Value Management

Learning outcomes To distinguish between Value, Price, Cost and Worth To understand the principles of Value Management To explain the application of VM in a real case scenario

Cost  amount of money consumed by the production of the product Is Value = Cost? /Price?/ Worth? Cost  amount of money consumed by the production of the product Price  amount of money which the product is exchanged Worth  amount of money a buyer would be willing to pay to buy the product

Eg: Smart phone

Value is based on the relationship between satisfying needs and expectations and the resources required to achieve them The benefits the buyer receives over the cost associated with acquiring and using the product Benefits/expectations are hard to define as they are subjective (involves people and their judgements)

Value is ultimately judged by its stakeholders !! Stakeholders with different levels of interest in construction projects have different expectations Value is ultimately judged by its stakeholders !!

Value management A systematic, multi-disciplinary effort directed toward analysing the functions of projects for the purpose of achieving the best value at the lowest lifecycle cost The engagement of project stakeholders to determine ‘value’ is done through a series of well-timed workshops

Value management in construction Value Planning Value Engineering Value Analysis Value Management

Systematic process… Follows the JOB PLAN Pre-study Information gathering Creativity Analysis Evaluation Presentation Implementation

1. Pre-study phase Purpose: to ensure that all parties are well coordinated The activities to be considered in Pre-study are; orientation meeting VM team structure and members workshop duration (5 days/ 40hrs) site visit cost estimates, models

VM team (Multi-disciplinary) Comprises of 5 to 7 people The team represents those who own the problem impacted by the problem and; support functional

VM team cont.. VMTC (Value management team coordinator)/Facilitator coordinates the meetings He/She is not a primary team member but may contribute his/her subject expertise to the team. The results of the study are dependent on the team and not the facilitator.

2. Information gathering Purpose: to get VM team to fully understand the major aspects /nature of the project Presentations (architecture, cost, services integration) Function analysis functions are defined by a verb and a noun classify functions (basic, secondary, required secondary)

3. Creativity Purpose: to develop a large number of alternatives that could fulfil the needed functions identified earlier The VM team deliberately prepares for ‘brainstorming sessions’ The team goes well with a number of clever, new or previously overlooked ideas arise that have real merit

4. Analysis/Evaluate Purpose: to review the generated ideas (pluses and minuses) The team considers how well the ideas address the basic and secondary functions Ideas are evaluated against measurable criteria and ranked in a matrix Ideas are combined and consolidated to produce a list of perhaps 5 or 6 that are worthy of further consideration.

Function Analysis Function analysis examines what something does e.g USB pen drive  Store data It considers the ways for increasing product value FAST (Function Analysis System Technique) is often used to analyse functions

FAST diagram Horizontal axis considers ‘How’ vs ‘Why’ Vertical axis considers ‘Needs’ vs ‘Wants’ NEEDS: Items which are fundamentally necessary for operation of the project WANTS: Items which the client would like to have but are not essential Functions are organised in a hierarchy (basic, secondary, required secondary) Stakeholders’ engagement is highly needed to position the ‘needs’ and ‘wants’

FAST diagram cont...

FAST diagram cont... Window / Door / Wall

Weighted evaluation weight elicitation is based upon the sum of the weights being equal to 1 for each group of attributes which derive from a single node Capital Cost Softwood Running Window Hardwood Finish Aluminium Aesthetic Durability

Weighted evaluation cont… Alternatives Cost (.55) Aesthetic (.45) Total 80 65 73.25 70 90.50 85 75 80.50

5. Development The ideas with the "best" potential are considered as alternatives. The team develops these alternatives in sufficient detail to show the relative advantages and disadvantages of each

6. Presentation The team presents its findings and recommendations to the "owners" of the study topic The presentation should allow for open and critical discussion of the alternatives, - how they were developed - what assumptions were made - advantages and disadvantages

7. Implementation The owner/users and other responsible parties determine which proposals will be accepted (in whole or in part) or rejected? how much money can be saved? efficiency, quality and timeliness benefits

The determination of 'maximum value' is influenced by economic analysis techniques! Your questions???

Additional readings!