Principles of value management

Definitions

Before value can be defined, it is critical to understand the importance of time, function and cost, so that value management can genuinely inform the optimum balance or compromise.

Time is sometimes the most critical factor for a project, particularly with an education-related project where start of term looms large or a sports-related project where the start of a new season moreover achieving completion for the Olympic Games is all important. These projects delivered late are often of reduced or negligible value. Project drivers such as finance costs may force arbitrary deadlines on all projects, where an increase in time has a corresponding increase in cost, but this is no justification for rushing into an ill-conceived project.

The value equation:

Value = function/cost

Value management (VM), often a euphemism for cost-cutting, is an umbrella term used to describe the holistic process that seeks to understand and define what constitutes value to a project, defining and maximising value for money. It should be considered a macro or strategic-level intervention to maximise value or indeed value planning. It can be applied to any type of project regardless of size or timeframe and at all stages throughout the project life cycle, although given its intent it is best introduced at the outset. The process removes ambiguity and establishes a shared commitment to a set of key outputs or value objectives that must be achieved.

Value engineering (VE) is about achieving the best alignment to value management objectives and, therefore, typically introduced during that design stages of the project. It is a structured process that seeks to remove all unnecessary cost without impairing function or value. It is used throughout the project lifecycle and should involve the whole design team to ensure the process is effective. Value engineering should be considered a micro or tactical-level approach to maximising value. Value engineering is not simply about reducing cost, it improves performance through efficiency savings; identifies alternative design and construction methods; enhances the service and/or product quality and identifies risks and opportunities to improve outcomes.

Function is the term used to access performance and is fundamental to the value management process:

• Function is everything required by any of the stakeholders. The needs and concerns of all stakeholders and customers must be understood. Some will be essential ‘must haves’ and others will be less important ‘wants’, but all must be considered in the effort to ensure true value and ultimate project success or at the very least the best compromise between conflicting constraints.
• Function is not the subject, for example, design or specification, but what it must do for the stakeholders.

Cost is the value of money that will be used to deliver the project. Cost may typically represent acquisition, construction costs and whole-life costs, but may also need to consider the opportunity cost and risk profile.

Principles

Value can be increased by improved function or reduced cost. The technique involves identification of high-cost elements, determination of their function and critical examination of whether the function is needed and/or being achieved at the lowest cost.

Value is the project outcome both in today’s terms and future benefits and/or improvements that may be realised. Cost is the price paid to secure that value.

Perceptions of value will vary from client-to-client and from project-to-project and better value does not necessarily mean reducing cost. A higher cost option may deliver better value of quality or function. Value, therefore, needs careful consideration and definition for each client and/or project. The focus of value management is not on cost, but function and optimum value for money.

Value management is the term used to describe a structured team-based approach for reviewing projects to ensure they fulfil their required purpose in the most effective manner (i.e. they achieve value for money). Early reviews focus on defining objectives; clarifying the brief and ensuring all options are explored to meet business needs. Later reviews are referred to as value engineering and address the delivery of objectives/functions at optimum cost.

Value management differs from cost cutting in that it recognises there is a relationship between project objectives/functions and cost. In optimising the relationship best value is achieved. The aim of value management is to generate opportunities that maintain or improve the delivery of objectives/functions without an increase or ideally a reduction in cost. Successful projects achieve value for money by reaching a consensus among stakeholders where compromises in objectives/functions and cost have delivered the optimum solution.

Value management should not result in reduced quality, unless the standard envisaged by the project team did not initially meet the client brief. It is this client brief that many clients find difficult to provide at the start of a project. Value management is, therefore, invaluable in ensuring the project team understand the client’s needs. Value engineering ensures that as the scheme evolves, the project team maintains a focus on providing cost-effective solutions, irrespective of any changes introduced during the design process.