CONSTRUCTION JOURNAL

Getting value management right

Value management can benefit clients, organisations, consultants, contractors and the supply chain – but to do so, it must be properly understood and implemented to BS EN 12973:2020

Author:

  • Keith Owen

04 August 2021

Modern business team working on new project during meeting and looking at laptop

Value management was introduced in the construction industry in the 1980s and in the decades since, many organisations have used it with varying degrees of success.

Value management sometimes receives bad publicity when it or one of its core methods, value engineering, is used as a euphemism for cost-cutting. But, if implemented properly by competent, trained professionals, value management can offer many benefits for an organisation and its projects.

It involves defining the scope and requirements for a project, establishing and achieving clear, measurable objectives and maximising value: in other words, defining the right project, then designing and completing the project to realise the required outcomes.

Quantity surveyors, project managers and project teams can, with specialised competency-based training, offer best-practice value management for their clients.

What is value?

In the current edition of Value management and value engineering, RICS guidance note, value is defined as the ratio between benefits – outputs – and the cost or effort – inputs – necessary to achieve it.

Figure 1 illustrates the general concept of value assessment as defined in BS EN 12973:2020.

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Figure 1: Overview of value assessment

 

Value =

Satisfaction of needs
Consumption of resources
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Figure 1: Overview of value assessment

 

Value =

Satisfaction of needs
Consumption of resources

In this instance, needs are the essential outputs and outcomes required by the stakeholders. For example, a new hospital could be needed to respond to population growth and related healthcare demand in a city, in which case the resources will include the labour, materials, equipment and plant, services and utilities needed to define, design, build and operate that hospital.

What is value management?

BS EN 12973:2020 Value management states that value management is ‘all about organisational improvement, setting clear goals, improving productivity, certainty and return on investment’. It adds that the practice of value management is an underlying concept applied within existing management systems and approaches based on value and function-orientated thinking, behaviour and methods. It is particularly dedicated to motivating people, developing skills, promoting synergies and innovation, with the aim of maximising the overall performance of the organisation.

A selection of case studies on the IVM website show the benefits that value management can realise: across the case studies a collective 19% value improvement was achieved, that is £536m savings on a £2.9bn of allocated budget.

The core methods of value management are the following.

  • Value analysis or value engineering

    This involves methodologies which combine function analysis, function cost analysis, challenge, creative thinking and evaluation of customer and user needs and, if relevant, stakeholder priorities to stimulate better design, innovation, or change in a project, product, service, system or organisation.

  • Function analysis

    This involves identifying functions, validating them and, with the help of clear logic elements, characterising them. This enhances communication to obtain a common understanding between stakeholders about the project.

  • Function cost

    This includes the value of each required function, providing the link between the project requirements expressed in terms of functionality and the related cost. Consideration of the cost of functions – instead of elemental costs – is a powerful method in the value management approach.

  • Functional performance specification

    This is a standardised document by which an enquirer expresses needs in terms of user-related functions (URFs) without reference to the technical solutions. This document is then issued to designers, manufacturers and others in the project team to respond, indicating how their solutions meet the URFs.

  • Design to objectives and design to cost

    Design to cost (DtC) evolves into design to objectives (DtO) when objectives other than costs are considered. It monitors the trade-offs between cost, performance and schedule. This leads to emphasising the importance of value analysis and value engineering for a DtC management of a project. Function analysis is one of the steps of DtC process.

Other methods and tools in BS EN 12973:2020 include benefits management, cost–benefit analysis, cost modelling, kaizen, lean management and life-cycle costing.

Benefits of value management

The clearest benefits from effective value management include the following:
  • better business decisions can be made and thus supported by clients and users, who have a sound basis for their choices
  • increased effectiveness as a result of organising and using limited time and resources to best effect, in turn ensuring better environmental, social and economic outcomes
  • clearer understanding, prioritisation and satisfying clients' and stakeholders' needs
  • supporting technical and organisational innovation and resource efficiency to enhance an organisation’s competitiveness
  • aligning members of an organisation with its goals, critical success factors and values through improved communication and knowledge
  • enhanced communication and efficiency, with multidisciplinary and multitasking teamwork.
Case study: a railway project for Network Rail
The challenge was:
  • a congested railway with growing demand
  • conflicts between passenger and freight services
  • programme constraints and an overall budget of around £270m
  • a large group of stakeholders with misaligned needs and wants.
The response was to work collaboratively with key stakeholders, adopting a full value management life-cycle approach. This encompassed:
  • definition of outputs, including critical success factors, stakeholder needs, function analysis and early risk identification
  • optioneering, filtering and selection of optimum options
  • value engineering, driving efficiencies realisation
  • lessons learned exploring successes and issues to enhance future projects.
The outcomes were:
  • improved capacity and journey time
  • the project was completed and handed over on schedule
  • the project achieved the CEEQUAL sustainability rating
  • new technology was introduced
  • whole-life operating expenditure benefits were achieved
  • value engineering capital investment benefits of around £27m, saving 10% of the budget.
Parallel railway tracks recede into the distance in Surrey, England

How to use value management

For maximum effect, value management should be used iteratively and continuously throughout the project life cycle. It is not a series of workshops, meetings, or agenda items; rather, it is something that should be integrated from the start of a project and through into its operational life.

Lessons can be learned at each of the eight RIBA project stages in the interests of continual improvement. The key value management decision-making stages are indicated in Figure 2. Each stage normally involves a period of preparation, one or more workshops and a report, which identifies actions to develop and implement.

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Figure 2: Key opportunities for value management and value engineering throughout the project lifecycle

  Value management key decision points RIBA Plan of Work stage
Value management 0 (VM0)
Defining the business need
Stage 0
Strategic definition
Value management 1 (VM1)
Understanding, challenging and validating the business need
Stage 1
Preparation and briefing

 

 

 

 

 

 

Continuous value engineering

Value management 2 (VM2)
Deciding on the best business solution
Stage 2
Concept design
Value management 3 (VM3)
Re-validating the project objectives and design development
Stage 3
Spatial coordination
Value management 4 (VM4)
Signing off the design
Stage 4
Technical design

Value management 5 (VM5)
Keeping the project on track

Stage 5
Manufacturing and construction
Post-occupancy evaluation (POE1) 
Learning lessons
Stage 6
Handover
  Post-occupancy evaluation (POE2)
Learning lessons and validating outcomes meet the business need
Stage 7
Use
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Figure 2: Key opportunities for value management and value engineering throughout the project lifecycle

  Value management key decision points RIBA Plan of Work stage
Value management 0 (VM0)
Defining the business need
Stage 0
Strategic definition
Value management 1 (VM1)
Understanding, challenging and validating the business need
Stage 1
Preparation and briefing

 

 

 

 

 

 

Continuous value engineering

Value management 2 (VM2)
Deciding on the best business solution
Stage 2
Concept design
Value management 3 (VM3)
Re-validating the project objectives and design development
Stage 3
Spatial coordination
Value management 4 (VM4)
Signing off the design
Stage 4
Technical design

Value management 5 (VM5)
Keeping the project on track

Stage 5
Manufacturing and construction
Post-occupancy evaluation (POE1) 
Learning lessons
Stage 6
Handover
  Post-occupancy evaluation (POE2)
Learning lessons and validating outcomes meet the business need
Stage 7
Use

BS EN 12973:2020 defines three approaches to value management: informal, formal and study-based.

It defines the informal approach, ‘sometimes called an intuitive approach', as 'when an organisation has developed a value culture aligned with its goals. The individuals, departments or groups within the organisation and its external supply chain fully understand the organisation’s vision, mission, values and strategic objectives. They are focused on these as part of their daily working lives and undertake all activities related to delivering these on an informal basis, i.e. second nature’.

An example is a major mixed-use property developer where everyone in the organisation and its external supply chain knows how to maximise value for the developer. This could be through, for example, lettable floor square footage, types of anchor stores, a mixture of and other commercial spaces focused on public interest, and related turnover rents or income generators, whole life costs and economic and social value.

The formal approach, meanwhile, is characterised by BS EN 12973:2020 as 'being both visible and trackable as far as required and by being considered to improve overall performance of the organisation – in the short, medium or long term. The organisation has documented its vision, mission, values and strategic objectives, and the individuals, departments and groups in the organisation fully understand these and can reference them.

'The individuals, departments and groups are focused on these as part of their daily lives and undertake all value management activities on a formal basis with reference [to the] policy, principles and procedures ... The vision, mission, values and strategic objectives are also communicated in literature to external parties.’

An example is a where an organisation needs to improve performance and demonstrate value for the public purse, achieving outcomes that are transparent and auditable.

Finally, BS EN 12973:2020 states the study-based approach ‘may be applied independently to, or in combination with, informal or formal value management approaches. The study-based approach tackles a specific subject or subjects and typically aims to enhance performance within a discrete part or parts of an organisation.’

An example is where a hospital wants to refurbish a ward, build an extension or review its processes.

The Value management and value engineering RICS guidance note focuses on the study-based approach – a specific subject or subjects are studied on a project and brought to the decision-making points.

An effective and efficient value management approach has a defined management structure that clearly sets out ownership, accountability, roles and responsibilities including governance. In particular, this structure should ensure that the adequately trained people participate in value management activities.

'An effective and efficient value management approach has a defined management structure that clearly sets out ownership, accountability, roles and responsibilities'

Value management principles and drivers

The four essential principles of value management are the following.

  • Strengthen value orientation

    A constant awareness of the value and the introduction of measures for value acquisition, monitoring and implementation.

  • Apply function thinking

    Realising that a value increase requires change and creativity, in addition to applying function thinking as the key to innovation and improving value.

  • Apply a structured, holistic approach

    Regarding and evaluating the perspective of all stakeholders; a cross-functional team approach that recognises sustainable systems and timescales relevant for the organisation.

  • Manage complexity, risk and uncertainty

    Ensuring that value is realised and maximised.

There are four attributes in existing systems that have a strong influence on how effective value management will be. These attributes, known as drivers or levers for value management, are as follows.

  • A collaborative style of managing fundamentals

    This requires collaboration among stakeholders and the organisation, permitting freedom of thinking and facilitating teamwork.

  • Allowing for a positive human experience

    This means respecting diversity, recognising both individual views and team views and empowering people to take ownership of outcomes.

  • Considering both the internal and external environment

    This means understanding the effects of the environment and associated uncertainty, opportunity, constraints and degrees of freedom to make changes to the internal or external conditions.

  • Applying proven methods and tools

    This means the core, specific methods and tools of value management are understood and can be applied by the organisation where appropriate.

The way an organisation applies the essential principles and drivers, or levers, for value management becomes its distinctive value management approach.

Challenges facing value management implementation

At a national and industry scale, challenges to implementing value management include the following.
  • The government and the National Audit Office do not currently mandate the use of BS EN 12973:2020 and BS EN 16271:2012 functional performance specification on all public-sector projects and related procurement activities. Doing so would allow for the implementation of best practice, reporting on project performance against the business need and applying lessons learned to continually improve.
  • Corporate governance and assurance will require organisations to demonstrate value, in line with the UK's Corporate Governance Code 2018. The challenge is getting organisations to use value management to do this.
  • A lack of awareness of what value management and value engineering really are, and how to apply them effectively.
At a project level, the distinctive challenges are as follows.
  • Getting buy-in from the client by demonstrating to them the benefits to be gained from implementing value management.
  • Ensuring trained and competent professionals are employed to implement value management techniques appropriate to particular challenges.

Best practice for implementing value management

It is best practice is to apply BS EN 12973:2020 effectively on your portfolios, programmes and projects and BS EN 16271:2012 on related procurement. Qualified value associates (QVAs) know how to participate effectively in value studies, while dedicated professionals and trainers in value management (PVMs and TVMs) know how to lead such activities for organisations.

The independent role of quantity surveyors means they are seen as being outside the traditional design disciplines and construction team and, therefore, in an ideal position to focus on providing and managing value, as well as managing cost and the change control process to improve value. Quantity surveyors need to be fully aware of the effect of cutting costs to meet a client’s budget; this must be done very carefully, without affecting the functions required for safety, well-being and other critical outcomes on a project.

Provided they have been properly trained in value management, project managers are also well placed to be value management leaders. The key for a project manager is to have a value management policy and procedure in place in the project documentation, and ensure all parties are aware of their responsibilities in securing value.

Professionals with the right competencies deploying value management in the right way can thus be of considerable help in ensuring projects succeed.

'The key for a project manager is to have a value management policy and procedure in place in the project documentation'

Keith Owen is a MRICS, a professional in value management (PVM), member of the Institute of Value Management executive committee, a Certification Board member, a Value for Europe board member and chair of CEN technical committee 279 on value management, value analysis and function analysis
Contact Keith: Email

Related competencies include: Client care, Commercial management, Managing projects, Project feasibility analysis

All extracts from BS EN 12973:2020 in this article are included with the kind permission of BSI.