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Lecture Overview
Value Management
Topic
Introduction to Value Management
Lecturer
Assoc. Prof. Wan Yusoff Wan Mahmood
Lecture Overview
Principles of VM Application
When to Apply VM
Barriers in VM Implementation
Approaches to VM
Critical Success Factors
Integrating VM in Construction
The VM History
US Navy start using the procedure in 1954. The
Navy Engineering team then called the
technique Value Engineering as the
technique was applied in the engineering field
at the design and specification stage.
Over the time, VE used by other division of
the department of defence.
The growth in VE practice through different
government agencies and private industry led
to the establishment of SAVE in 1958.
Introduction to Value Management (VM)
The VM History
Key Terms
Definition of VM
Principles of VM
VM Approach
Benefit of VM
The VM History
Develop by Larry Miles during second world war
(1940s) at GEC, US.
Miles apply a functional approach to purchasing
by the comparison of alternate material on the
functions required to perform by them.
The systems approach would involve value
and analysis that lead the name to Value
Analysis which initially developed around the
existing products.
INSPIRING CREATIVE AND INNOVATIVE MINDS
The VM History
VE first entered the construction industry in
early 1960s when VE incentive provision were
included in construction contract.
During late 1960s and early 1970s VE begin to
be used during the design stage of
construction project.
Over the past decade, there has been a trend
toward applying value techniques at earlier
stage in a project life cycle.
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The VM History Key Terms

To distinguish this activity, the term value The approach taken when using VM
planning used for early conceptual design techniques differs according to the stages of
stage. the project life cycle at which it is applied.
Some authors and practitioners in later year Thus, it would be useful to be able to
then term this technique as Value differentiate between the type of approach
Management and wide separate usage in appropriate to each stage by defining them
Australia, New Zealand and U.K. However, the with different terms.
term Value Engineering is still used in North
America, many European countries and Japan.

Key Terms Typical Terms for VM Studies at Different Stages

TERMS TERMINOLOGY
VALUE MANAGEMENT
Value Management The title given to the full range of value techniques available. VALUE PLANNING VALUE VALUE
It is a higher order title and is not linked to a particular project ENGINEERING ANALYSIS
stage at which value techniques may be applied. (Strategic)

BRIEFING SKETCH PLAN WORKING DRAWING CONSTRUCTION POST-

CONSTRUCTION
Value Planning Refers to the value techniques applied during the planning
phases of a project. This is conducted during the briefing and
Inception Feasibility Outline Scheme Detail Production Bills of Tender Construction Post-Occupancy
sketch plan stage of a RIBA plan of work. Proposals Design Design Information Quantities Action Evaluation

Value Engineering The title given to value techniques applied during the design or
engineering phases of a project. It is conducted during the Royal Institute of British Architects (RIBA) Plan of Work
detail design and construction stage of the RIBA plan of
CONCEPT SCHEMATIC PRODUCTION CONSTRUCTION POST-
work. CONSTRUCTION

Value Analysis The title given to value techniques applied retrospectively to

Programming Program Schematic Design Design Construction Bidding Construction Post-Occupancy
completed projects to analyze or audit the project Evaluation Development Documents Action Evaluation
performance. The studies are conducted during the post-
construction related procedures and processes.
American Institute of Architects (AIA) Plan of Work

Definition of VM Definition of VM

Miles in the original context of value Mudge (1971) defines as a

management define as a philosophy systematic application of recognized
implemented by the use of a specific techniques which identify the
set of techniques, a body of function of a product or service,
knowledge, and a group of learned establish a monetary value for that
skills function, and provide the necessary
function reliably at lowest overall
cost

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Definition of VM
Dell Isola (1982) later simplified
the definition as, the creative
organized approach whose
objectives is to optimize the cost
and/or performance of a facility
or system
Definition of VM
Value management a proactive,
creative, problem-solving service,
using a multi disciplinary team
oriented approach to make explicit
the clients value system, at targeted
stages through the development of a
project
(Kelly & Male, 1993)
Definition of VM
Value management is a style of
management, particularly dedicated
to motivating people, developing
skills and promoting synergies and
innovation, with the aim of
maximizing the overall performance
of an organization
(European Standard EN 12973:2000)
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Definition of VM
Value management is a systematic,
multi-disciplinary effort directed
toward analyzing the function of
projects for the purpose of achieving
the best value at the lowest overall
life cycle project cost
(Norton & McElligott, 1995)
Definition of VM
Value management 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 required levels of quality and
performance
(Australia/New Zealand Standard AS/NZS 4183:1994)
Principles of VM
Based on the above definition, its
can be summarize that VM have the
following principles:
Structured process
Cross disciplinary team
Function based
Value
Life cycle cost
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VM as Structured Process VM as Structured Process

The VM process uses tested and successful Thought Processes
procedures that are directed toward achieving
success in meeting the purposes for the project Creative
Analytical
by all involved.
The process instills common understanding, 1 - Analyse information 2 - Brainstorm Functions
generates high production and high performing
team activities, reduces the time necessary to 3 - Organise Functions 4 - Generate Ideas for
obtain a product, and focuses the effort on the Alternatives
purposes behind the project or activity being 5 - Evaluate Alternatives

studied. 6 - Develop Proposals

7 - Appraise Options
A standard job plan is used to guide the
entire process. 8 - Recommend Solutions

Cross Disciplinary Team Cross Disciplinary Team

A VM study is a multi-disciplinary Distinct Perspectives
effort. Comprehensive Approach
Shared Vision
It involves bringing together as a Consensus
team, a group of individuals who
collectively analyze all aspects of
the project under study.
They work together as a group
under the direction of VMTC who
lead them through VM job plan.

Cross Disciplinary Team What does the facilitator do?

Participant selection & stakeholder involvement is key to Lead the VM study process
success
Typical Team: Ensure there is an agreed desired outcome
Facilitator Advise on team selection
Client Commercial Manager Design appropriate VM study activities and
Client Representative structure
End user Ensure adequate preparation and information
Project Manager gathering
Cost Manager Lead the workshop process and generate shared
Planner understanding
Designer Ensure open, free and diverse contribution
Contractor Broker consensus decisions
Risk Manager
Other stakeholders
Apply the VM process to achieve team success

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Function Based
One of the most unique and useful
qualities of the VM is its use of
functions to describe the activity or
product being studied.
The value study breaks the project
into components so as to avoid
misunderstanding of the planned
intents for the project.
What is a Function?
Expression of the need in terms of performances
rather than solutions
Link between the need and the product
Basis of creative problem solving in VM
Need
FUNCTION
Concept of Value
According to Carlos Fallon, Worth
Value = Cost
Value The most cost effective way to reliably
accomplish a function that will meet the users needs,
desires and expectation.
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.
Cost The life cycle cost of a product/project.
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Function Based
The main functional purpose for
the component being studied is the
primary function.
Things often happen as a result of
the choice of a component, or
something must be done to make
the selected component work as
needed. These functions are called
supporting or secondary functions.
Value
Common sense says that value relates what
you get to what you pay
In value management common sense applies
and so value breaks down into a balance of
three things:
Performance : How well are those needs
met?
Expectation : What must the service do to
meet user/stakeholder expectation?
Resource : What must be committed to
secure the service
Categories of Value
Esteem Value
The monetary sum an owner or
user is willing to pay for prestige
or appearance.
The motivated desire to process
for the sake of possession.
The worth of sell function.
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Categories of Value Categories of Value

Exchange Value Use Value

The monetary sum for which a
product or service can be
traded or exchanged
Also the market value at a given
point of time.
The cost of basic function only.
The monetary measure of a
usefulness of a product or
service.

How to Improve Value Life Cycle Cost

There are three major ways to improve
value by applying VM:
To provide for all the required project
function but at reduced cost.
To provide additional desirable project
functions without adding cost.
To provide additional desirable project
functions while at same time reducing
cost.
The true cost of an item is not just
the amount of money that you
pay when you buy it. Much more
is involved.
When you buy something, you
also buy its long-term effects.
The initial costs plus these long-
term costs are call life-cycle cost.

Life Cycle Cost Life Cycle Cost

LCC is a technique used during VM Where are the Hidden Costs?
study and its focuses on the total cost.
The Client
Total Cost = Initial Cost + Follow on Site
Cost
cost Fees Capital cost

Follow on costs (or Ownership cost) are Occupancy Furnishing

all the associated cost of running the Cost Energy

facility. It covers energy, maintenance, Maintenance

Cost
Cost
Operating
repair replacement, staffing, Etc. Cost

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Life Cycle Costing VM Approach

Life Cycle Costing
For a 160 bed Hospital - Life span is 25 years
Case 1 : Initial Cost = RM 124 Millions
VM is a team based management approach
which:
Identifies the required performance to
satisfy the business and stakeholder
needs; and
Determines the most appropriate
solution to suit the performance.

Conventional Approach Vs. Benefit of VM

VM Approach

INDIVIDUAL EFFORTS
Promote
System
Thinking
Project Staff
Optimize
Manager Designer Owner User Engineers Cost
Develop-
ment

Improve Why use Establish

Communi- Customer
cation VM? Needs
VM APPROACH
VM TEAM EFFORT
Identify &
Remove Vehicles for
Unneces- Change
sary Cost

VMCP

SOLUTION

Projects that Benefit from VM Principles of VM Application

Generally the types of projects benefiting most VM interventions should be undertaken when:
from Value Management include:
Costly Projects Key decisions need to be made
Conflicts or problems need to be resolved
Complex Projects Consensus needs to be achieved
Repetitive Projects Team building is required
Cost or Time overruns need to be
Projects with compressed Program addressed
Projects with Restricted Budgets Other identified benefits need to be
secured
Projects with High Visibility

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Principles of VM Application
VM should be applied flexibly to
reflect project needs
All facilitators should be trained
Interventions will generally benefit
from independent facilitation
Interventions need to be
sufficiently broad to reflect all
project interests
Barriers in VM Implementation
Too
Expensive
Waste of
No Time
Too The
Difficult Barriers
Too
Complex Anyway
Dont
Want
Outsider
Approaches to VM
A predominantly external group of
individuals to conduct the VM study.
The group would consist of all of the
member of VM team as well as
VMTC or facilitator together with
some in-house representation.
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When to apply VM ?
Cost
Potential
Saving
or
Saving
Cost of
Change
Planning Schematic
&
Analysis
Design
Design Working
Development Drawings
Construction
Documents Construction
Operation
&
Maintenance
Project Life Cycle
Approaches to VM
There are four basic approaches, by which
VM can be implemented:
Time
An in house programmed in which all of
the team as well as the VMTC are
employee of the organization.
Not
Interested
In-house team members and an external
VMTC or facilitator.
I Do it
In-house team member supplemented by
experts who cannot be provided by an in-
house organization as well as an external
VMTC or facilitator.
VM Critical Success Factors
Structured approach - follow an approved
VM job plan
The study should involved a multi-
disciplinary team with some VM
knowledge
VM study should be facilitated or lead by
a qualified VMTC/Facilitation skill
Does not pursue any changes which
detract from the projects requirement
or basic functions.
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VM Critical Success Factors
Decision taker involved in workshop/
study preparation.
Top management support.
Use of functional analysis.
Implementation plan.
Integrating VM in Construction
Construction involved a huge capital
investment which incurred a significant
fixed costs
High fixed costs have obvious
ramifications on the price of products or
services provided.
Keeping cost low with traditional cost
management has been commonly
applied to improve competitiveness.
Integrating VM in Construction
While cost management seeks to do
a thing right efficiency, VM seeks
to do the right thing effectiveness.
VM is thus arguably of greater
important than, and should
precede, cost management efforts.
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How to assure the success
of the VM Program
We need the right
F
Facilitator
or Leader
T Timing Information I
Team
Integrating VM in Construction
However, merely keeping cost down
is not enough: there is an increasing
for not just efficiency but also for
effectiveness.
No matter how efficiently a product
or service is provided, it not be
successful unless it is wanted it is
effective!
Integrating VM in Construction
Therefore, VM should be applied to address
the business strategy issue of whether the
construction of a facility represents the best
manner in which to meet the organizations
needs.
After decision to build, VM should then
address the question of what should be
constructed to meet the organizational needs
and how to most effectively and efficiently
provide what it is that is to be built.
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Integrating VM in Construction Integrating VM in Construction

Value Management is effective in many areas
of the construction industry, and it can be
utilized at different stages in the life of a
building.
The greatest potential for the integration of
VM exists in three key value opportunities
Planning and design
Construction
Maintenance and operation
Value Management in construction project
should be a continuous process coupled with
formal studies focused on specific issues.
Formal studies should be undertaken at a
project milestones to informed the review/
approval process, or at other times to suit the
circumstances.
The objectives of formal studies will change as
the project proceeds.

Integrating VM in Construction
Value Management confirms achievement of
expectations at each stage of the project, supporting
progress to the next stage.
Typical milestones and the study objectives are
illustrated below:-
Project Stage Possible Objectives

Inception Establish need and required outcome

Concept Improve Strategy

Feasibility and Design Enhance Viability

Implementation and design Maximize cost effectiveness

Use Improve products or processes

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