1. Engineers Australia Management and Engineering Branch ACT April 2006 An introduction to the revised Australian Standard AS 4183:2006 “ Value Management “ Lex Clark CPEng FIEAust and Roy Barton MSc Dip Ed PhD

2. Engineers Australia Management and Engineering Branch ACT April 2006 An introduction to the revised Australian Standard AS 4183:2006 “ Value Management “ PART ONE Lex Clark CPEng FIEAust

3. Value for Money in Contracts Engineers Australia Surveys in 1999/2000 12% of Government respondents and 43% of Industry respondents stated that contracts were: 12% of Government respondents and 43% of Industry respondents stated that contracts were: – awarded on lowest up-front cost, –rather than value for money. While value for money is the correct goal in selecting a tender, this is not being achieved due to: While value for money is the correct goal in selecting a tender, this is not being achieved due to: – a lack of guidance, –practical methodologies – and expertise.

4. Joint Committee of Public Accounts and Audit Australian Government Procurement 1999 Most agencies could not provide evidence of their efficiency and effectiveness in determining value for money. There is no evidence to show that this principle is being applied correctly or consistently.

5. Commonwealth Procurement Guidelines Department of Finance and Administration 2006 The Principle of Value for Money 4.1 Value for money is the core principle underpinning Australian Government procurement. 4.1 Value for money is the core principle underpinning Australian Government procurement. 4.3 In order to be in the best position to determine value for money when conducting a procurement process, request documentation needs to specify logical, clearly articulated, comprehensive and relevant conditions for participation and evaluation criteria which will enable the proper identification, assessment and comparison of the costs and benefits of all submissions on a fair and common basis over the whole procurement cycle. 4.3 In order to be in the best position to determine value for money when conducting a procurement process, request documentation needs to specify logical, clearly articulated, comprehensive and relevant conditions for participation and evaluation criteria which will enable the proper identification, assessment and comparison of the costs and benefits of all submissions on a fair and common basis over the whole procurement cycle. 4.4 Cost is not the only determining factor in assessing value for money 4.4 Cost is not the only determining factor in assessing value for money

6. Value Analysis and Value Engineering Improving performance and reducing costs have long been principles of good engineering, procurement and management practice. World Wars I and II placed increased emphasis on these principles from combat effectiveness and availability of resources. Value Analysis developed in Industry in 1940/50’s as a methodology to combine these principles. Value Engineering expanded into Defence activities in 1950/60’s in response to growing costs and reducing resources.

7. Function and Cost Analyse Functions (F) rather than components. Evaluate Costs (C) associated with these Functions. Value (V) was described as a relationship V = F/C. Value for Money was implied but not defined in this relationship. This relationship was applied within a decision making framework called the Job Plan.

8. Increased Performance and Lower Cost 1939 Heinkel 100D-0 with 969 components instead of 2885 and 11,543 rivets instead of 26,864 in earlier model. 1939 Heinkel 100D-0 with 969 components instead of 2885 and 11,543 rivets instead of 26,864 in earlier model. Special model held world speed record of 746.61km/hr in March 1939. Special model held world speed record of 746.61km/hr in March 1939.

9. Reduced Performance at Higher Cost  The Pentagon Catalog of 1986.

10. Cost Reduction Potential Typical VA and VE activities occur in the development to operation phases

11. New Australian Standard AS 4183:2006 AS4183:2006 redefines the concepts of Value and Value for Money. It increased emphasis on the application of Value Management as early as possible by means of Value Management Studies. The application of Value Analysis to ongoing activities provides continuous improvement.

12. End of Part One

13. Engineers Australia Management and Engineering Branch ACT April 2006 An introduction to the revised Australian Standard AS 4183:2006 “ Value Management “ PART TWO Dr Roy Barton

14. A sign seen recently inside the storage room of a major department store (No monetary value?)(No use?)

15. Value for your most valued this Mother’s Day National Newspaper Advertisement (Value for money) (important one)

16. “Now the glass has broken, it is no longer of any value to me” (use?) (Benefit?)

17. “Having a shopping centre so close is of great value to us” (Benefit?) (use?)

18. “Something” Useful purpose Value of “something” Benefits Importance © Roy Barton 2004

19. “Something” Useful purpose Value of “something” Benefits Importance © Roy Barton 2004 Multiple perceptions Multiple perceptions Multiple perceptions

20. Value for Money $ $ $ Option A Option C Option B ValueMoney for An entity Useful purpose Benefits Importance Value © Roy Barton 2004

21. The entity The purposes fulfilled and functions performed by the entity Benefits Importance Usefulness Value of an entity The advantages or enhanced well-being gained from the entity The characteristics of the entity (other than the purpose fulfilled, functions performed and benefits gained) that are seen to be of particular significance or consequence. © Roy Barton 2004

22. Dealing with complexity Inherent Complexity Technical Complexity Situational Complexity Standards Codes of practice Design rules ? Organisational protocols, processes and procedures The Nature of a problem What we make of a problem © Roy Barton 2004

23. “Situational” Complexity Ineffective interactions Conflicting multiple objectives Incomplete information Competing values amongst members Reaching consensus Lack of definition of, or agreement over, quantitative parameters Power differentials amongst team members Overwhelming quantity of both qualitative and quantitative information Conflict amongst participants © Roy Barton 2004

24. “Situational” Complexity Ineffective interactions Conflicting multiple objectives Incomplete information Competing values amongst members Reaching consensus Lack of definition of, or agreement over, quantitative parameters Power differentials amongst team members Overwhelming quantity of both qualitative and quantitative information Conflict amongst participants © Roy Barton 2004

25. Value factors Money Value for money © Roy Barton 2004

26. Value factors Money Value for money © Roy Barton 2004

27. Value factors Money Value for money © Roy Barton 2004

28. Formulation Validation Full Development Scale Production Use Source : Internal company studies at: Westinghouse, GM, Ford, Rolls Royce and others Concept 50% 75% Cumulative Percentage of Life Cycle Costs LCC Time

29. Two-Day Workshop Structure Divergence Convergence Day OneDay Two Find out/Create IdeasEvaluate/Develop/Decid e © Roy Barton 2004

30. VM Workshop © Roy Barton 2004

31. VM Workshop Medical specialists and practitioners

32. New definitions Value An attribute of an entity determined by the entity's perceived usefulness, benefit and importance. Value for money A measure used for comparing alternatives based on the relationship between value and total cost. Value Management A structured and analytical process which follows a prescribed Work plan to achieve best value and, where appropriate, best value for money.

33. Contact details Lex Clark –lhclark@clarkengineering.com.aulhclark@clarkengineering.com.au –02 6287 4018 Roy Barton –roy.barton@acvm.com.auoy.barton@acvm.com.au –0411 765 001