE-PLANNING QUALITY CONTROL PHASE 3: MANAGEMENT BY RISK MINIMIZATION

Best Value System (alignment of expertise) Vendor is Expert Vendor is Expert PHASE 1: SELECTION PHASE 2: PRE-PLANNING QUALITY CONTROL PHASE 3: MANAGEMENT BY RISK MINIMIZATION Vendor is not an Expert

Performance Information Procurement System (PIPS) Vendor is Expert Vendor is Expert PHASE 1: SELECTION PHASE 2: PRE-PLANNING QUALITY CONTROL PHASE 3: MANAGEMENT BY RISK MINIMIZATION Vendor is not an Expert Dominant Simple Differential Detailed Technical Increased flow of information Preplanning Risks and concerns Risk Managmeent Qual;ity Control Quality Assurance Transparent

Preplanning Pre-Award Period Vendor is Expert Vendor is Expert PHASE 1: SELECTION PHASE 2: PRE-PLANNING QUALITY CONTROL PHASE 3: MANAGEMENT BY RISK MINIMIZATION Vendor is not an Expert Vendor coordinates schedule Contract is written in terms of performance information (dominant performance metrics) Vendor coordinates and gets contract approved and signed

Performance Information Procurement System (PIPS) Vendor is an Expert Filter 1 Past Performance Information Filter 2 Project Capability Filter 3 Interview Filter 4 Prioritize (Identify Best Value) Filter 5 Cost Verification Filter 6 Pre-Award Period High Blind Rating Technical Risk of Competitors Non-technical risk (no control) Value Added Financials Milestones (percentage quicker) Criteria Interview Scope RA Plan Value Added Measurement Financials Schedule PPI Dominance Check Ratings are dominant Best value is within cost range PA Docs WRR RMP Tech. Coord. Award Quality of Vendors Low Selection Phase Time Vendor is not an expert 21

Selection Criteria Past Performance Information (PPI) (not rated, weighted) Project Capability (blind review) Technical risk (rated, weighted) Non-technical risk that vendor does not control (NTR) (rated, weighted) Value added (VA) (rated, weighted) Price (not rated, weighted) Milestone Schedule (not weighted or rated) Interview (rated, weighted)

Self Regulating Loop (PIPS) (Six Sigma DMAIC Generated) Actions Minimize data flow Minimize analysis Minimize control Requirements (DBB, DB, CMAR, DBO) R Capability To Do Project Past Performance Information (PPI) R Interview Key Personnel R Matrix Comparison M Best Value for the Lowest Cost (Determined by Vendors) V R Preplanning, Risk Management Efficient Service Managed and Controlled by Vendor = Minimize Risk = Self Measurement = Identify Value M R V M Measure again M R

Paradigm Shift: contractors should have minimal technical risk and should minimize risk that they do not control Me vs. Them Us Risks Risks Non-technical Risk Non-technical Risk Technical Risk

Dato Gan and Brunsfield: Best Value Guru Visionary developer/FM of “2010” Improve value and not cutting cost Added value: 10X Supply chain (SC) thinking No constraints in SC value thinking Geographical Industry Function Clientele Processes Contract with PBSRG to use BV PIPS to deliver $B construction in the next 3 years Will require contractors to have understanding of WRR/RMP and manage and minimize all risk

Services is simply a series of events: preplanning is everything Initial conditions Final Conditions Time WRR, RMP, Milestone Schedule starts at NTP

P S Inefficiency TOTAL COST: PROFIT: CLIENT VENDOR 1. Identify Problem 2. Identify Solution 3. Schedule 4. Cost S Decision Making Management Control Direction Stop Wait Go INEFFICIENCY TOTAL COST: PROFIT:

Performance Information Increased Decision Making Increased Management Increased Control and Direction High Trust P S 1. Identify Problem 2. Identify Solution 3. Schedule 4. Cost 5. Track deviation

Performance Information

Conclusions Minimize information flow Make things simple Minimize decision making Ask people how they know what they know Ask people what they see Ask people how they will think in the other party’s best interest Hold them accountable Make people measure themselves Minimize everyone’s effort Work with people who are comfortable, simple, concise, confident, visionary, successful, and give you opportunity to excel

Perceived Competition Contractor minimizes risk Paradigm Shift Transfer risk and control to contractors Identify source of all deviations Contractors performance includes minimizing risk that they do not control WRR/RMP is an indicator of performance High I. Price Based II. Value Based IV. Unstable Market III. Negotiated-Bid Specifications, standards and qualification based Management & Inspection Best Value (Performance and price measurements) Quality control Perceived Competition Performance Low Owner selects vendor Negotiates with vendor Vendor performs Contractor minimizes risk Client minimizes risk

2012 Best Value Annual Conference Feb 2012 in Tempe, AZ Meet the most visionary owners (GSA.,USA Medcom, State governments), contractors, procurement agents, and manufacturers See examples of properly run BV PIPS Learn IMT/PIPS and how to implement new paradigm Get certified as a best value entity See the most innovative processes now going on Learn how to minimize cost and improve value and minimize the number of project managers Early Registration before Dec 15, 2011: For more details visit us at: pbsrg.com