CC 607

VALUE MANAGEMENT
PN. ZARINA SYUHAIDA BINTI SHAARANI
MSc. (QS), BSc. HBP (Hons) (Project Mgmt), Dip. Edu. (Civil Eng.Study)
Lecturer,
Civil Engineering Department, PTSB.

Syllabus Summary;
1.0 INTRODUCTION TO VALUE MANAGEMENT
This topic explains the concepts and background to value management and traditional cost
management, the benefits, challenges in implementing and misconception about value
management, the Paretos Law and the relation with project cost, the role of a quantity
surveyor, the services offer by value management, the role of quantity surveyor in value
management and the processes in value management.

2.0 ACTIVITIES INVOLVED IN VALUE MANAGEMENT STUDIES
This topic explains the activities involved during value management studies including pre-
study phase, information phase, creative phase, evaluation phase, development phase,
presentation phase and post-study phase.

3.0 LIFE CYCLE COSTING
This topic covers the concept of the life cycle cost, the relationship between life cycle cost
and value management, the life cycle cost elements, the implementation of the life cycle
cost and the importance of the life cycle cost.


Content;
CHAPTER 1: INTRODUCTION TO VALUE MANAGEMENT
1.1 Understand the concepts of value management
1.1.1 Define Value Management.
1.1.2 Explain the background to Value Management.
1.1.3 Compare between Value Management and Traditional Cost
Management.
1.1.4 Discover the benefits of Value Management.
1.1.5 Explain the challenges in implementing Value Management.
1.1.6 Explain the misconception about Value Management.
1.2 Understand the Paretos Law of maldistribution.
1.2.1 Interpret the Pareto Law and its relation with project cost.
1.3 Know the environment of quantity surveyor services to apply in value
management method.
1.3.1 Justify the role of a quantity surveyor.
1.3.2 Justify the services offer by value management.
1.3.3 Justify the role of quantity surveyor in value management.
1.4 Know the process of Value Management.
1.4.1 Explain when to use Value Management.
1.4.2 Explain the Value Management job plan.


CHAPTER 2: ACTIVITIES INVOLVED IN VALUE MANAGEMENT STUDIES
2.1 Understand the activities involved in value management studies.
2. 1.1 Explain the activities involved in Pre-study Phase.
a. Orientation meeting
b. Selecting the team structure
c. Deciding on study duration
d. Determining study location and conditions
e. Gathering information
f. Site Visit
g. Cost estimate verification
h. Models and comparative efficiency data



2.1.2 Explain the activities involved in Information Phase.
a. Presentations
b. Function Analysis
c. FAST Diagramming
2.1.3 Explain the activities involved in Creative Phase.
a.Basic principles of the Creative Phase
b. Mental Processes in creativity
c. Blocks to creativity
d. Creative Thinking Techniques
e. Role of the Value Management Team Coordinator
f. Group versus individual creativity
2.1.4 Explain the activities involved in Evaluation Phase.
a. Procedure
b. Evaluation criteria
c. Evaluation techniques
2.1.5 Explain the activities involved in Development Phase.
a. Typical content of a proposal
b. Estimating costs
2.1.6 Explain the activities involved in Presentation Phase.
a. Establishing a good atmosphere
b. Agenda
c. Presentation skills
2.1.7 Explain the activities involved in Post-study Phase.
a. Report preparation and review phase
b. Implementation phase
c. Follow up phase
d. Improving VM results


CHAPTER 3: LIFE CYCLE COSTING
3.1 Understand the life cycle cost.
3.1.1 Define the life cycle cost.
3.1.2 Describe the concept of life cycle cost.
3.1.3 Describe the relationship between life cycle cost and Value Management.
3.1.4 State the life cycle cost elements.
3.1.5 Describe the implementation of the life cycle cost
3.1.6 Explain the importance of the life cycle cost.





What is VALUE?
Value is a multidimensional concept.
What is value to you?


Value in construction project;
Different project shareholders with different vested interests have different
perceptions about what constitute value to them.
Each shareholder sees value in the finished project, however, the measures
they use to determine value are different.
Nevertheless, any attempt to enhance project value has its cost
ramifications.


In the context of a Value Management Study,
value is defined as;


an attribute of an entity determined by the
perceived usefulness, benefit and
importance of the entity. (Venkataraman &
Pinto, 2011)

the creative organized approach whose
objective is to optimize and/or performance
of a facility or system. (Dell Isola, 1982)



In the context of a Value Management Study,
value is defined as;


an oriented effort to attain optimum value in
product, system or services by providing the
necessary functions at the lowest cost (Kelly &
Male,1991).

a structured and analytical process which seeks
to achieve value for money by providing all the
necessary functions at the lowest total cost
consistent with the required levels of quality and
performance (New Zealand Standard AZ/NZS 4183:1994 )






Whatever the definition is, VM is
A rigorous, systematic effort to improve the value
and optimised the cost of projects, facilities and
systems without sacrificing the needed
performance level.
A creative way of working together in achieving
clients and stakeholders requirements.
(Mohd Mazlan Hj Che Mat, 2002)
Therefore, improve value are about


Customised
Quality
(not necessarily
improving quality)
Optimised Cost
(not necessarily
reducing cost)
Improve
Value
Measuring Value
No management process can be said truly effective unless it is possible to
measure its effectiveness. In construction industry, the main Key
Performance Indicators are;


Client satisfactionproduct (what is build)
Client satisfactionservice (how well the team
performed)
Defects
Predictabilitycost
Construction cost
Safety
Productivity
Profitability


SCHEDULE
QUALITY
COST
Value management provides a
structured and systematic approach in
achieving the necessary functions of a
project at the lowest resulting cost.
Therefore, VM include the whole range
of value techniques available and can
illustrate as the generic process that
includes;

Value Planning (VP) - apply VM
during the concept or planning
phases of the project.
Value Engineering (VE) - apply
VM during the design or
engineering phases of the project.
Value Analysis (VA) or Value
Reviewing (VR) - apply
retrospectively to completed
projects to analyze or to audit the
project's performance, and to
compare a completed, nearly
completed, design or project
against predetermined
expectations

Essential Features VM

Value Management focuses on enhancing project
value; given cost and time constraints, without any
negative impact on the project facilities
functionality, reliability and quality.


KEY FEATURES OF VM
FEATURES EXPLANATION
1. Careful analysis and
identification of project
needs and scope
The first step in effective VM lies in a clear project
definition and scope analysis
2. Thorough planning of
the project and subsequent
works
Effective planning helps to ensure that the project
is developed to maximum cost efficiency with no
unnecessary steps or waste effort.
3. Identification of key
areas of opportunities that
can influence project value
The project teams goal is to enhance positive
features of the project while keeping control of
the costs. Carefully weighing the cost/benefit
analysis for a project is the key to enhance value.
KEY FEATURES OF VM
FEATURES EXPLANATION
4. Development of alternatives for
exploiting the identified
opportunities for improving project
value
Multiple paths may be available for enhancing
value, some of which are more cost effective than
others
5. Evaluation of alternatives;
development of proposals and
action plans
Performing a clear trade off analysis can help
create alternatives and select the best choices for
improving value
6. Use of a performance
monitoring system for tracking
project value
The project team must have the means to
accurately monitor the project, gain timely and
actionable information, and make on-line
decisions and choices among alternatives
7. Ensure a free flow of
communication that cuts across
organizational boundaries
To effectively manage for value, a cross-functional
mind-set must prevail throughout the organization,
so that the ideas, alternatives and creative
solutions have the widest possible arena for
exploitation.
BACKGROUND TO VM
VM originated in the USA during the Second World War at a
company named General Electric Company. Priority
war production resulted in shortages of raw materials and
companies were forced to use substitute materials.
The basic philosophy of value management as stated by The
College of Estate Management (1994:5) was therefore to
eliminate costs which did not contribute to the
performance of the required function.
Today it is a well known practice which is almost deemed to
be part of the construction process in certain other
developed countries like the UK, USA, Canada and Australia.
VM IN MALAYSIA
1986
1
st
introduction in Malaysia (UTM)
1991
Introduction in Malaysia
1992
VM facilitation service (UTM) UNI Technologies Sdn. Bhd.
1998
1
st
VM Seminar (UTM)
1999
1
st
National Seminar on VM
2000
Institute of VM Malaysia
Cost Mgmt VS Value Mgmt
Project cost
management;
focuses on issues such
as cost estimation and
budgeting, cash flow
management and cost
control.


Project Value
Management;
focuses on optimizing
project value, given
cost, time and resources
constraints while
meeting performance
requirements such as
functionality and
quality.


The Relationship Between Cost Management & VM

BENEFITS OF VM IN CONSTRUCTION PROJECT
Here follows a brief list of some of the benefits of VM that is
somehow directly or indirectly connected with optimising the value
for money for a project:
VM creates a clearer focus on the project objectives
VM works towards arriving at a more effective design
Identification of alternative methods of construction and
favourable adjustments to the construction timeline
Discovery and discussion of project issues, constraints and risks
involved
Clearer project brief and decision making
Identifies and removes unnecessary costs associated with the
project

BENEFITS OF VM IN CONSTRUCTION PROJECT
In Malaysian construction industry, Jaapar et al. (2009) found out
that the most important benefits gained from the VM applications
are;
VM able to eliminate unnecessary costs
Produced a better value in a project
Lowered construction cost
The clients requirements were better met
The project outcome produced a better functionality
Produced a more satisfied client
VM process improved the decision making process
Produced a better working team.


CHALLENGES TO IMPLEMENT VM IN MSIA
Malaysian construction industry faced a few challenges in
implementing VM;
lack of knowledge and practice of VM
resistance to change by the involved parties
the conflicting objectives of the project by different
parties
parties involved in a construction project tended to
have negative mind-sets towards the VM process which
resulted in poor team working
lack of input and poor support from the related
specialists in the industry.
(Jaapar et al., 2009)


MISCONCEPTION ABOUT VM
Often there are misconceptions about value management.
From the definitions, it is clear that VM is not (Norton and
McElligott 1995):

A conflict orientated design review
A cost cutting exercise
A standardization exercise.



Pareto Laws of Maldistribution
An Italian political economist named
Vilfredo Pareto (1848-1923), observed a
common tendency of wealth and power to be
unequally distributed. He established that
80% of the land in Italy was owned by 20%
of the population. While gardening he later
observed that 20% of the peapods in his
garden yielded 80% of the peas that were
harvested.

Pareto Laws of Maldistribution
In most distribution, more often
than not, 80% of the value is
invested in less than 20% of the
item
It points out that in any
area, a small number of
elements (20%) contain
the greater percentage
(80%) of unnecessary
costs.
Pareto Laws of Maldistribution
By using this law, determining the worth of every
function is usually not necessary because cost data
could aid in determining the priority of effort.


HOW..???
Pareto Laws of Maldistribution


Low Cost Areas
maybe not
worthwhile pursuit
High Cost Areas
may indicative of
poor value
But, High Cost Areas should be
reconsider for initial function worth
determinations.
Pareto Law is also known as
Role of QS
Among others, the services provided
by a QS may include the following;
Preparing feasibility studies or development appraisals
Assessing capital and revenue expenditure over the whole
life of a facility
Advising clients on ways of procuring the project
Advising on the setting of budgets
Monitoring design development against planned
expenditure



Role of QS
Conducting value management and
engineering exercises
Managing and analysing risks
Managing the tendering process
Preparing contractual documentation
Controlling cost during construction process
Managing the commercial success of a project for a
contractor





Role of QS

Valuing construction works for interim payments,
valuing change, assessing or compiling claims for loss
and expense and agreeing final accounts
Negotiating with interested parties
Giving advice on the avoidance and settlement of
disputes




VM Services
To provide support services for engineering and
technical advisers in the projects planning, design,
cost estimates and project implementation.
The serve as Secretariat to the Standards and Costs
Subcommittee in the National Development Planning
Committee.
To create awareness among the
departments/consultants obtain cost effective
projects, practical and in line with requirements.



VM Services
To study and evaluate the
approved scope of work in terms of the use of
materials/finishes, space requirements and the rates
used in accordance with building category.
To prepare guidelines on project submission
procedures based on current government circulars
and practices.
To study and approve the floor rental as required by
the Department from time to time.



QS Role in VM Services
Quantity surveyors is regarded as in great position to influence Value
Management implementation as compared to other design team member
(Hogg 1999)
A subset of construction economic which is cost management emphasizes on
cost reduction or substitution (Kelly and Male 1993). It relates to the scope of
services and skills offered by quantity surveyor which focus on cost savings.
The distinctive competence found in quantity surveyors relies heavily on their
analytical approach to buildings and stems directly from their ability to
measure construction works (Ashworth and Hogg 2007) where cost and price
can be forecast, analyzed, planned, controlled and accounted for (Pheng and
Ming 1997).
Their extended influence in the fields of contracting, civil and industrial
engineering, construction, mechanical and electrical engineering services as
well as project management provides a strong base profession to lead in
effective value for money construction projects.