Value Analysis (VA)

for Excellence in Managing Projects

Mushtaq Rabbi

AVS, RPP, MCIP

Infrastructure Delivery, Water Resources, City of Calgary

Mind ~ Parachute

Agenda
What is Value? What is Value Analysis? Origin of VA How VA works? Experience of other agencies VA at The City of Calgary How VA is different Opportunities

Cant afford NOT to do VA

Key Characteristics of Unsuccessful Projects:

- Failed to deliver the Business Value - Higher than expected Maintenance Costs - Suffered budget overruns

Cant afford NOT to do VA

Reasons for missed Value:

Poor planning (including time or resource estimates) Unclear goals and objectives Lack of project sponsor and stakeholder involvement Breakdown in communication

What is Value?
Value = that which is good & is right! (...and affordable)
Personal perspective of ones willingness to pay for the performance of a product, a process or a project
$ 50,000 - $101,000 $ 2,000

Types of Value
Use Value Cost Value Exchange Value Esteem Value Goodwill I Feel good

Good Value: when the necessary performance can be defined & delivered at the lowest LCC

Project Management & Asset Management

Project Management

PERFORMANCE
SCHEDULE COST

RISK

Asset Management

Concept of Value

Value = reliable performance of functions to meet customer needs Function = natural or characteristic action performed by a product or service
Cost = expenditure necessary to produce or maintain a project, service, process
Source: SAVE International Value Standard, 2007
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Approaches to increase Value

Source: SAVE International Value Standard, 2007

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Focus of VA: Project Lifecycle & Asset Lifecycle

Value Potential

Cost to Change

Benefit

Asset Lifecycle
Project Lifecycle

Plan Initiate

Design Plan & Design

Build Execute

O&M

Replace/ Upgrade Close

Monitor & Control

Cost

When to use VA?

Value Creation Value Value Uplift

Value Realization

Initiate
(Concept)

Plan & Design

Execute

Monitor & Control

Close

P r o j e c t

L i fe c y c l e
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What is Value Analysis?

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What is Value Analysis?

Also known as:

Value Management Value Engineering Value Methodology Value Planning Value Assurance

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VA is designed to answer....
What is it? (Need or Problem)
What does it do? (Current State/ Use) What MUST it do? (Primary Function) What does it cost? (Life Cycle Cost) What else would do the job? (Alternative) What does that cost? (Life Cycle Cost)
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Definition

An approach used to optimize project life cycle costs, save time, increase profits, improve quality, expand market share, solve problems and/or use resources more effectively

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Origin of Value Analysis

1943 Developed by Lawrence Miles, a purchasing engineer of GE The process did not solve the problem!
It unraveled the function for a better understanding of the problem, and therefore a better solution!

Problem: could not obtain strategic materials to produce turbo-supercharger for B-24 and B-29 aircrafts. Production was increased from 50/week to 1000/week! Analyzed the function of those materials to understand performance characteristics Result: Miles spent $1.0 M and saved GE $200.0 M 1947 GE adopted VA as part of business practice

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Progress of Value Analysis

1954 US Navy Adopts VA as Value Engineering, hence VE 1959 Society of American Value Engineers (SAVE International) 1964 US Corps of Engineers adopts VE 1965 Japan embraces VM 1972 USEPA - VE for All Projects Over $10 M 1982 New York City VE Program 1996 President Clinton signs Public Law 104-106

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Progress of Value Analysis

Public Law 104-106, enacted February 10, 1996,
amended the Office of Federal Procurement Policy Act (41 U.S.C. 401 et seq.) by adding the following: Sec. 36. VALUE ENGINEERING. (a) IN GENERAL. - Each executive Agency shall establish and maintain cost-effective value engineering procedures and processes. (b) DEFINITION. - As used in this section, the term value engineering means an

analysis of the functions of a program, project, system, product,

item of equipment, building, facility service, or supply of an executive agency, performed by qualified agency or contractor personnel, directed at

improving performance, reliability, quality, safety, and life cycle costs.

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VA in Canada

1972 McGill University - Value Engineering workshops with industry 1993 Canadian Society of Value Analysis was founded - 15 members 1994 Society of Management Accountants of Canada Management Accounting Guideline 28

1995 BC Ministry of Municipal Affairs - Water & Sewer projects > $10M
1997 Ministry of Transportation Ontario started VE program 2009 Canada-BC Building Canada Fund - VE for solid waste projects >$15M

2010 Value Management (VM) Program by Alberta Infrastructure

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November 2010 British Govt. adopts VM

Management of Value (MoV) by Office of Government Commerce (OGC), UK
Cabinet Office Efficiency and Reform Group

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Understanding the Problem

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How do we determine Value?

Value may be an informal management decision or design suggestion
OR

Simply by delivering a project (on time, in budget, to scope)

OR

Do a SMART Charter, engage key stakeholders

AND / OR

A rigorous formal analysis, review and selection process

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Why VA?
Deliver the RIGHT Project Improve Performance or Functionality
(Programs, Projects, Processes and O&M)

$ave Money
Reduce Unnecessary Cost (Stretch Budget) Avoid Budget Overrun

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VA helps to....
Get Essential Functions at the minimum Life Cycle Cost Make Better Complex Decisions

Reduce RISK
Achieve Sustainability goals Transparent and Comprehensive Audit Trail

Senior Management Assurance!

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Why VA works?

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Why VA works?
The Design Process focuses on expected solutions All Projects have unnecessary Costs Decisions are often made without knowing the Life Cycle Cost impact Cross Functional Team challenges paradigms Function Analysis ensures compatibility Focus of a VA Study : How Can We Improve Value?
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VA Workshops
Typically 3-5 days, depending on project scope
The team approach used for VA studies are comprised of 3 specific phases:

I Pre-Study Phase II VA Study Phase

- detailed information sharing, function analysis, creativity , develop ideas, present ideas to the sponsor

III Post Study Phase

- negotiate, review processes, implementation and lessons learned

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Phases of VA
VA is the study of FUNCTIONS of a project or a program A structured 6 step process
VA Workshop (3 5 Days)

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Pareto Law (80-20 Rule)

Vilfredo Pareto, a 19th-century Italian economist Basic principle - most project cost results from a small number of components

i.e. 80% of cost is caused by 20% of the project elements

VA Target: Components within Paretos 20%

1. Information Phase
What
Is the scope? Are the design criteria & assumptions? Are the reasons for the project? Are the components & component costs of the project?

Value mismatches where:

Cost >> Worth (Target Selection)

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2. Function Analysis
F (X)

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Key to VA
Key question: What must it do?
(primary function, instead of How to do it?)

Tool used: FAST Diagram

(Function Analysis System Technique)

Use of How/Why logic

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Why focus on Functions?

Projects are multi-disciplinary Forces Conciseness of Thinking by Separating Functions Fosters a Mutual Understanding & Helps Brainstorming Gets to What must be done? Rather than How it is done?

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Defining Functions
All functions can be defined in two words: An Active Verb and a Measurable Noun
Item
Refrigerator Foundation Roads Eye Glasses Automobile Pencil

Function:
Cools Air Support Structure Route People ? ? ? ? ? ? ????? ? ?????

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Functions associated with Pencil

Classification of Functions
To clarify project: FAST Diagram Higher Order Function: Reason for basic function Basic Function: Primary purpose Required Secondary Function: Essential to provide basic function

Secondary Function
Lower Order Function
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The First FAST Diagram...Charles Bytheway, 1964

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Function Analysis System Technique (FAST)

FAST Diagram Ground Rules
How? DESIGN OBJECTIVE When? DESIGN OBJECTIVE BASIC FUNCTION Why?

Secondary Functions That Happen All the Time Critical Path of Functions REQUIRED SECONDARY FUNCTION REQUIRED SECONDARY FUNCTION REQUIRED SECONDARY FUNCTION LOWER ORDER FUNCTION

HIGHER ORDER FUNCTION

Secondary Functions That Happen At the Same Time and/or Are Caused By Some Other Function

Scope of Problem Under Study

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Function Analysis System Technique

Scope of Problem Under Study

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Function Analysis System Technique

HOW?

F.A.S.T MODEL OVERHEAD PROJECTOR

FACILITATE PORTABILITY
OBJECTIVES OR SPECIFICATIONS

WHY?

ALLOW SAFETY OUTPUT (concept) PROJECT IMAGE GENERATE LIGHT CONVERT ENERGY RECEIVE CURRENT INPUT

W H E N

CONVEY Information

TRANSMIT CURRENT

FOCUS IMAGE SUPPORT IMAGE

(concept)

GENERATE HEAT

DISSIPATE HEAT

AMPLIFY IMAGE

GENERATE NOISE

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3. Creative Phase

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VA enables Creativity
What is Creativity?
It is the art of bringing something new into existence - something new and different

Roadblocks
FEAR of making mistakes & risk of pioneering Desire to conform . . . To belong Belief that fantasizing . . . (imagining) . . . is a waste of time, and childish! The erroneous belief, I am not a creative person!!!
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Information for Sceptics

What is believed to be "common knowledge" is NOT ALWAYS truly "correct" in the long run. Consider the following quotes denying the existence of, or impact of, innovations and discoveries of their time.

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Information for Sceptics

AEROSPACE
"Heavier-than-air flying machines are impossible." [Lord Kelvin, president, Royal Society, 1895] "Airplanes are interesting toys but of no military value." [Marechal Ferdinand Foch, Professor of Strategy, Ecole Superieure de Guerre]

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Information for Sceptics

COMPUTATIONAL SYSTEMS
"I think there is a world market for maybe five computers."
[Thomas Watson, chairman IBM, 1943]

"There is no reason anyone would want a computer in their home."

[Ken Olson, Chairman and founder Digital Equipment Corp., 1977]

"640K ought to be enough for anybody." [Bill Gates, 1981]

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Information for Sceptics

MEDICINE

"Louis Pasteur's theory of germs is ridiculous fiction."

[Pierre Pachet, Professor of Physiology at Toulouse, 1872]

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3. Creative Phase
Blast Create Refine

Generate number of alternatives - no rules, no limits Speculate on the FUNCTION

No regulations, policies or politics control your thinking

CHALLENGE .conventional wisdom! A PARADIGM SHIFT in thinking is required!

VA enables Creativity
What is the biggest number you can think of using three 2s?
Common Answers:

2+ 2+ 2 2x2x2 [(2)2]2 22 + 2 22 x 2 222 222 222

=6 =8 = 16 = 24 = 44 = 222 = 484 = 4,194,304

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VA enables Creativity
Outside the Box Answers:
2 (2x2)! = 16,777,216 222! = 1.1205 x 10426 2 (22)! = Log-1[HypCos 2(22!)] = VA combines concepts of VALUE with CREATIVITY

Value =

Function
Cost
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4. Evaluation Phase
Every man with new ideas is a crank until those ideas actually work - Mark Twain Evaluate creative ideas :

How feasible is each idea?

Will each idea perform the function? Can any be modified or combined with another?

What are their benefits?

Will it be difficult or easy to implement?

5. Development Phase
Specific changes in proposed design Present design sketches Document information Provide back-up calculations Identify capital cost implications Life cycle cost implications
Does it have any impact on: - Quality - The Environment - Safety - Code and Standard Compliance - Procurement - Operations - Accessibility - Maintenance

- Would you approve it?

6. Presentation Phase
VA Team develops short presentation
Each recommendation is presented on the basis of: Function/performance/quality benefits Capital cost implications Life cycle cost implications Other advantages How to overcome disadvantages & roadblocks Preliminary and Final VA Study Reports are prepared

VA Optimizes Projects for NYC

Program Background
Initiated in 1982: recovery mechanism from the fiscal crisis Followed GSA & US Navy model Avoid future embarrassments Located at OMB, Office of the Mayor, NYC

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VA Optimizes Projects for NYC

Objectives of VA Program
Provides accurate assessment of entire project/ program Identifies constraints, issues, risks

Improves project performance

Reviews initial & LCC Clear scoping & informed decision making

Remedies deficiencies & omissions

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VA Optimizes Projects for NYC

Common Applications:
WATER TREATMENT WASTE MGMT. LANDFILLS

SCHOOLS
FERRY TERMINALS PARKS TRANSPORTATION MUSEUMS DAMS

IT PROJECTS
GARAGES POLICE STATIONS LABORATORIES COURTHOUSES RFPs

FIRE HALLS
BRIDGES JAILS CLINICS DATA CENTRES HOSPITALS
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VA Optimizes Projects for NYC

Business Process Applications:
Procurement process Payment System Homeless Intake process Change Order process ACS Eligibility process Daycare contracting Leasing process Mail Handling Legal Services Citywide IT Services

Housing Renovation
Child Support Documentation

Construction Safety
HHC Revenue Enhancement

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VA Optimizes Projects for NYC

VA Results Summary 2001-2007:
Over 100 projects studied Total cost savings $1.19 billion Average: 5% saved on each project On avg., every $1 spent saved $71 (ROI 71:1)

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VA Optimizes Projects for NYC

Public Space Project, New York City
The Highline Linear Park: adaptive reuse of industrial infrastructure

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VA Optimizes Projects for NYC

Background
- Former train bridge - Built between 1929 -34 - First such project in North America - 2 km long, 6.7 acres of land - 30- 60 wide - 20 30 high from street level

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VA Optimizes Projects for NYC

Value Planning Concepts

KEEP IT SIMPLE

KEEP IT WILD

KEEP IT QUIET

KEEP IT SLOW

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VA Optimizes Projects for NYC

VA Team
Planner Landscape Architect Architect Structural Engineer Bridge Designer Cost Consultant City Staff

NYC has standing offers for both VA and Cost Consulting Services
VA Workshop includes full time cost consultant
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VM Experience of Alberta Infrastructure

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Ministry of Transportation Ontario (MTO) Success

18 16 14 $800,000,000 $700,000,000 $600,000,000 $500,000,000 10 $400,000,000 8 $300,000,000 6 4 2 0 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 200999 00 01 02 03 04 05 06 07 08 09 10
Fiscal Year

12

$200,000,000 $100,000,000 $0

# of Finalized Studies

Cost Savings/Avoidance

MTO has achieved over $750,000,000 in cost savings/avoidance using VE Avg. 5% - 15% savings; ROI 132-325:1
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Cost Savings/Avoidance

Number of Studies

Not Just Capital Projects ..

I & IT Projects
Traffic Volume Information System Contract Services Management Portal Geographic Information Systems Mapping Services Location Referencing Services

Business Process Studies

MTO Commercial Vehicle Inspection Facilities Prioritization of Expansion Projects Quebec Ministry of Welfare Restructuring Quebec Correctional Services Restructuring Quebec Public Curator Quebec Youth Facilities
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Value Innovation at

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Value Innovation at

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Value Innovation at

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Value Innovation at

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Value Innovation at

Product Planning Technology Innovation Marketing Strategy Cost Control Organizational Culture Shift Supply Chain Management

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VA at cubeit

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VE Experience of Other Agencies

Business plan Maximize efficiency of staff Concentrate on high value activities Manage time 2009 119% growth, Revenue: $1.24M

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VA at The City of Calgary

Macleod Trail / Anderson Road Interchange Southwest Connector Value Planning (Decision Making) NW LRT Extension & Related Crowchild Tr. Improvements Glenmore Tr. / 18 Av SE Interchange Pine Creek Waste Water Treatment Plant (2003) McKnight Blvd. / 36 Street NE Interchange (2007) 7th Ave LRT Station Upgrade (2007) North Calgary Sanitary Sewer Trunk Upgrade (2009)

NW LRT Extension (Crowfoot to Rocky Ridge/Tuscany) (2009)

Automation Strategy for Treatment Plants (2010) Biosolids Management Strategy (2011)

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VA in Water Resources
Bio-solids Management Strategy (April 2011)

3 day workshop (24 hours) 18 participants incl. 6 external specialists 167 new ideas generated Identified Potential Cost Avoidance: $5.38M - $ 8.6M (17.8% - 28.5% lower)

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VA in Water Resources
Nose Creek Sanitary Sewer Trunk (Aug. 2009)
5 day workshop (40 hours) 16 participants incl. 5 external specialists 83 new ideas generated Estimated capital cost $77M

Identified Potential Cost Avoidance : $8.43M (11% lower) Increased capacity from 2035 to 2075

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General Misconceptions
We do It everyday..anyway
VA creates adversity VA ignores consultants expertise VA is a management trend VA is a cost cutting exercise

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Roadblocks
We dont have the time
Weve never done it before Honest wrong beliefs Fixation with previous design concepts Why change? Its working O.K.

Lets form a committee!!!

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Reasons for Lesser Value

Time & Budgetary constraints

Tactical vs. Strategic approach Ill defined problem and unclear scope Lack of consensus among stakeholders Disconnect between Capital & Operating budget

Political influences & improper Risk Analysis

HOW IS VA DIFFERENT?
CONVENTIONAL
Item or element oriented Analytical, based on habits Cost analysis by components (material, labour etc.) Individual oriented ( planner, engineer, peer reviewer?)

VALUE
Function oriented Creative & Innovative (not based on habits) Cost analysis by function (primary, required secondary, secondary etc.) Team oriented (brain storming by Cross Functional Team)

How To Do It?

What Must It Do?

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Enterprise Transformation Models

BUSINESS THEORY OF MODEL CONSTRAINTS RE-ENGINEERING
GOAL
Breakthrough solutions Eliminate bottlenecks

SIX SIGMA

LEAN

VALUE MANAGEMENT
Increases return on investment

Reduce variation in Enterprise

Eliminate waste

FOCUS

Business Process

Throughput

All sources of product variation

All enterprise processes and people

Function analysis and function worth

SCOPE

Business unit

Enterprise

Enterprise

Enterprise Value Stream

Business unit

CHANGE PROCESS BUSINESS MODEL

Radical

Continuous

Process specific, continuous

Evolutionary and systematic

Incremental & Innovative Increases value to customers or stakeholders

Increases enterprise performance & customer value

Increases financial performance of core enterprise

Minimize waste & increase customer satisfaction

Deliver value to all stakeholders

Source: Value Engineering Handbook, Institute for Defense Analyses, September 2006

How can you decide (for VA)?

PROJECT SELECTION CRITERIA:

Define Problem Unclear Scope Stakeholder Alignment Clarify Deliverables Conflicting Purpose & Need Alternative Solutions (scope & cost) Politically Sensitive

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How can you decide (for VA)?

PROJECT SELECTION CRITERIA:

Prioritize Projects
Highly Visible Multiple Construction Stages

Significant Environmental impact

Decision Making Cost >>> Benefit

Target: 20% of project elements consumes 80% of the cost

(Pareto Law)
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Why welcome VA?

Additional credible expertise VA Team may challenge scope Clarifies project/ program tradeoffs Project Mangers and Consultants are the decision makers PMs & Consultants get the ultimate credit for the final project

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Road to Value Specialization

SAVE International (est. 1959)
1.
is the premier international society devoted to the advancement and promotion of the Value Methodology

Associate Value Specialist (AVS)

Module 1 Training (40 hours) Exam (2 hours)

2.

Value Methodology Practitioner (VMP)

Module 2 (24 hours) Advanced Training 240 hours (6-8 studies) of Value Studies completed Exam (2 hours)

3.

Certified Value Specialist (CVS)

AVS + VMP 480 hours (12-16 studies) of Value Studies completed Exam (3 hours) Scholarly paper Practice of Value Methodology
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Opportunities Ahead.
Confirms to sponsor (s) that we are providing best value Fosters a culture of innovation within the organization

Expand to business process areas

Integration with: Safety Engage Project Management Risk Management Asset Management Improve working relationships with stakeholders (internal and external) Develop a Value Management (VM) Program

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Closing Thoughts
Abraham Lincoln
If I had an hour to cut a tree Id spend the first 50 mins. sharpening my axe!

Lawrence Miles

Value Analysis is a system for use when better than normal results are needed.

VA is about doing the RIGHT project, RIGHT

For more information on Value Management/ Value Analysis:

Mushtaq.Rabbi@calgary.ca 403.268.4988