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1 Total Value Optimization Presenter: Mark Watson, PE, CVS Life, PMP Presentation Outline Obstacles to Achieving Best Value Traditional Value Methodology VM Job Plan Function Analysis Advancements To Traditional VM Value Metrics Cost and Schedule Analysis Techniques Risk Analysis Why use VM and who is using it? 1

2 Value Theory Obstacles to Value Incorrect Assumptions Poor Project Handoff 2

3 Perceptions Are the squares marked A and B different shades of gray? Obstacles to Value If we have trouble judging simple things like color, one must ask what other mistakes are we making in perception? Can we really believe everything we think we see? How do our perceptions affect our value judgments? 3

4 Habitual Behavior Obstacles to Value Habits and Attitudes The number one reason for poor value! It is our habits that take us where we were yesterday, and our attitudes that keep us there! - Confucius 4

5 Obstacles to Value Obstacles to Achieving Best Value: Poor communication Customers needs/wants change Outdated design standards or changing technology Incorrect assumptions Fixation with previous design Temporary circumstances Honest wrong beliefs Habits and attitudes What is Value Methodology? The application of systematic techniques by a multi-discipline team to improve value by evaluating its functions to meet the project s required performance at the lowest overall cost. 5

6 Terminology Value Analysis (VA) Value Engineering (VE) Value Management (VM) Value Methodology Value Engineering Process Value Study Speculation and Evaluation tends to be cyclical in nature Evaluation Development Presentation Implementation (Post Study) Preparation (Pre Study) Information Function (Analysis) Speculation (Creativity) 6

7 Value Methodology If I can t get the product, I ve got to get the function. How can you provide the function by using some machine or labor or material that you can get? Larry Miles Creator of Value Analysis Value Theory Equations for Value According to Miles: All cost is for function Value = Function Cost + Time 7

8 Defining Functions A function is the basis for why something exists. In Function Analysis, functions are described using two words: VERB What does it do? + NOUN What does it do it to? Function Analysis 8

9 Function Analysis Defining Functions What is the basic function of these hammers? 9

10 Functions or Activities? Both functions and activities can be described as a verb + noun Activity Construct Bridge Process Invoice Weld Joint Install Wall Function Span River Allocate Funds Connect Components Retain Earth Which statement tells us more? Which statement is more likely to lead to innovation? Function Analysis Helps create joint understanding of project s purpose and need Clarifies and builds consensus of projectspecific objectives Aids in achieving i dissociation i i from specifics Reduces possibility of faulty communication and misunderstanding 10

11 Matagorda Ship Channel VE Matagorda Ship Channel VE 11

12 VE Developed Solution 12

13 Function Analysis and FAST Diagramming i Value Theory Equations for Value According to Miles: All cost is for function Value = Function Cost + Time 13

14 Cost Analysis Techniques Cost Analysis Techniques Pareto Modeling 80/20 Rule Activity based costing Life Cycle Cost Analysis Component costing Individual project elements Parametric Cost Modeling Cost Function Allocations and many more! 14

15 Why use LCC? Typical conflicts in most companies: Project Engineering wants to minimize capital costs as the only criteria, Maintenance Engineering wants to minimize repair hours as the only criteria, Production wants to maximize operation hours as the only criteria, Reliability Engineering wants to nullify failures as the only criteria, Accounting wants to maximize project net present value as the only criteria, Shareholders want to increase stockholder wealth as the only criteria. Life Cycle Cost Considerations Initial Costs Salvage Externalities Life Cycle Cost Analysis Maintenance Implications Operational Performance 15

16 Cost Estimate and LCC Analysis Initial Cost and Life Cycle Cost Analysis 16

17 Cost-Function Analysis Cost Function Analysis Worksheet 17

18 Value Theory Equations for Value According to Miles: All cost is for function Value = Function Cost + Time Schedule Analysis Techniques Critical Path Method Detailed Work Breakdown Structure Horizontal and Vertical Schedule Integration Milestone based Planning Activity Based Scheduling Early Start / Late Start Early Finish / Late Finish and many more! 18

19 Value Theory Equations for Value According to Miles: All cost is for function Value = Function Cost + Time How do you quantify or measure a function? Value Theory Functional Value 19

20 Value Metrics Value Metrics provides a proven process and set of techniques to effectively measure performance. Creates a model of the value based information Provides an important means of communication Establishes preferences between options through measurable criteria Allows comparisons to be made based on total value Value Metrics Process Identify Performance Requirements and Attributes Performance consists of two elements: REQUIREMENTS Non Discretionary (no flexibility) Binary response yes/no ATTRIBUTES Discretionary (there is flexibility) Range of potential values Attributes and Requirements must be discretely defined and should not overlap 20

21 Performance Requirement? Current Electrical Endurance Rating: 10,000 cycles Min. Required Endurance Rating (Eur): 6,000 cycles Min. Required Endurance Rating (US): 4,000 cycles What does the customer really need? Customer Performance Performance Rating Customer Preference for Electrical Cycles Electrical Cycles 500 What are we paying for this additional performance? 1,000 5,000 10,000 21

22 Value Metrics Define Performance Define performance attributes and requirements Develop scales for attributes Determine relative importance of attributes Assess Performance Measure performance of alternative concepts Estimate Cost and Schedule Assess Value Compare the relative value of all alternatives Value Metrics Example - New VA Hospital 283,000 GSF Renovation project Multiple Layout Alternatives being considered Objective: Assist stakeholders in selecting a preferred alternative 22

23 Performance Requirements Performance Requirement Code Requirements Critical Schedule Milestones LEED Certification / Sustainability Accessibility Environmental Approvals Definition Building(s) will meet all appropriate building and zoning codes/regulations, including the London Specific codes. The most restrictive codes will be the minimum codes met. The project must meet the following critical milestones. July 2017 is the minimum date acceptable for beneficial occupancy. Project must meet LEED Gold Certification. The design team is striving for LEED Platinum and utilization of 20% renewable energy for the facility. Must meet ADA requirements for new construction. The project must adhere to all applicable environmental laws and regulations. Performance Attributes Attribute Construction Impacts Program Compatibility Aesthetics Maintainability Sustainability Future Flexibility Description A measure of the impacts to ongoing operations and/or to the public in general. This attribute considers delays, disruptions, noise, vibration, dust, visual and temporary environmental impacts related to construction. An assessment of how well the building s interior spaces meet their intended function and the objectives of the overall program. This attribute considers the size and shape of spaces; sound attenuation; lighting characteristics; and special amenities (i.e., data, audio/visual, storage, etc.). An assessment of the building s aesthetic appeal. This attribute considers how well it responds to the site, surrounding structures, the locale and the building s function. A measure of the efficiency for long term operations and maintenance considering a 50 year service life. An assessment of the sustainability of the project in its efforts to reduce consumption of non renewable resources, minimize waste, and create healthy, productive environments. An assessment of the flexibility and adaptability of the interior building spaces to meet future program needs. 23

24 Performance Prioritization Program Compatibility 30.0% Construction Impacts 24.0% Site Organization 18.5% Aesthetics 12.5% Maintainability 7.0% Sustainability 4.7% Future Flexibility 3.3% 0% 5% 10% 15% 20% 25% 30% 35% Performance Comparison Baseline Alt. 1 Alt. 2 Alt Program Compatibility Site Organization Aesthetics Sustainability Maintainability Future Flexibility Construction Impacts 24

25 Comparison of Value Relative Scores Change in Value Baseline Alt. 1 Alt. 2 Alt. 3 Performance Cost/Time Rating Value Index 0.00 (What happens to most presentation handouts from conferences) Value Metrics 25

26 Risk Analysis Traditional Risk Management 26

27 Traditional Risk Management Problem Focused Response Analysis Identification Traditional Risk Management ISSUES/PROBLEMS OBSERVED: Limited number of risks identified Risks identified tended to be too general and not relative to project specifics Low priority risks can take a majority of PM s time Limited number of RiskResponseStrategies Response identified Risk Response Strategies not effective at managing risk 27

28 Function Driven Risk Management Response Solution Focused Analysis Identification Function Driven Risk Response Planning Risk Object Identification Secondary Risk Analysis Brainstorming of Risk Response Strategies by Function Development of Action Plans for Risk Response Strategies Evaluation of Risk Response Strategies 28

29 Function Driven Risk Response Planning Pier 36, San Francisco Risk Analysis 29

30 Risk Management Plan Pier 36, San Francisco Risk Analysis Schedule Risk Ranking Western gulls nest in the project area Caisson removal rate Construction contract award is delayed BCOE finalization is delayed Bids come in higher than the budgeted amount Award of follow on construction contract prior to demolition completion Herring spawning is observed Cultural resource is found during construction Earthquake occurs during construction Salvaging and/or recycling of existing materials Unforseen HAZMAT materials encountered Public protest of project Contractor unable to complete project Opportunities < Index > Threats Pre Response 30

31 Project Functional Overview Remove Obstacles Demolish Warehouse/Abate HAZMAT Demolish Deck and Beams Remove Caissons/Piers Prepare Site Remove Marginal Wharf Maintain Seawall Integrity Meet Schedule Requirements Coordinate Concurrent Projects Pier 36, San Francisco Risk Analysis Schedule Risk Ranking Post Response Western gulls nest in the project area Caisson removal rate Construction contract award is delayed BCOE finalization is delayed Bids come in higher than the budgeted amount Award of follow on construction contract prior to demolition completion Herring spawning is observed Cultural resource is found during construction Earthquake occurs during construction Salvaging and/or recycling of existing materials Unforseen HAZMAT materials encountered Public protest of project Contractor unable to complete project Opportunities < Index > Threats Pre Response Post Response 31

32 Schedule Risk Magnitude Post-Response 0.7 The Cumulative Risk Score is next to each bubble Impact Score > Likelihood Score > Pre Response Post Response Risk Analysis and Risk Response Planning 32

33 Value Theory How well? Performance How much? Cost VALUE Time How long? Risk How certain? Concepts of Best Value The Best Value results when the necessary functions to meet the required performance at the lowest overall cost and least amount of delivery time are performed in the least uncertain way. Performance, Cost and Schedule are Uncertain Performance includes requirements and attributes Risk in costs and durations are comprised of estimating risk and event risk 33

34 Why use Value Methodology? Improve project value Solve problems and innovate Identify the best value alternative Build consensus among stakeholders Validate the baseline concept In some cases, it s the law! How is Value Methodology different? Solves problems by focusing on functions Organizes concepts and techniques into a specific Job Plan Utilizes multi discipline teams Consensus based Seeks to achieve total value improvement 34

35 Who is using Value Methodology? Federal Government Who is using Value Methodology? State Government 35

36 Who is using Value Methodology? Local Government Who is using Value Methodology? 36

37 Conclusion & Take Aways Value is a combination of performance, cost, time, and risk The analysis of all these elements and application of VE techniques can enhance value of any project, process, or product Good VM always increases value, it does not cheapen projects Value Theory How well? Performance How much? Cost VALUE Time How long? Risk How certain? 37