Value Management

If you’re involved in construction projects in some capacity, you’ll probably have heard the term value management mentioned, but what is it, how is it structured, what are the measures involved, and what does success look like?

In many instances, when working through project gateways, there’s a need to hit deadlines in terms of design submission and acceptance or procurement. Therefore, a detailed analysis of the ‘need,’ i.e., what the project aims to achieve and how the proposed solution meets these needs, can be overlooked or fast-tracked, meaning that value for money can be misaligned with the eventual benefits.

What is value?

When considering value for money, the obvious consideration is buying something high in value but for a discounted amount. But it would help if you thought of value in broader terms than lowered prices or reduced capital costs.

It should be thought of more laterally, i.e., who is the project for in terms of all stakeholders and what value the project brings to them. An example could be that a lower-cost plant could be installed, which could be beneficial to those constructing the asset as it improves their financial gain. Still, if the life span is shorter than that identified, more expensive plant, it will offer lower value for the asset owner.

Suppose the parties involved in a project’s development can ascertain the information as to what will be agreeable as a derived benefit at an early strategic stage. In that case, it will significantly assist in determining what to include in the project brief. The project brief can then be used to measure the project’s development through the stages, ensuring the value is delivered at completion and handover.

Once the project brief is established, designs, specifications, and standards can be developed to meet the requirements. Once these are established, deviations away from them can be considered value engineering, which is a different proposition to value management as they are best operated at different stages.

For example, if you take an office development, the employer may have a fixed budget and know they need an office of a certain level of finish. However, in terms of establishing their need, they calculated they have 100 employees and therefore have stated a need for 100 desks.

However, the challenge could be, is this the most efficient use of space? Has thought been given to the total number of people in the building at any one time? This can be managed through hybrid working or offering to upgrade employees’ working from home facilities, which may be welcome and therefore, the footprint and overall size of the building can be right-sized to suit.

There remains a cost to establishing value, getting building occupiers, users, funder, builders and designers together to review and offer advice. Still, if an opportunity comes from this, then calculating the benefit at a ratio of return on investment, e.g., you have spent £50,000 to achieve £500,000 of realised opportunity, at a ratio of 10:1 you may consider this a good return and the business case to be clear.

Value Management Techniques

VM like the best decision-making processes steps through several considerations such as the following:

• Identify the issue to be resolved
• Collaborate to work towards resolving that problem
• Work out a scoring matrix to evaluate each option
• Narrow down the options and then widen out the solution
• Continue to assess the developed solutions against the scoring matrix to determine the best recommendation.

This does not always involve developing new processes to carry out the task. In terms of the techniques to evaluate the issues, the institute of value management states:

“An effective structured holistic approach is achieved when an organisation’s Value Management approach is integrated with and complementary to management systems which exist within the organisation and is developed to suit the level and nature of the product or situation under consideration or being studied.”

As well as a process that can be used to track the decision-making process, various techniques can also be deployed to evaluate options, identify and review key points, and arrive at decisions. These are:

• Function Analysis – By reviewing the functionality of the project and how this meets the stakeholder requirements, you can compare this to other projects, working out the cost per functional unit for a building. For example, a hospital with the number of beds or a housing development could be the yield per/m2 compared to the build cost per m/2 compared to the size of the overall development.
• Value Drivers – These are the items in the build that add the most profitability whilst also reducing risk. For example, in infrastructure projects, it may be the number of lanes to be constructed to manage traffic flow or the ability to separate local and trunk road traffic. Or, equally, future-proofing the technological capability of roadside equipment to reduce whole life costs, including maintenance. Once these are identified, you will be able to increase or reduce the overall effectiveness in the project through the decisions made.
• Options analysis – can also be known as options appraisal or decision matrix analysis: The ability to appraise the project will be made by the criteria selected, e.g., budget, planning potential, location appraisals, environmental impact, operational and maintenance issues etc. In reviewing the options, it is considered good practice to use specialists in each field of expertise to suggest improvements or identify risks.
• Cost/Benefit Analysis – Taking the point that there is a cost for each decision, there should also be a benefit for each. The range of benefits against the cost of each decision should dictate which decisions you will make or not make and, therefore, your ability to make the most cost-effective decisions.

The benefit of using specific techniques is that you can demonstrate the decision-making process you have been through and therefore justify as a record how you arrived at the outcome.

How to run CM workshops

If there are many different stakeholders involved, their skill sets are likely to be different. Therefore, putting them into a workshop to establish the value drivers involved in the project, but from their perspectives, may prove to be complicated. Hence the appointment of a facilitator is crucial.

Firstly, as they will be independent and skilled in generating ideas and facilitating discussions before supporting the parties to screen the best ideas to push forward, motivate the participants to achieve the objectives, and provide the conditions to seek innovative solutions through leadership and authority.

To aid in terms of structure, Imperial College London provides a project and process map for running these workshops, which is broken down into the objectives, arrangements, a briefing document and details on the venue plus who should be invited and prompts on generating ideas. They also recommend that a handbook be provided to participants in advance of the workshop to familiarise themselves with the concept of value management. Specific details on their plan are as follows:

Workshop Objectives

• The workshop should undertake to:
  • Identify and evaluate the need for construction
  • Identify and prioritise the key objectives
  • Identify and assess the significant constraints
  • Improve the quality of definition
  • Identify and assess the means of meeting needs and objectives
  • Develop a shared understanding of the project by the participants
  • Maintain strategic focus
  • Promote innovation
  • Be positively focused on value rather than cost
  • Eliminate unnecessary cost

Workshop arrangements

All participants should be provided with:

• Sufficient notice of the date and venue of the workshop;
• Appropriate documentation and work plan – the briefing document;
• Statement of the purpose of the workshop.

The handbook should:

• Establish the Value Management strategy
• Identify the need for VM studies
• Determine the scope and objectives of the study
• Develop realistic work schedules
• Establish an acceptable budget
• Identify study team members
• Define the documents required
• Develop an execution plan
• Provide an information pack
• Provide the Value Management Agenda

The briefing document should include general background data and the client’s statement of need set into context, together with:

• Provisional information on cost limits and targets
• Site details
• Initial drawings and specification
• Main risks and constraints
• Schedule and timescales

Venue

The venue should be chosen to ensure that participants work free from interruption and in comfort, preferably away from their usual place of work. It should include:

• Large conference table
• Sufficient space for laying out drawings etc
• Equipped with adequate materials, flip charts, visual display equipment pens etc

Participants

• Client representative
• Project Manager
• Architect
• Structural Engineer
• Services Engineer
• Quantity Surveyor
• Construction Manager
• General Contractor/Specialist Contractor as appropriate
• College Engineering Manager
• College Head of Maintenance
• College Head of Energy and Environment
• College ICT Network Infrastructure Manager

Brainstorming Guidelines

• Ideas should be generated, not evaluated
• As many ideas as possible should be generated, many by combining or building upon the ideas of others
• All ideas, no matter how radical, should be welcome
• All ideas should be documented
• Innovation should be encouraged
• Participants should be encouraged to combine or improve upon the ideas of others
• Once ideas have been generated and recorded, they are categorised into groups, finally evaluated, and then ranked based on the consensus of the participants

Value Management Case Studies:

The Office of Government and Commercial (OGC) has published case studies of various projects that have used value management to good effect, the best practice involved, and the outcome achieved.

This case study describes how the Open University’s Estates Department delivered a £17m library project following a VM workshop that saved £1.3m from an investment of £120k, representing a ratio of 10:1. This was achieved through strong collaboration. All invitees were asked to attend regardless of their position, which enabled the project teams to drive ownership at all levels and work better together to mitigate the risks involved.

Notwithstanding the mitigation of risk, there was budget uncertainty driven by a lack of resources to input into the project’s development, which led to a lack of detail and uncertainty on the budget. They retained the end-user functionality through the workshops and engagement whilst saving 20% on capital cost.

The lessons learned were then applied to other projects delivered by the client through user guides. The technical aspects were fed into the specifications, to be used by designers, and therefore built into the project construction phase.

On a much larger scale, the major project’s programme for Sellafield involved £8b over 20 years. They reviewed the logistics through VM workshops, adopting a one-vision approach between project delivery and stakeholders, including environmental considerations, which established a common set of objectives and value drivers. They used these to optimise the programme and identify savings of £300m for the programme.

Photo by Brands&People on Unsplash

About Dean Suttling

A member of the Royal Institution of Chartered Surveyors, Dean has twenty years of experience in commercial management and quantity surveying, undertaking roles for contractors, clients, and consultants.