Project Value

Managementby Dr Jim Young

Purpose of this Presentation

To familiarise you with the principles and process of project

value management (PVM)

Presentation Topics• Origin and definitions• Some examples• Value formula• PVM benefits• Costs and challenges• PVM principles• PVM process• And time permitting – show you the use of some tools

This presentation will take about one hour. For those who choose to sleep, the presentation slides and a “white paper” on the topic are available on your university website.

Origins of PVM The PVM concept was born with

General Electric during World War Two when there were severe shortages of labour, materials and component parts.

The company looked for new methods and locally substituted materials and components that would perform the same function.

Definition of PVM PVM is the formal and systematic

study of a project to identify ways to achieve the functions involved at the lowest cost without loss of performance.

Some equivalent expressions are Value Management, Value methodology, Value Analysis, Value Engineering and Value Optimisation.

PVM Application• Potentially effective for all types of projects,

but best results usually obtained with larger and more expensive construction projects.

• PVM usually adds greater value if applied early in the project life cycle and preferably prior to project execution.

• PVM intervention is in the form of a study undertaken by an expert facilitator and involves key stakeholders from the target project.

• Unfortunately, PVM is often only initiated when project budgets seem insufficient or profit margins are under pressure.

Some PVM Examples• Russian liquid-fuel rockets allow for

rough welding.• Japanese vehicle manufacturers

standardised processes and components.

• Australian supermarket construction introduced JIT practices to eliminate inventory.

• NASA space shuttle specifications were relaxed for non-critical functions.

Extreme Example

(JOKE)

But Without Loss of Quality

oops

PVM Studies Functions• Function concerns what is done and not what

does it. There are usually a variety of ways to complete a function.

• Function can usually be described with just a verb and a noun. For example:

• The function of a pen is to “make marks”.• The function of a spade is to “dig holes”.

• PVM recognises that if a function is needed then we should systematically identify and evaluate alternative ways to complete the function better and/or more cheaply without loss of project performance (functionality).

PVM Value Formula

Value-adding options are:

• Improve function and maintain cost

• Maintain function and reduce cost• Improve function and reduce cost

Value = Function / Cost

Typical Benefits of PVM• Improves communications and teamwork• Clarifies stakeholders’ needs• Resolves conflicts and misunderstandings• Challenges assumptions• Identifies unnecessary expenditure• Generates alternative ideas • Promotes innovation• Maximises resource use• Saves time, money and materials• Simplifies processes• Eliminates wastage and redundant items

Stakeholders Benefit from PVM

Properly applied PVM means:

• Clients achieve best value for their money.• Users’ needs are satisfied.• Designers meet client and user expectations. • Project managers complete the project within

prescribed constraints.• Contractors complete work in the most cost-

effective manner and future business is assured.

PVM Costs To ensure that the benefits of applying PVM

are justified, the cost of the following items needs to be considered:

• Engaging a facilitator• Participants’ travel and

accommodation• Venue hire• Administrative support• Disruption to target project

PVM Challenges• Suitable date for workshop• Project delay or disruption• Key stakeholders excluded or

unavailable• Real front-end cost versus

nominal downstream savings• Threat to designers’ and planners’

reputations• Short-term false economy • Innovations add risk

PVM Principles• Suitable facilitator essential• Senior management support• Willing and appropriate

participants• Focus on more costly functions• Whole-of-life application• Integrate with project life cycle

and risk management

PVM Seven-Step Process 1. Prepare for study2. Gather information about subject

project3. Undertake functional analysis4. Generate ideas for project

improvement5. Evaluate ideas6. Make recommendations7. Follow-up

Step One – Prepare for Study

• Select subject project• Prepare terms of reference• Appoint facilitator• Decide study team composition –

includes key stakeholders• Confirm study methodology and

timetable• Identify logistic needs• Book venue

Step Two – Gather Information

• Facilitator is provided with documentation: project purpose, goal, objectives, assumptions, success criteria,

feasibility study, business case, charter, designs, drawings, specifications, work breakdown structure, estimates, risk and issues logs, project plan, budget and schedule, and progress reports if project already underway.

• Visit project site if work has started• Research information about previous similar

projects• Contact key stakeholders for preliminary

discussions• Identify main issues for the PVM workshop• Prepare and distribute information packs• Brief presenters

Step Three – Undertake Functional Analysis

PVM participants attend a one or two day workshop where:

• Participants introduce themselves.• Facilitator reminds group about purpose and scope of study,

workshop agenda and process, and issues to be resolved and target functions to be analysed.

• Issues and functions are analysed in sub-groups, typically by seeking answers to questions such as:

• What is its function?• Why is it needed?• What value does it add?• What would be the consequence if it was excluded?• What could do the same function more cheaply and/or

better?

Step Four – Generation of Ideas Having clarified the issues and the nature and need

for selected functions, alternative solutions are then sought typically through group brainstorming for improved functionality and cost reduction. Such ideas must not impair project performance. The usual rules for brainstorming apply:

• Quantity not quality• Suspend criticism• Encourage maximum participation• Record all ideas for later

assessment

Step Five – Evaluate Ideas Options are now evaluated in against pre-determined

and weighted attributes such as:

• Technical feasibility, practicality and ease to implement (time, resources and skills)• Legal implications• Consistency with organisation’s core values• Impact on project objectives• Whole-of-life costs• Whole-of-life savings • Risks created – their impact, probability and

mitigation strategies

Evaluation Tools Some tools and techniques that might be used to select best options

to improve the project’s functionality and/or cost and resolve issues are:

• Function analysis system technique (FAST)• SWOT analysis• Cost benefit analysis• Process mapping and analysis• Pareto analysis• Fishbone diagram• Paired-comparisons• Decision tree• Weighted attributes decision matrix

Step Six – Make Recommendations

• A verbal presentation is likely to be followed by a formal written report with prioritised recommendations for the client’s approval.

• The draft report should be circulated for comment to those who participated in the workshop study.

• Agreed changes are then included in the project plan.

Step Seven – Follow Up• Should PVM recommendations be

implemented, their effectiveness should be monitored and measured.

• Lessons learned from the study should help with future PVM interventions.

• The PVM process can be repeated periodically throughout the project.

Process Mapping A process can usually be broken down into tasks that may

be undertaken either concurrently or sequentially.

Process Analysis Typical questions asked in order to improve a process are:

• Is the process needed and do process outputs satisfy these needs?

• Are process performance measures and targets in place and appropriate?

• Are all inputs satisfactory in terms of cost, timeliness, quantity and quality?

• Are there any process delays or bottle necks?• Are all steps needed and do all steps add value?• Is the process documented, understood and adhered to?• Does rework occur?• Is there scrap or waste?• Is cycle time minimised?• Should some steps be combined?• Is better/cheaper technology available?• Do the users possess the necessary knowledge?• Could more steps be completed in parallel?• Are all steps in the correct sequence?

Example Decision Matrix Suppose Victoria University commissions a project to provide students

with free footwear. First the decision-makers identify appropriate criteria or attributes to assess viable/functional footwear options and prioritise these using a paired-comparison’s technique:

Rank Score Attributes 4 3 2 13rd 1 1. Appearance 4 1 22nd 2 2. Maintenance 4 24th 0 3. Durability 41st 3 4. Comfort

Example Decision Matrix Next the prioritised attributes go into a decision matrix. We give each

attribute a weight (from say 1 to 10) that represents its relative importance, and then evaluate each option against each attribute, scoring them, where say excellent is 5, satisfactory is 3, and adequate is 1. In this instance Option B scores highest.

Attributes Weight Option A Option B Option CComfort 10 x 3 = 30 x 4 = 40 x 2 = 20

Maintenance

9 x 5 = 45 x 3 = 27 x 4 = 36

Appearance

6 x 1 = 6 x 4 = 24 x 3 = 18

Durability 3 x 5 = 15 x 3 = 9 x 3 = 9Total Scores 96 100 83Place 2nd !st 3rd

Summary PVM is a powerful strategy that focuses on

delivering better project value. Top five requirements are:

• Management support• Early application• Thorough preparation• Independent facilitator• Maximum involvement of stakeholders

Bring these five essentials together and PVM will payback as a positive intervention.

Unless you have some very easy questions, it’s

THE ENDAnd many thanks and good luck

with your studies!