White Paper - Skillpower

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White Paper
Project Value Management
by Dr Jim Young
This white paper describes the purpose, benefits, principles and process of project value
management (PVM), which is a powerful intervention strategy that is gaining ground as a
technique to obtain maximum project value for money spent.
In recent years, several major NZ projects have benefited from PVM, including the
construction of hospitals, office blocks, retail centres, industrial complexes, and restoration
and quake-proofing of buildings.
PVM advocates the use of group-based facilitated workshops to obtain ideas to improve
project value. Such workshops involve a multidisciplinary group of project stakeholders.
There are several PVM professional facilitators operating in the NZ construction industry,
most within project management consultancies, who will doubtlessly be in demand as the
Christchurch CBD rebuild gathers momentum and other quake-proofing projects are
launched throughout New Zealand.
In this paper no distinction is made between the expressions Value Management, Value
Analysis, Value Methodology, Value Engineering and Value Optimisation. They are
considered to be equivalent terms.
Origin and definitions
The PVM concept began with General Electric during World War Two when there was a
shortage of labour, materials and component parts. This caused the company to look for
cheaper local substitutes that would satisfactorily do the job. In many cases it was noticed
that the use of alternatives had both reduced costs and improved project performance.
Thus, what was an accident of necessity has become a recognised procedure.
There are a variety of definitions for PVM, the more common of which are:

PVM is an organised system of investigation to analyse the requirements of a
project with the key purpose of achieving its essential functions at the lowest
practicable total cost.

PVM is a study of a project to ensure that best value for money is achieved.

PVM ensures we accomplish the project goal and objectives at minimum cost
without compromising essential functionality.
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
PVM is a structured, systematic and analytical process that seeks to achieve all
necessary project functions at the lowest cost consistent with the required level of
project performance.
PVM is useful for all projects, public and private, but best results have been achieved with
more expensive infrastructure and construction projects, which typically involve large
numbers of disparate groups. Higher-profile and politically sensitive projects are also
popular candidates for PVM intervention. In practice, the decision to apply PVM is often
made when it is realised that the cost of the project will considerably exceed the budget or
seriously erode the profit margin. However, PVM can benefit any project.
Some examples of effective PVM are:

Russian liquid-fuel rocket motors intentionally permit rough, although leak-proof,
welding. This reduces costs by eliminating grinding and finishing operations that do
not influence the motor’s function.

Japanese vehicle manufacturers have active PVM programmes to minimise the
variety of components in their products to reduce inventory, tooling and assembly
costs.

As a result of a PVM exercise an Australian supermarket construction project opted
for cheaper local sources of supply and JIT delivery of materials to shorten leadtimes and avoid on-site inventory costs.

NASA space shuttle specifications were relaxed for non-critical components to save
cost without detriment to safety or functionality.
PVM focuses mainly on value improvements, where value is proportional to the ratio of
function over cost. Function is what the project is expected to achieve, its performance,
what it must do, but not what it is. Value is improved by increasing the worth of functions
relative to the cost involved in doing so, where:
Value = Function / Cost
or
Value = What you get / What you pay for
The idea is that we should do nothing on a project unless it adds value and that value needs
to be maximised. We should frequently ask, “Does the benefit of this function or feature
justify its cost to the project?” In these circumstances value might be defined as:
Value = Benefits - Costs
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Essentially, greater project value is achieved by any or all of the following three measures:



Improving function while maintaining cost.
Maintaining function while reducing cost.
Improving function while reducing cost.
Function concerns what something does, not what it is. For example, a screwdriver can be
used to “stir paint”, but PVM might substitute a stick to do a better job at less cost. The
function of a pencil is to “make marks” which might lead to identifying what else can make
marks better and/or cheaper. Notice that the function is described using only a verb and a
noun. The verb (“make”) tells us what it does and the noun (“marks”) tells us what it does
this to.
PVM benefits
PVM is about project cost efficiencies, productivity improvements and issue resolution,
achieved through practices such as:

Clarifying project stakeholders needs and user requirements versus their wants,
and then setting priorities for those needs.

Verifying the project purpose and the appropriateness of objectives for scope,
time, cost, safety and quality, and optimising design solutions accordingly. PVM
requires we enhance value without compromising project objectives.

Challenging those project selection criteria and planning assumptions in particular
that may be unrealistic and/or cause significant risk. Some assumptions
masquerade as facts.

Improving teamwork, cooperation and communications among project
stakeholders and thus minimising the likelihood of confusion, conflict and
misunderstandings. It’s about resolving ambiguities and misconceptions, clarifying
project roles and responsibilities, and providing a shared understanding of success
criteria.

Identifying non-productive/high-cost elements and evaluating better/cheaper
project inputs and outputs, and more simple, effective and efficient processes.

Generating and evaluating better/cheaper sources of labour, materials, plant,
equipment and components.

Eliminating duplication, wastage, inventory, unnecessary expenditure and
redundant features, materials, tasks and deliverables that don’t contribute value,
and thus save time, materials, money and energy.
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
Reducing cost, without loss of functionality, usually resulting in an improved profit
margin and/or a more competitive bid. Improvements to project value may justify
a cost increase if performance is sufficiently enhanced.

Promoting risk management, quality, sustainability, efficiencies, wider ownership
of project outcomes and greater commitment to project implementation.
The benefits of PVM are likely to diminish over the project life and the cost of implementing
PVM is likely to increase over the same period. Thus, the earlier PVM is applied the greater
the value obtained. Hence the need to hold the PVM workshop earlier rather than later in
the project life cycle. However, if need be, subsequent workshops may be held. The
workshop results usually positively affect everyone associated with the project, including:

Clients who are interested in achieving the best value for money.

Users who want the project to meet their needs as effectively as possible.

Designers who are keen to meet the expectations of the client and users and to
ensure that the planning and design principles and performance requirements for
the project are understood, evaluated and appropriately applied.

Project managers seeking to ensure that the project is managed within time,
quality and cost constraints.

Contractors aiming to provide services in such a way that they receive an adequate
profit and future business.
PVM costs and challenges
While PMV generally returns savings well in excess of its cost, the following expenses
nevertheless need to be considered prior to commissioning the study:

Engaging a facilitator.

Each participant’s attendance.

Venue hire.

Administrative support.
The decision to conduct the PVM study may be influenced by its cost and also by the
following factors:

Perceived potential for cost savings or improved outcomes.

Desire to overcome project problems.
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
Need to provide rigorous review or audit.

Need to optimise the balance between capital, operating and maintenance
expenditure.

Need to accelerate the project.

Complexity, high cost or innovative nature of the project.

Number of stakeholder interfaces.
PVM is not without its challenges, some of which are:

Finding a suitable date or dates when the PVM team members are available to
meet.

Possible delay to the project while the PVM study process is undertaken that may
create issues particularly for time-driven endeavours.

Inadvertently excluding important stakeholders from the process.

The “real” front-end cost compared to the “notional” downstream savings may
persuade some stakeholders that PVM is not a sound investment – the benefits are
not assured.

Threat to designers, planners and others directly involved with the project whose
professional credibility might suffer when defects, deficiencies and waste is
identified. And some employees, contractors, consultants and suppliers may no
longer be needed or their work prospects diminished as unnecessary project
activities are eliminated.

PVM cost savings may prove to be short-term false economies when whole-of-life
product operating, repair and maintenance costs, and the possibility of product
obsolescence, are considered.

Sometimes the best ideas for project value improvement can be the most risky and
if implemented could jeopardise project success.
PVM principles
While adherence to principles does not guarantee success, they are generally hard-earned
and ignored at our peril. Some important PVM principles are:

The process needs to be orchestrated by a skilled, cost-focused and suitably
qualified facilitator who possesses the appropriate mix of hard and soft skills for
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effective facilitation, and who is familiar with the type of project involved and has
no vested interest or any involvement with the project to ensure their necessary
objectivity. The choice of facilitator is fundamental to the success of the study. It is
similar to report editing and proofreading, which is usually better undertaken by
someone other than the writer and preferably someone with an open mind, the
requisite expertise and credibility, and who has positive intentions.

Senior management need to visibly support the PVM workshop and process to help
ensure it has appropriate credibility and the necessary authority. They may also
participate as appropriate. And we welcome influential champions to ensure
recommendations are seriously considered.

PVM flourishes best in an environment where people are open, trusting, willing to
collaborate, familiar with applying creative and lateral thinking to problem solving,
and are comfortable with change.

PVM should be applied as early as possible during the project life cycle and
preferably prior to project execution. After project execution the cost of
undertaking changes to the project usually increases significantly as there is less
opportunity to make beneficial changes without causing significant disruption,
although some later changes may also be cost-effective.

The PVM team need to be credible representatives of their stakeholder groups and
possess the necessary decision-making authority, appropriate expertise, and a
willingness to interact, collaborate, accept new ideas, and forego any personal
prejudices and pet solutions.

PVM should focus on those more costly and complex functions that are most likely
to yield significant savings through simplification strategies.

Issues of health and safety, sustainability, design quality, buildability, operation,
maintenance and disposal should all be considered during PVM studies.
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
PVM is about enhancing value and not simply about cost cutting, although cost
saving is a welcome component. However, cutting cost without proper analysis
may lessen value, functionality or quality.

Whole-of-life costing is an important element of PVM. Thus, the study should
consider all costs relating to the deliverable from project conception to product
disposal.

PVM needs to be integrated with project risk management to ensure that valueadding initiatives do not create risk beyond what the project can tolerate.

Key project stakeholders, particularly the project sponsor/owner, project manager,
project design team, contractors and users/occupants need to be thoroughly
briefed about the PVM purpose and process before its implementation and their
timely input welcomed and their apprehensions discussed. Typically they or their
representatives participate in the PVM workshop and those key stakeholders who
do not participate should be kept informed. Like a project audit, the study is an
objective assessment that in this instance is designed to identify cost-savings
and/or functionality improvements. PVM is not a stick to beat people with, and
expressions such as audit, evaluation, appraisal and assessment might be avoided
in favour of terms such as study or review.
PVM process
Typical activities undertaken in a comprehensive PVM study project are described briefly
here:
1. Prepare for study. This first step is when the organisation selects the project for
PVM study, decides the objectives and scope of the study, prepares study terms of
reference, obtains authority to undertake the study, contracts the facilitator who will
typically agree the composition of the study team, review the PVM methodology and
timetable, confirm logistic needs, check workshop venue suitability, and further
study the target project.
2. Gather information. Prior to the workshop the facilitator will identify information
needs and how these might best be gathered. Typically the facilitator would obtain
and study whatever project documentation available including project planning
assumptions, success criteria, feasibility study, business case, charter, designs,
drawings, specifications, work breakdown structure, estimates, risks, project plan,
and importantly, key issues that need resolution. The facilitator might also have
preliminary discussions with the project stakeholders – client (owner), customers
(users/occupiers), sponsor/owner, project manager, project team members,
functional managers, contractors etc as appropriate.
The facilitator may check previous similar projects – their interim and post-project
evaluation reports, risk logs, issue logs, lessons learned logs, and benefit realisation
reports. In particular, the facilitator needs to be clear about the problem,
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opportunity or compliance requirement that has justified the investment in the
subject project, and the project purpose, goal and objectives (benefits, scope, time,
cost, safety and quality), risks, and particularly unresolved key issues.
The facilitator might also oversee the workshop participant list and the preparation
of information packs, brief any workshop presenters, and ensure that participants
are notified of the workshop venue and dates as soon as possible.
3. Undertake functional analysis. Steps 3 to 5 are typically conducted as a one or two
day workshop at which the participants introduce themselves and are reminded by
the facilitator about the study scope and objectives, the subject project, the agenda
and process, and issues of particular concern. Steps 3 and 4 might be conducted
concurrently, overlap or kept strictly sequential. Step 3 is when the PVM team focus
on the areas of the project that have been selected for scrutiny. These selected
areas and key issues are subjected to questions such as:

What is it?

What does it do?

What does it cost?

What is its value?

Do we need it?

What would do the same job?

What would be the consequences for the project if eliminated?
4. Generate ideas. While there are several ways of identifying ideas for cost savings
and functional improvements or other ways to perform functions, the most
commonly used method is brainstorming, the usual “rules” for which are:

Encourage quantity of ideas rather than quality.

Listen to and add to others’ ideas.

Don’t criticise or evaluate ideas until after all ideas have been generated.

Full participation is encouraged from those present. Avoid non-participating
observers.

All ideas are recorded where all participants can see them to trigger further
ideas, and to enable their later clarification and evaluation.
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Another creative role-playing technique that might be used is De Bono’s Six Hats
when participants adopt one of six hats to ensure that an issue is considered from
different points of view. The characteristics associated with each colour hat are:

White hat – analytical, objective thinking, with emphasis on facts and
feasibility.

Red hat – emotional thinking, subjective feelings, perceptions and opinions.

Black hat – critical thinking, scepticism, and risk identification.

Yellow hat – optimistic thinking and best-case scenarios.

Green hat – creative, associative thinking, new ideas, brainstorming, and
constructive input.

Blue hat – structured thinking, process overview and big picture perspective.
The key requirement is that workshop participants identify options for improved
project functionality and issue resolution and propose a range of opportunities for
cost reduction that do not impair project effectiveness. Such options for providing
functions at lower cost must not compromise quality, legislative and environmental
requirements, or project performance criteria. The review team would usually
divide into groups, with each group concentrating on a different area or set of issues.
5. Evaluate ideas. Options now need to be evaluated for their likelihood of success,
their cost-effectiveness and their practicality in resolving issues, improving
functionality and/or reducing cost, and prioritised in terms of their anticipated value.
Some or several ideas will be discarded. The best ideas are further defined and
assessed. Assessment typically considers alternatives in terms of their costs, risks
and savings. The end result is a list of recommended options with their associated
costs and benefits. Some tools that may help with this evaluation are:

Function analysis system technique (FAST)

SWOT analysis

Cost-benefit analysis

Process mapping

Pareto analysis

Fishbone diagram

Paired-comparisons table
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
Decision tree

Weighted-attributes decision matrix
6. Make recommendations. After the workshop, selected ideas and alternatives are
further developed by members of the study team as necessary and presented to
management and other project stakeholders or decision-makers. A verbal
presentation is likely to be followed with a formal report that culminates in specific
and prioritised recommendations, including what needs to be done, who will do it,
and when it will be done – an action plan. A draft report might first be sent to
workshop participants for their comments. Agreed options are then included in the
project implementation plan.
7. Follow-up. Should the recommended options be implemented, those involved will
be keen to review their effectiveness in delivering enhanced value, and if the report
recommendations are not implemented, participants might like to know why not.,
which might reveal some deficiency in the PVM intervention. And we should
remember to thank workshop participants for their time and contributions.
Summary
PVM is a powerful project enhancement strategy that focuses on delivering better projects
for our clients, within a whole-of-life context. This paper has highlighted the process,
principles, benefits and challenges involved. Key requirements are:

Management support.

Thorough preparation and early intervention.

Involvement of the appropriate key stakeholders and discipline experts.

Excellence and independence of the facilitator.

Proper application of PVM principles and process.

Emphasis on open-minded participation, creative thinking and problem solving.
Bring these essentials together and PVM should payback as a positive project intervention.
Without such intervention we risk project outcomes that represent poor value for money.
PVM should become part of an organisation’s culture and the process integrated with the
organisation’s project management methodology.
Given the lack of local standards for PVM, NZ organisations might follow the guidelines
given in the Australian Standard AS4183: 2007 Value Management.
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