Value-Based Principles
John Savicky
Arizona State University
How Do We Transfer and Minimize
Risk, Increase Accountability, and
Increase Performance?
Best Business Practices
Leadership Experts & Leadership Philosophies
• Various fields (Automobile Manufacturing, Commercial Manufacturing, SelfImprovement, Martial Arts, Business, Management, Law, Government).
• Leadership experts included: Edward Deming, John Maxwell, James Allen,
Marcus Buckingham, Jim Collins, Noel Tichy, Jack Welch, James Kouzes, Lee
Iacocca, Peter Drucker, Sun Tzu, Tom Peters, Abraham Lincoln, Bruce Lee,
Niccolo Machiavelli, and Rudolph Giuliani, etc.
• Topics:
–
–
–
–
–
–
–
Continuous Improvement
Theory of Constraints
Information Worker
Lean Manufacturing
Just in Time
Six Sigma
Supply Chain Management
Define
Control
Improve
Measure
Analyze
Impact of Information
Initial
Conditions
Time
Event
Time
Final
Conditions
Time
How Does This Relate To
Procurement?
Selecting a
Vendor
Time
Delivery of
the Project
Time
Project
Complete
Time
Is Our Goal To Obtain 100%
Information?
Selecting a
Vendor
Time
Delivery of
the Project
Time
Project
Complete
Time
Obtain the Least Amount of Information
Objective of Minimum Standards
High
Low
High
Contractor 1
Contractor 2
Contractor 3
Minimum
Contractor 4
Low
High
Low
8
Who Will Be Selected?
High
Low
High
Low
Contractor 1
Contractor 2
Contractor
Contractor
Contractor
Contractor
Contractor 3
Contractor 4
Low
High
Low
1
2
3
4
High
9
Perception on Standards
10
ASTM Standard Setting
ASTM Standard Setting
All Products Meet the Standard
PHYSICAL PROPERTY
Initial Elongation
Initial Tensile Strength
Final Elongation
Standard
100%
150 psi
100%
Cost:
B
100%
150 psi
100%
C
200%
450 psi
200%
$2.00 /SF $4.00 /SF
What Will Manufacturer ‘C’ Do?
PHYSICAL
PROPERTY
Initial Elongation %
(break)
Initial Tensile Strength
(mass Stress)
Final Elongation %
Weathering
TEST
C
PROPOSED
D412
200%
100%Min.
D412
450psi
150psi Min.
D412
200%
E96. B
3.5
D471
G53
<1%
No
cracking
100%Min.
2.5 U.S. perms
Min
Delete
requirement
Adhesion
C794
3 pli
Fungi Resistance
G21
No growth
2pli min.
Delete
requirement
Tear Resistance
Low Temperature
Flexibility
D624
30 lb/in
20 lb/in
D522
Passes
35,00050,000cps
57-80%
Permeance
Water Absorption
(mass)
Weathering (5000
hours)
Viscosity
D2196
Passes
115-130
KU
Volume Solids
D2697
57 - 66%
No cracking
Specification Data Sheet
15
16
Can We Create an
RFP That is 100%
Accurate?
Detailed Instructions
Hold On…The Warranty Will Protect
Us!!!
Warranty
The only roof system you’ll need for the next 30 years.
MANUFACTURER X
Backed by the industry’s
most resilient guarantee –
an unsurpassed 30-year
warranty against whatever
the future brings.
Warranty Exclusions / Fine Print
• Warranty exclusions (fine print) are rules that protect the manufacturer if
any problems arise.
• Exclusions will limit the manufacturers liability.
Roof Warranty Exclusions
“Warranty is void if....”
• “Failure to use reasonable care…”
• “Damage caused by ponding water or improper drainage…”
• “Damage by abnormal use of the roof…”
• “Damage by unusual occurrences…”
• “Failure to provide routine maintenance…”
• “Deterioration due to ordinary weathering…”
• “Damage caused by falling objects…”
• “Unauthorized modification…”
• “Other than occasional traffic on the roof…”
• “Damage from by chemicals, animals, insects, or plant life”
• “Change in building use or purpose…”
Outsourcing
Going In For Brain Surgery…
Would you?
 Find the cheapest surgeon?
 Ask that surgeon if they can lower their price?
 Would you tell them that they should do it faster?
 Would you tell them how to perform the surgery / what tools they can use?
 Would you tell them that you have a better way of doing the surgery?
 Would you tell them which nurses/doctors they can use?
 Would you hire other individuals to tell/direct the surgeon how to do the
surgery?
It Is More Important For The
Vendor To Know What To Do
Than It Is For Client To Know
What The Vendor Should Do
Right Information At The Right
Time!!
Reexamine How We Analyze
• Purchasing a new SUV
– How many full-size people can fit?
– The MPG or capacity of the gas tank?
– The type of safety equipment?
– The type of headlights we getting?
– Darkness of the tint?
• Purchasing Uniforms for Troops
– Durability - How long the material will last?
– Location of where material is made?
– How many pockets the uniform has?
– The ability of the uniform to be warm/cold?
26
Dominant Information
A
B
C
10 OZ
$3.75
10 OZ
$3.50
10 OZ
$3.99
27
Which would you buy?
(If you need to buy Cocoa Puffs)
A
10 OZ
$3.50
B
C
12 OZ
$1.25
14 OZ
$2.99
28
“Dominant Information”
Scenario A
Scenario B
29
Industry Structure
HIGH
VALUE-BASED
UNSTABLE
PRICE-BASED
PERFORMANCE
NEGOTIATED
LOW
LOW
COMPETITION
HIGH
Industry Structure
HIGH
NEGOTIATED
VALUE-BASED
PERFORMANCE






Value & Performance
Vendors Maximize Profit
Vendor Accountability
Minimized Management & Inspection
Minimal Technical Information
Dominant Performance Metrics
UNSTABLE
PRICE-BASED






LOW
LOW
Treat as a Commodity
Volume Based
No Accountability / Finger Pointing
Management & Inspection
Minimum Standards & Technical Data
No Performance Metrics
COMPETITION
HIGH
Which Party Mitigates Risk?
HIGH
NEGOTIATED
VALUE-BASED
PERFORMANCE






Value & Performance
Vendors Maximize Profit
Vendor Accountability
Minimized Management & Inspection
Minimal Technical Information
Dominant Performance Metrics
UNSTABLE
PRICE-BASED






LOW
LOW
Treat as a Commodity
Volume Based
No Accountability / Finger Pointing
Management & Inspection
Minimum Standards & Technical Data
No Performance Metrics
COMPETITION
HIGH
What Quadrant Are We In?
•
•
•
•
•
•
•
•
•
•
•
•
•
Do you spend a lot of effort preparing technical requirements?
Do your contractors require a high degree of management?
Do your projects require a high degree of inspection?
Do you transfer the risk of the project success to the contractors?
Do you transfer all control of the project to the contractors?
Are contractors coming back to propose on all your projects?
Do you focus on getting the longest warranties?
Do you focus on writing the best contracts?
Are projects completed on-time?
Are projects completed without change orders?
Are contractors maximizing their profits?
What is your level of performance?
What is your level of competition?
Price-Based Definition
• Cost is the primary factor for award
• Can be used in any Delivery Method:
– Design-Bid-Build
– Design-Build
– Construction Manager at Risk
• Can be referred to as:
– Low-bid
– Negotiated-bid
– Qualifications-based
– Best-value
Price-Based…
• Do not use expertise to mitigate risk
• Bid only what you see in the estimate
• Be as low as possible to get job
• If you find issues, don’t tell anyone until after award
• Use change orders to mitigate risk
• No dominant performance metrics (or provide very confusing metrics)
• Drives away high performers
Industry Structure
HIGH
NEGOTIATED
VALUE-BASED
PERFORMANCE






How Do
We Get Here?
Value & Performance
Vendors Maximize Profit
Vendor Accountability
Minimized Management & Inspection
Minimal Technical Information
Dominant Performance Metrics
UNSTABLE
PRICE-BASED






LOW
LOW
Treat as a Commodity
Volume Based
No Accountability / Finger Pointing
Management & Inspection
Minimum Standards & Technical Data
No Performance Metrics
COMPETITION
HIGH
How Do We Transfer and Minimize
Risk, Increase Accountability, and
Increase Performance?
Factors For Success
• Fair (state/follow rules)
• Open
• Impartial and Transparent (minimize evaluator bias / provide debriefing)
• Efficient (minimize efforts)
• Award based on value
38
Increasing Accountability and
Performance
• Need to be a “good” client
• Need to focus on “win-win”
• Need to create an environment that gives the advantage to high
performers
• Hire the best people and let them do their job
• Need to minimize traditional functions
– Management
– Direction
– Control
Constraints
• Your people are your greatest constraint.
• Your timeframe and goals must be tailored to the capabilities of your
people (vendors are more capable of adapting)
• Just because you understand, does not mean your staff understand.