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CHAPTER 2

VALUE MANAGEMENT
(VM) CONCEPT
Prepared by:
Suria Bt. Musa
College of Business, UUM Sintok, Kedah
E-mail : suriamusa@uum.edu.my
Room : 3060
Ext. : 7122
CHAPTER OUTLINE:
• Reasons for VM
•Issues
•Unnecessary cost

• Benefits of VM
• The Value Philosophy
• Concepts of VM
• Timing for VM
• Misconception & Resistance
towards VM 2
Necessary of Value Management

WHY
VALUE
MANAGEMENT??
Because we have
so many ways to waste
Money, Time and efforts
ISSUES ON
PROJECT
IMPLEMENTATIO
N
SOURCE: VM seminar by K-PROVAM
Issues on Pr oject
Implementation
Some of current issues and problems faced by the client in project
implementation:

At project definition and inception phase

 Sometimes the needs, objectives and requirements of the


Client, User and stakeholder are not clearly defined leading to
failure in capitalizing the maximum potentials of the project
implemented.

 The review on proposed site, location and infrastructure, land


encumbrances, environmental conditions, local areas and
statutory requirements may be overlook in some projects
leading to environmental damage, higher construction cost and
delay in project implementation.
Cur r ent issues on
Pr oject
Implementation
At project definition and inception phase (Cont.)

 Proper process on the procurement and appointment of


Consultants, which shall meet specific evaluation criteria
was not carried out leading to poor performance and
poor delivery of their consultancy services.

 Overall project communication procedures including lines


of communications have not been properly established
leading to poor communication leading to discrepancies
and slow work output by all parties.
Cur r ent issues on
Pr oject
Implementation
Design Phase

 Development of schematic design studies, option analysis


and preparation of preliminary cost estimates were not
review thoroughly prior to the commencement of detail
design resulting in the adoption of poor scheme in terms
of design efficiency, construction cost and higher
operation & maintenance.

 Early enablement works such as site survey, soil


investigation, demolition and site clearing etc was not
executed on time resulting in additional cost due to
prolongation of project.
Cur r ent issues on
Pr oject
Implementation
Design Phase (Cont’d)

 Statutory submission by the Consultants for Development


Order up to the application of Certificate Of Fitness for
occupation was not done on time which results in delay
on the utilization and occupancy of the premises.

 Condition of Contract, specifications of works and


materials, insurance coverage for works, performance &
design bonds as well as design & product warranty has
been overlooked resulting in inadequacy on coverage of
risk and poor product delivery.
Cur r ent issues on
Pr oject
Implementation
Tender Phase

 Tender clarification, queries by the bidders and preparation of


response and addendum were not address sufficiently and
efficiently resulting in higher tender pricing due to its
uncertainties and ambiguities.

 Preparation of tender analysis based on the approved


evaluation criteria was not considered, executed and abide
strictly leading to the poor award of the contract

9
Cur r ent issues on
Pr oject
Implementation
Construction Phase

 Specific procedures on construction management such as:


- Drawing management
- Establishment & review of work program
- Work instruction
- Contractor’s submittal such as shop drawings, sample, mock-up,
etc.
- Testing & commissioning
- Reporting format etc
was not well established leading to poor overall management during
construction

 Inadequate establishment of site organization with insufficient skill


manpower leading to the poor administration and contract management
at site.
10
Cur r ent issues on
Pr oject
Implementation
Handing Over and Operation & Maintenance Phase

 Handing Over procedures was not properly developed resulting in improper safe
keeping of the contract documents and records which is not limited to the following:
- Certificate of Practical Completion
- Certificate of Making Good Defects (CMGD) Certificate
- Operation & Maintenance Manual
- As-built drawings
- Warranty Certificates
- Contract Documents
- Final Certificate

11
Reasons for unnecessary Costs (Poor Value)

Environment Methods Time

Poor
Value

Organization People Material

Cause Effect
Reasons for unnecessary Costs (Poor Value)

Individuals Organization Technology Environment

Leadership Objectives Products Funding

Habits Structure Process Timing

Attitudes Planning Skills Politics

Flexibility Communication Expertise Regulation


Reasons for unnecessary Costs (Poor Value)

♦ Lack of information
♦ Lack of Ideas How many
♦ Temporary circumstances projects do you
♦ Honest, but wrong beliefs know that
♦ Bad habits and attitudes have some of
♦ Change in the owner requirements these?
♦ Lack of communication & coordination
♦ Using unsuitable standards & specification
♦ Shortage of time
♦ Over design (unrealistic safety factors)
♦ No LCC estimate
♦ Others
Codes, Regulation, standardizations, specification

Saudi annual loss of not having standards:

- Doors & Windows > one Billion


- Electrical Plugs > 600 Millions
- Masonry Block
- …..
Codes, regulation, standardizations, specification
WHY USE VALUE MANAGEMENT??

 VM Promotes System Thinking

 Establishing Customer Needs

 VM Change Proposal (Incentive Clause)

 Staff development
WHY USE VALUE MANAGEMENT??

 Partnering

 Vehicle for Change

 Identifying and Removing


Unnecessary Costs
OTHER BENEFITS OF VM
• Solves immediate and high priority problems
• Establishes least cost goals
• Identifies and defines stakeholders aims and objectives
• Optimizes the unit/component cost
• Produces unique solutions
• Increases the marketing potentials
• Improves communication
• Improves quality
• Reduces time
• Reduces commercial risks
OTHER BENEFITS OF VM
 Helps to increase the co-operation between
departments
 Encourages fresh thinking
 Spreads cost-consciousness
 Develops hidden abilities
 Helps to provide better appreciation of the other
man’s job
RETURN ON INVESTMENT
Stage of project ratio 0:1 to 200:1
Development 0 20 100 150 200

CONCEPT

EARLY DESIGN

early sketch

final sketch

FINAL DESIGN

design
development

final documentation
Return on Investment - ratio accrued savings to cost of value
study VM Manual 1990 : PWD NSW Government
THE VALUE PHILOSOPHY
 In VM, there must always be a VALUE OUTCOME.

 The componenets, items, process/ systems must


do what it is intended to do – it must be able to
perform and function accordingly.

 It is not simplistic ‘cost reduction’ nor ‘cost


cutting’. If by so doing, the component’s needed
utility is sacrificed/ compromised, the value to
the owner has actually reduced.
THE VALUE PHILOSOPHY

 Increasing costs to increase the


functional capacity beyond that which is
needed also provides little, if at all,
actual value to the owner.

 Anything less than the functional


capacity : unacceptable.

 Anything more than the functional


capacity : unnecessary & wasteful.
THE VALUE PHILOSOPHY
 VM is an extremely powerful tool because
the application of its methodology involves
FUNCTION ANALYSIS & since everything has
a function, it follows therefore that the
technique has universal application to every
endeavour.

 FUNCTION ANALYSIS is the key:


Involves clear identification of what discrete
elements of the projects MUST do to achive
the project objectives. VM further
challenges assumptions & test the potential
solution enabling a more broad-based value
outcome.
To do a good job (value of work),
What is the most important thing to consider??
 Satisfy Customer, client
 Stick to Schedule
 Eliminate waste (money, time, effort ..etc)
 Accomplish the Function (s)
 Select the right team (personnel)
 Collect the proper information
 others
VALUE MANAGEMENT

What is
VALUE ??
CONCEPTS OF VM
According to Carlos Fallon.

Value = Worth
Cost

Worth = The least cost of providing the needed function


and the required performance, and is found by
means of comparison of costs of units which
are functionally equivalent.
CONCEPTS OF VM
 Cost = The life cycle cost of the product/
project.

 Value according to Carlos Fallon can be


classified into three categories namely:
 Esteem Value
 Exchange Value
 Use Value
CONCEPTS OF VM
 Another relationship by Dell ‘Isola (1997),

Value = F + Q
C

(F) Function = The specific worth that a design/


item must perform.

(Q) Quality = The owner’s or user’s needs,


desires and expectation.

(C) Cost = The life cycle cost of the product/


project.

Value = The most effective way to reliably accomplish a


function that will meet the user’s needs,
desires and expectation.
CONCEPTS OF VM

 As such Value can be increased by the following


approaches :
F+Q
Value =
C

Cost Function Compound Expanded


reduction increase approach growth
approach approach approach
THE VALUE EQUATION

Value

Cost
Function
Quality
F uncti on
Effe cianc y

Cost
Fair
Value
Customer Requirements

Customized
Quality
When purchasing an item

Function
Customer Needs

Quality Cost
Customer Desires + Customer LCC
When Evaluating a project
Function
Customer Needs

Quality Resources
Offered Available
Expected Required
How do you measure VALUE??

Q R V
Quality Resources
Offered Available
Value
Expected Required

Q<1 R>1 Worst


Q=1 R>1 Low
Q=1 R=1 Good
Q>1 R>1 Good
Q>1 R=1 Best
THE VALUE INDEX

If
You can not
Measure it
You can not
Improve it

Value =
Function + Quality
Cost Val
=
F+Q
C
The Value Index Example (3 AC systems)

Function + Quality
Value =
Cost
Value
AC System Function Quality Cost F+Q
V=
C

A 8 5 6 2.16

B 7 10 10 1.7

C 9 7 7 2.29
Quality Base Selection (QBS)
Non-Monetary Criteria How Important

A 2 points for Major Preference


B 1 points for Minor Preference
C 1 point each for Same preference
D
E Q C V =Q/C
Weight LCC Value
QualityP Index
Weight Percentage oints

Rates : (5) Excellent, (4) Very Good, (3) Good, (2) Fair, (1) Poor
Flooring for Training Room
Non-Monetary Criteria How Important

A. Safety 2 points for Major Preference


A
B. Hygiene A/2 B 1 points for Minor Preference
C. Ease of O&M A/C C/1 C 1 point each for Same preference
D. Aesthetics A/D B/D C/D D
E. Sound Absorb E/1 E/1 C/E E/1 E Q C V =Q/C
Weight 4 1 4 3 4 Quality LCC Value
Points Index
Weight Percentage 25 6 25 19 25
Ceramic 4 5 4 3 2
100 30 100 57 50 338 70 4.81
Carpet 5 3 3 5 5
125 18 75 95 125
438 80 5.48
Marble 3 4 4 5 3
75 24 100 95 75 369 10 3.69
Rates : (5) Excellent, (4) Very Good, (3) Good, (2) Fair, (1) Poor
0
QBS, Quantifying the Quality – Laptop Computer
Non-Monetary Criteria How Important

A. Speed 2 points for Major Preference


A
B. HD Capacity A/1 B 1 points for Minor Preference
C. Cash Memory A/1 C/1 C 1 point each for Same preference
D. Wireless, LAN A/D B/D C/D D
E. Warranty A/1 E/1 C/E D/E E Q C V =Q/C
Weight 4 2 3 4 3
Quality LCC Value Index

% of the total 25 12 19 25 19 Points SR Q/C

TOSHIBA 5 5 5 4 5
Satellite M30-114 125 60 95 100 95 475 7.79 61
DELL 5 5 5 5 4
Inspiron 6000/2
125 60 95 125 75 480 4.99 96
IBM 5 5 5 4 5
ThinkPad T42
125 60 95 100 95 475 8.99 53
Rates : (5) Excellent, (4) Very Good, (3) Good, (2) Fair, (1) Poor
WHEN TO
APPLY VM?
W hen to appl y VM

Potential Savings Cost of Change

Cost

Concept Design Construction Commissioning


Stage of Project
Figure – Stage of Project and Savings Potential
When to apply VM ?
DetailedConformity
Goals, Objectives, VE Alternatives
Requirements to the
to Code, design, specs
standards,
Define Scope
Design Criteria, Systems
Makeofsure
work
that VEP of VE 2 are implemented

VEP VE2 DR

100

Saving
Cost
&
10 Acc
Effort
epta
nce tation
e m enleve
l l
Imp
1

Planning Construction Operation


Schematic Design Working
& Documents Construction &
Design Development Drawings
Analysis Maintenance

Project Life Cycle


When to apply VM
cost planning

cost plan
cost limit cost checks cost analysis

A B C D E F G H J K L M
R.I.B.A
outline scheme detail production bills of tender project site Management
inception feasibility proposal design design information quantities action planning operation completion feedback Terminology
Handbook
BRIEFING SKETCH PLANS WORKING DRAWING SITE OPERATIONS

40 hour value contractors value


value management management change
management audit proposals
audit

The Application of Cost Planning & Value Management


Source : Kelly JR & Male SP (1991), The Price of Value Management & Enhancing Value or Cutting Cost,
The Royal Institute of Chartered Surveyor.
% of Value Management % of
value workshop value
created created
The supplier / contractor window
of value opportunity where
opportunities exist
Multi-disciplinary
teams

The Contractor’s
Organisations
Supplier An internal window of The Client’s
organisation Value opportunities value opportunity Value opportunities organisation
s exists with the
contractor controlling s
the linkage between
the client and the
Strategic alliance or suppliers in Design
collaborative
relationship
The client/contractor window of
value opportunity where previous
research has concentrated
% of Value Management % of
value workshop value
created created

VALUE OPPORTUNITIES WITHIN THE SUPPLY CHAIN


Source:Value Management – The value management benchmark :
Research results of an international benchmarking study
By S. Male, J. Kelly, S. Fernie, M. Gronqvist & G. Bowles
MISCONCEPTION,
RESISTANCE &
CHALLENGES
TOWARDS VM
Misconception About VM

 Viewed as ‘simply just another’ cost


cutting tool.

 VM process is to reduce costs by


chopping the frills, to meet the budget.
Resistance towar ds VM

 Architects perceived VM studies to be criticism


of their competence.

 Many argue that the confused and inconsistent


use of the terminology.

 The lack of a standard definition are barriers o


its widespread use.

Source : Jaapar, A. & Torrance, J. V (2005)


 Resistance to change.
Challenges in VM

 The ‘I have no time’ syndrome

 Change of working culture

 Management support

 Attitudes of the designing team


Value Management vs. Others

VM vs. Others
Success rates - comparative analysis
Source : Abdulaziz S. Al-Yousefi (2005). 40-hour VE Training Workshop. Putrajaya, Malaysia.
80
Why VM is successful
70 70%
 Team effort
60
 It is Task oriented
50
 It takes short time
40 40%
 It gets Quick results
30

20 20%  Many new ideas

10
 Acceptable Solutions

0
BP R TQM VE

VM is ….An eye opener


Future Top 10 Emerging trends
2000 and beyond … by AIA, 1999

Electronic Documenation 52

Firm web site 43

Construction MANAGEMENT 33

Design/Build 32

Smart Growth 32

Value Engineering 29

Virtual Reality 23

Project Web site 20

Sustainable Builidings 19

Facility Managemnt 14

0 10 20 30 40 50 60
Source : Abdulaziz S. Al-Yousefi (2005). 40-hour VE Training Workshop. Putrajaya, Malaysia.
REFERENCES
Abdulaziz S. Al-Yousefi (2005). 40-hour VE Training Workshop.
Putrajaya, Malaysia.

Che Mat, M. M. (1999). Value Management: Principles and Applications .


Malaysia: Professional Centre for Value Management Sdn. Bhd.

Dell’ Isola, A.(1997). Value Engineering: Practical Applications for Design, Construction,
Maintenance and Operation. United State of America: RS Means.

Jaapar, A. & Torrance, J. V (2005). Value Management and Its Current


StatusIn Malaysia. The Malaysian Surveyor. Quarterly (4), 14-25.

Kelly, J. & Male, S. (1993). Value Management In Design And Construction – The Economic
Management of Projects. London: Spon Press.