Contemporary Economic Modelling

VALUE MANAGEMENT 1

Lecture ObjectivesIntroduce Concept of ValueDefine value managementIdentify value management interventionsDiscuss key techniques and their

application

Introduction To ValueWhat is Value?

Value and COST Value and FUNCTION Value and BENEFITValue and TIME

“Adding Value”

Value – a compromise?

Concept of Value

Value =

Satisfaction of NeedsUse of Resources

EN12973 The concept of value relies on the relationship between the

satisfaction of many differing needs and the resources used in satisfying them.

A relationship not an equation

Source: Sweett Group

Obtaining Value COST VALUE = WORTH (worth = the lowest cost that enables

the required functions to be provided)• Maximum benefit at minimal cost

Value Management• Determining Client requirements – this

is not always as simple as it seems!

• Delivering those requirements without unnecessary cost

Value Management History & Definitions

• History Lawrence Miles, purchasing engineer

with GEC in WW2 Value analysis: an organised approach

to providing the necessary functions at the lowest cost

This is NOT cost cutting - quality is not reduced.

Value Management History & Definitions(2)

• Value analysis - an organised approach to the identification and elimination of unecessary cost.

• Unecessary cost - cost which provides neither USE, nor LIFE, nor QUALITY, nor APPEARANCE nor CUSTOMER BENEFIT(S)

Development of V(M!)• US Dept of Defense• UK – 1960s use in manufacturing• Formation of VE Assoc. in 1966 (IVM in 1972)• Common use throughout Europe• Growth in UK Construction (BAA, Whitbread,London

Underground)• Guidance Notes (e.g. BRE 1997; CIB 1997; HM Treasury)• British Standard BS EN 12973 2000 Value Management• Egan• Best Value

Value Management Interventions

Timing Issues dealt with Structure of VM Team The Barriers to VM

Timing

Source BS EN 12973:2000

Overall process

Processes

Value ManagementOPTIONS APPRAISAL

BUSINESS CASE

OUTLINE DESIGN

FINAL SKETCH PLAN

DETAIL DESIGN

1st REVIEW

2nd REVIEW

3rd REVIEW

CONCURRENT STUDIES

CONSTRUCTION

HANDOVER

CONTRACTORS CHANGEPROPOSALS

POST PROJECTEVALUATION

Value Management Interventions

Source: Standing, N (2001) Value Management Incentive Programme Telford

Issues dealt with(1)• Value Planning (Value Management)• VM1 – pre-brief/briefing

– Is a built solution required– Stakeholder requirements– Priorities

• VM2 – Outline proposals– Reviewing criteria– Selection of best value alternative

Issues dealt with(2)Value Engineering

Engineering the developing design to eliminate unecessary costWorkshop(s)Contractor’s Change ProposalsValue incentive clauses

Value Analysis Analysing value in finished product to inform

future decisions

Structure of VM TeamIndependent VM team

Early American ApproachAdvantages and dis-advantages

Using Project Team MembersDepends on nature of project and timing of intervention

Importance of Client top management support and appropriate representation on VM team

Source: Cyril Sweett & Ptnrs

No Time

Waste of Time Too

Expensive

Too Difficult

Too Complex

I Do It Anyway

Not Interested

Don’t Want Outsiders

The Barriers

Value Management Workshop Methodology

• Pre-study Phase• Study(Wokshop) Phase Alternative approaches The Job Plan

• Post Study Phase

Pre-study Phase• Briefing

– VM (understanding client’s requirements)

– Participant’s• Practical preparations

– Venue etc– Documentation

• Information pack/briefing document

Study(Wokshop) Phase• Alternative approaches

– Degree of structure may depend on project, participants (and their experience), time available

The Job Plan – Based on Lawrence Miles original approach

Value Management Methodology(2)

• The Job Plan Information Phase Creative Phase Evaluation Phase Development Phase Presentation Phase

Post Study Phase• Report –summary of decisions and

actions• Further development• Follow-up

TechniquesFunctional AnalysisFAST diagram (Charles Blytheway)• Functional

• Analysis

• System

• Technique

Fast Diagram (2)

Example of Fast Diagram

Scope Line

What is VM• Value Management

– A structured approach to defining what value means to a client in meeting a perceived need by establishing a clear concensus about the project objectives and how they can be achieved

• Value Engineering– A systematic approach to delivering the required

functions at lowest cost without detriment to quality, performance and reliability

Lecture ObjectivesIntroduce Concept of ValueDefine value managementIdentify value management interventionsDiscuss key techniques and their

application