04/21/2304/21/23

New Risk/Project New Risk/Project ManagementManagement

ParadigmParadigm

New Paradigm: use a structure to increase value

• Performance Information Procurement System (PIPS)

• Performance Information Risk Management System (PIRMS)

• Development: deductive logic base, test, modify system based on test results and retest; did not use industry best practices

• Picked research clients based on ability to understand logic

22

PIPS goals• Faster• Better value• Increased vendor profits• Lower project cost• Used less people and minimized

dependence on “experts” who increased complexity

• Create a win-win

33

PIPS/PIRMS Differences

• Minimizes client decision making/expertise• Makes expert vendors more competitive with

less effort• Uses alignment of expertise instead of

management, direction, and control• Vendors mitigate risks that they do not control• Best value vendor determines final project scope• Communication is minimized• Vendor holds all parties accountable by

measuring deviation

44

Bottom Line

• Reduce project costs

• Increase vendor profit

• Cut out waste and risk

• Based on logic instead of best practices (structure not experts)

$$$$

66

Dominant PIPS/PIRMS Test Results

17 Years, 1050 Projects $4.6 Billion Services & Construction $1B Netherlands infrastructure construction

test 5% Increase in Vendor profit 98% Customer Satisfaction Minimize transactions at ASU – $100M

(17%) GSA Heartland Region (using paradigm in

region processes) Tests ongoing in Netherlands, Canada,

Malaysia, Finland and Botswana

International Efforts & Partners

77

Fulbright Scholarship-University of BotswanaPIPS tests

RMITTeaching IMTPBSRG platform

5 years15 tests for infrastructureTwo major GCs

BrunsfieldComplete Supply Chain

University of Alberta

United States -65 clients

CIB NetworkPBSRG NetworkPMForum Network

More differences

• Best value for the lowest cost

• Takes less than 50% time and manpower

• Client does not have to know exactly what you want

• Shortens selection time

• Contract administration is done by contractor

Industry Structure

High

I. Price Based

II. Value Based

IV. Unstable Market

III. Negotiated-Bid

Specifications, standards and qualification based

Management, direction, and control

Decision making

Technical expertise on client’s side

Best Value (Performance and price measurements)

Quality control and quality assurance

Perceived Competition

Pe

rfo

rman

ce

Low

High

Owner selects vendor

Negotiates with vendor

Vendor performs

© 2011, Arizona State University, PBSRG

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 (working together to make minimums acceptable)

This is not an efficient or successful environment

And no one quite knows what it is…..

“Micro-manager’s Code” The movement of risk.....

Don’t Mess With It!

YES NO

YES

YOU IDIOT!

NO

Will it Blow UpIn Your Hands?

NO

Look The Other Way

Anyone ElseKnows? You’re SCREWED!

YESYES

NO

Hide It

Can You Blame Someone Else?

NO

NO PROBLEM!

Yes

Is It Working?

Did You Mess With It?

High

Low

Perf

orm

an

ce

Owners

“The lowest possible quality that I want”

High

Low

Perf

orm

an

ce

Vendors

“The highest possible value that you will get”

Minimum

Maximum

What is causing all the confusion?

Perf

orm

an

ce

High

Low

Ris

k

High

Low

Best Value vs. Low BidRisk is minimized vs. project has no risk

Contractor 1Contractor 2Contractor 3Contractor 4

Contractor 1

Contractor 2

Contractor 3

Contractor 4Perf

orm

an

ce

High

Low

Ris

k

High

Low

Us

RisksRisks RisksRisks

Technical

Requirement

Don’t Control

Control Don’t Control

Me vs. Them

Paradigm Shift: contractors should have minimal technical risk and minimize risk that they do not control

© 2011, Arizona State University, PBSRG

Inexperienced contractor

Experienced contractor

Client, user, designer, and inspector etc…..Client, user,

designer, and inspector etc…..

Business Model (Sustainable and Cost Less)

Highly Trained

“Visionary”

MediumTrained

Vendor XCustomers

OutsourcingOwner

PartneringOwner

PriceBased

(M,D,C)

MinimalExperience

“Blind”

Initial conditions

Final conditions

Event (Laws of Physics and Deterministic Reality)

Time

Laws Laws

(Control, impact, and influence)

© 2011, Arizona State University, PBSRG

Best Value Project Objectives

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PHASE 1 PHASE 2 PHASE 3

Financial Proposal Past Performance Risk Assessment Value Assessment Interviews Demonstrations Other Requirements

Award Weekly Reporting Post Award Metrics Final Documentation Update PPI

One Vendor Detailed Project Plan Risks Minimized Project Schedule Measurement System

Performance Information Procurement System Performance Information Procurement System (PIPS)(PIPS)

1919

Filter 1

PastPerformanc

eInformation

Filter 2

Project Capability

Filter 4

Prioritize (Identify

Best Value)

Filter 5

CostVerification

Filter 6

Pre-AwardPeriod

TIME

QU

ALI

TY O

F V

EN

DO

RS

Filter 3

Interview

AW

AR

D

High

Low

Blind Rating

Technical Capability

Non-technical risk (no control)

Value Added

Financials

PA DocsWRRRMP

Technical Coordination

CriteriaPPI

InterviewTechnical

Non-technical

Value AddedFinancialsSchedule

Selection Phase

DominanceCheck

Ratings are dominant

Best value is within cost

range

Vendor is an Expert

vendor is not an expert

Short listing

Selection Criteria• Past Performance Information (PPI)

• Project Capability (blind review)– Technical capability – Risk (that vendor does not control) – Value added (VA)

• Interview

• Price

© 2011, Arizona State University, PBSRG

Use “Dominant” Information• Simple

• Non-technical

• Verifiable performance measurement

• Minimizes decision making

© 2011, Arizona State University, PBSRG

Blind submittals are simple

• Not detailed– Example 1: The project manager being proposed on this project is

very experienced in design-build, mechanical system type and innovative projects.

• The what, but not the how– Example 2: the mechanical subcontractor can install a system that

minimizes the installation time by 20% and the system minimizes the annual energy consumption by 15%

• Defined by performance information– Example 1: PM record over the past 5 years, 10 DB projects,

$250M average scope, customer satisfaction is 9.5/10.0, deviation rate is less than 1%

– Example 2: Last five projects, customer satisfaction is 9.5/10, deviation rate is less than 1%, 20% earlier finish, installed system have average energy consumption 15% under average consumption, references available on request.

© 2011, Arizona State University, PBSRG

Us

RisksRisks RisksRisks

Me vs. Them

Vendor acts in best interest of client because it is in their own best interest

Technical scope

Risk that vendor doesnot control

Risk that the vendor does not control

Inexperienced contractor

Client, user, designer, and inspector etc…..

Client, user, designer, and inspector etc…..

Experienced contractor

Best Value Process

2424

Filter 1

PastPerformanc

eInformation

Filter 2

Proposal & RAVA Plan

Filter 4

Prioritize (Identify

Best Value)

Weekly Report &

Post-Rating

Filter 3

Interview Key

Personnel

TIME

QU

ALI

TY O

F V

EN

DO

RS

High

Low

Filter 5

Pre-Planning Phase

AWARD

Best Value Risk Model

2525

Vendor manages/minimizes risk with contract - Contract is predictive

VENDOR CONTRACT BUYER

PIPS: New Paradigm and BV Standard

• Transparent• Documented using “dominant” information• Very difficult to protest• Outstanding results• Changes paradigm of delivery• Not just a different procurement delivery system• Minimizes subjectivity and decision making (liability)• “Win-win”• Maximizes contractor profit (attracts performers)• Holds everyone accountable

© 2011, Arizona State University, PBSRG

Why have interest?

• High performance vendors increase profit• Vendor can maintain expertise• Project cost is decreased• Clients get better value and reduce costs

drastically• Fully measured and accountable system• Allows strategic changes due to performance

information

$$$$

Current Efforts• State of Idaho and Alaska are procuring large IT contracts• WSCA has a contract with ASU• State of Oklahoma and State of Minnesota changed procurement

laws based on best value PIPS• State of Oklahoma is using best value PIPS on service/construction

combinations, IT, professional services• Users in state of Minnesota are attempting to setup a best value

standard that is self regulated• GSA is attempting a one year implementation of entire

system in the heartland region (Region 6) Cy Houston, Jeff Meyer

• ASU is procuring all services outside of construction using best value PIPS; latest procurement is bookstore services

• Dutch professional procurement group NEVI (ISM/NIGP) is starting Dutch efforts to change procurement system to PIPS

• Brunsfield changing entire supply chain to best value PIPS

Paradigm Shift• 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 © 2011, Arizona State University, PBSRG

Decision MakingClient

Blind and more expensive vendors

EfficientClient

Visionary Vendor

State of Oklahoma Best Value Projects Performance

Oklahoma Best Value Project Information# of Best-Value Procurements 20Estimated Value of Best-Value Procurements $100,000,000

Protest Success Rate (# of protest won / # of protests) 3/3# of Different Services 13% Where Identified Best-Value was Lowest Cost 71%

Project Performance# of Completed Projects 8Average Customer Satisfaction 9.5 (out of 10)Cost Savings $500K% On-time 100%% On-budget 100%

Different Services Procured

• Commercial Off the Shelf (COTS) Tax Software• Enhancement of Workforce Job Website• Electronic Document Management for Construction

Documents. • Computer to Plate Printer• State wide light bulb and lighting fixture contract• Emergency hazardous Waste Removal contract• Construction Commissioning Services• State Mental Health Services• Performance Measurement of Federal Grants• New Construction and Renovation• Juvenile Center and Services (cancelled)

  *Estimated*    

PROJECT OVERVIEW Without WRR With WRR With WRR & RMP

# of Projects 130 303 199

Awarded Cost $249,336,707.47 $435,362,033.52 $318,352,918.34

% of Projects on Time 28% 31% 38%

% of Projects on Budget 40% 47% 60%

% Over Awarded Budget 7.02% 6.11% 4.11%

% due to owner 4.77% 4.31% 3.46%

% due to contractor 0.02% 0.05% -0.08%

% due to unforeseen 2.23% 1.75% 0.62%

% Delayed 39.1% 38.77% 33.72%

% due to owner 25.0% 28.05% 29.88%

% due to contractor 3.58% 2.44% -1.42%

% due to unforeseen 10.52% 8.28% 4.97%

Completed Project RMP Analysis

3333

Priority Road Investment Programme

• Ambition from Minister of Infrastructure and the Environment: 30 starts of work of road widenings and rush hour lanes and 10 openings for road users before june 2011

• Start september 2008• May 2011:

– 30 ‘shovel hits the ground’– 10 ‘cutting the tape’

3434

• Acceleration achieved!– 6 contracts awarded, each in 5 months– Tender phase reduced by 50%

• Costs 60% lower– Vendors: 50% to 75% lower costs– Rijkswaterstaat: estimated reduction by

half, development costs for the contract excluded

• May 2011: On average 1 year earlier completion date per project

‘The costs to tender are significantly

lower than ‘traditional’ D&C’

Evaluation of market approach

Dato Gan and Brunsfield

• Visionary developer/vendor in Malaysia

• Minimize cost by cutting risk

• Added value: 10X

• Supply chain (SC) thinking; all entities must understand PIPS

• Contract with PBSRG to use BV PIPS to double production in the next 3 years

• Wants to raise the quality of life in Malaysia

© 2011, Arizona State University, PBSRG

3636

University of Minnesota and GSA Region 6 Results

NO CRITERIA GSA PIPS RESULTS

UMN PIPS RESULTS

1 Total Number of PIPS Best-Value Projects Procured 10 142

2 Awarded Cost (Millions): $10 Million $40 Million

3 Percent Awarded Below Average Cost -6% -12%

4 Average Number of Proposals: 4 4

5 Percent of Projects Where Best-Value was also Lowest Cost 80% 55%

6 Number of Completed Projects 2 111

7 Contractor Generated Cost Increases 0% 0%

8 Contractor Generated Schedule Increases 12.2% 5%

9 Vendor Post Project Rating 9.4 9.5

GSA Overview

3737

PIPS Non-PIPS

Number of Projects 10 11

Total Awarded Cost ($$) $ 9,994,887.00 $ 14,244,385.00

Total Awarded Schedule (Days) 1373 1822

# of Proposals/Project 4 -

# of Different Vendors Awarded 7 5

Change Order Rate 4.5 % 1

Delay Rate 31.0% 82.2%

GSA PM Evaluation of Completed Project 9.4 5.8

Contractor WRR Inaccuracy Issues

3838

Sr. Risk Category Occurrence %

1 Risk Description unclear 22.3%2 Close out incomplete 17.7%3 Schedule Incomplete/not updated 17.7%4 Not Received on time 17.1%5 Risk is resolved late 9.2%6 Failure to update Mods Tab 8.0%7 Unable to Identify Risk Impact 6.3%8 Incorrect Risk Responsibility 1.1%9 No GSA rating 0.6%

Supply Chain/System inefficiency is the problem, not bad vendors

Decision MakingManagementControl Direction

CLIENT VENDOR

TOTAL COST:

PROFIT:

Stop

Wait

GoP

1. Identify Problem2. Identify Solution3. Schedule4. Cost5. Track deviation

SINEFFICIENCY

© 2011, Arizona State University, PBSRG

Performance Information is a Contractor Issue

Performance InfoNO CRITERIA FIRM A

1 Overall customer satisfaction 9.8

2 Percent of roofs that have never leaked 99%

3 Percent of roofs that do not currently leak 100%

4 Average age of roof surveyed (years) 17

5 Total number of roofs evaluated 50

© 2011, Arizona State University, PBSRG

Best Value Model is a Contractor Model

• Increased Decision Making• Increased Management• Increased Control and

Direction• High Trust

P S1. Identify Problem2. Identify Solution3. Schedule4. Cost5. Track deviation

© 2011, Arizona State University, PBSRG

Conclusions

• Increase performance to 98%

• Documentation system in place

• Minimize transactions by as much as 90%

• Improve vendor profit by 100%

• Better value, better vendors, more accountability

© 2011, Arizona State University, PBSRG

$$$$

More information

• What and not the how• Manuals• Send the visionary to

the Annual conference at Tempe, AZ, Feb 11-14, 2011

www.pbsrg.com

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Comments / Questions

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