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An overview of value management, John Heathcote


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An overview of value management, John Heathcote

  1. 1. An Overview of the salient features of ‘Value Management’ v01 June‘13 The APM’s VM SIG (Value Management specific interest group) Author: John Heathcote MBA MAPM
  2. 2. Slide contents list Slide 3. What is Value Management? 4. Value Engineering at GE 5. What is Value? 6. APM BoK 6th Ed 7. The 3 processes in PM that are most likely to influence Value in the project. 8. Problem definition (the Brief) 9. Contemporary flaws with Problem Definition (Brief) 10. Solution generation/selection (Definition) 11. Contemporary flaws with Solution generation/selection (Definition) 12. Business/Investment Case 13. Contemporary flaws with Business/Investment Case 14. The [facilitated] Team 15. The [facilitated] Team: The Job Plan 16. When VM/VE is flawed? 17. Concluding short guidance. 18. The Limitations with this Presentation version. 19. Natural Links between Value Management & Other APM SiGs 20. Web sourced methods: Client focussed VM 21. Web sourced Images of VM approaches 22. Value Engineering (Wikipedia source) 23. GE’s ‘Job Plan’ approach 1 of 2 24. GE’s ‘Job Plan’ approach 2 of 2 2
  3. 3. What is Value Management (VM)? VM might be described as: “as a process or methodology which has been developed and adapted for the better selection and design of better value outcomes for projects.” source: Author “It might have particular high value to Project management in general if it becomes a way of thinking about projects, a ‘value’ perspective rather than a ‘transactional’ perspective of projects” source: Author Originally (Like many PM techniques, aimed at manufacturing .. It has latterly been applied, (by ICE, who provided a structured guidance about how it might be applied to projects) to projects. .... 3
  4. 4. Value Engineering’s roots at General Electric Value engineering began at General Electric Co. during World War II. Because of the war, there were shortages of skilled labour, raw materials, and component parts. Lawrence Miles, Jerry Leftow, and Harry Erlicher at G.E. looked for acceptable substitutes. They noticed that these substitutions often reduced costs, improved product, or both. What started out as an accident of necessity was turned into a systematic process. They called their technique "value analysis". Source: 4
  5. 5. What is Value? So if this is a process about arriving at more/optimum ‘value’, first we should decide what value is..... The APM VM SiG summarises this debate by reducing ‘value’ to: V = Benefits/Cost Previous APM BoKs have described value as..... V = Stakeholder satisfaction/cost of resources and Value = Benefits &Key Stakeholder requirements/ resources used We have a preference for the V = Benefits/£ as later we will describe how stakeholder interests, whilst important can represent a distraction, in some instances, from a value focus. 5
  6. 6. APM BoK 6th Ed In this 2012 BoK edition, value management is seen as a sub- set of ‘requirements planning’. This is because the notion of value is sometimes related to the idea of accurately specifying the functional requirements of a project. And greater functionality / cost is increased value. So this is a similar viewpoint... And .. A critical difference that the VM SiG would like to point out, is this keeps projects within a “transactional” perspective, and the SiG believe project management might be better serves by moving to a “value” perspective. 6
  7. 7. So VM tends to concern itself with the PM processes that are the most likely to have a significant influence on the project’s delivery of value.. They are: Problem definition (Brief) Solution generation/selection (Definition) Business/investment case A VM-type process has the potential to make a disproportional positive influence on the project’s value proposition, is because it will likely influence these three aspects of the project positively. 7
  8. 8. Problem definition/Brief Several writers on managing projects, mention the idea that a project should solve a problem. (Kerzner; OU; Gardiner; Noguiera 2010) Nogueira (2010) placed great emphasis on this aspect of the project. Projects should be about solving problems*, and those problems should be clearly and carefully defined... Before the solution is arrived at. This idea of projects as solving carefully defined problems currently (2013) remains a generally overlooked aspect. It is critical to the VM process, & to projects in general that the ‘problem’ is defined. This defining of the problem, might result in: the project being abandoned, because, on analysis, there’s not really an issue to be addressed; or that the the original proposal for the project is radically re-defined. Certainly ‘problem definition’ should lead to deeper understanding of the issue/problem that is being addressed. This single aspect of project management is the one which, being at is it, at the start of the project, has most potential impact on value.. Root cause analysis is an important feature of problem definition and one of the techniques used to assist in defining the problem, as is the Ishikawa or fishbone diagram. * An opportunity is defined by Nogueira as also being a problem. 8
  9. 9. Contemporary flaws with Problem definition/Brief 2 This problem part of the VM process works, because tragically so few projects proceed without a clear problem start, beginning instead with an assumed solution, or a preferred solution, coming out of a strategic planning process, or based on too many assumptions. Or, commonly, simply because a budget exists and something ought to be done. Of course contractors simply carry out the specifications in the contract, assuming the client knows what they want, although research at Leeds Metropolitan University (Bleier & Heathcote 2009) demonstrates contractors believe this is a significant problem that prevents them assisting their clients in delivering more value. Some project areas, (such as public health in the UK) have highly defined ‘problems’, they are able to predict where general health problems are and so develop responses to prevent issues developing, such as smoking cessation. Modern policing is similar, ‘intelligent policing’ for instance allows the UK police force to also target known problems and so use their resources more effectively. Both areas have brought about rapid improvements in recent times (Ref) 9
  10. 10. Solution generation/selection (Definition) Once the problem has been defined an ‘optimal’ solution can be sought. VM facilitators will deliberately separate the problem definition work in a team VM workshop process to prevent the most common logic error (the availability error), this might be best illustrated by explaining the VM SiG’s ‘first good idea error’. The first good idea error, is made when the project team goes with the first reasonable idea they come up with, rather than spending any time or any deliberate process to seek a more optimum solution. Edward DeBono (1971) highlighted this problem in organisational decision making and coined the term ‘lateral thinking’ seeking to better equip people to be more creative in their decision making by seeking other, better alternatives, by: - Creating more options, to choose from; - Thinking beyond ‘tried & tested’ solutions or the typical solution (he called this pattern breaking), - Or, critically for project management scenarios, the solution that came with the project brief! 10
  11. 11. Contemporary flaws with Solution generation/selection (Definition) 2 This problem part of the VM process works, because tragically so few projects proceed without any thought been given to what a better solution might be. Several factors conspire to prevent even a scant search for another alternative: - Suspending judgement is difficult in non-facilitated meetings, options are too readily evaluated thereby curtailing the search for other solutions. - A ‘good’ solution might seem obvious. So going with that is socially easy on the team process. (And objecting is likely to be seen as too challenging in to the group’s coherence). - The project brief, once allocated to the PM is likely to be described by the anticipated solution, i.e. “The Millenium Dome” ..that describes the project as a solution, but determining the solution it is addressing is much harder. Reviewing and changing the project as it is handed to the PM might be seen as a challenge to management decision making. And so difficult to do in some organisational cultures. - A tired & tested technical solution might be ‘known’ by the technical ‘experts’ in the team, for instance Civil Engineers tend to think of Civil Engineering solutions, & IT Engineers, IT ones, often to the same problems. Moving away from a known solution presented by the technical expert is likely to be perceived as risky! - Examining this further IT programmers frequently report the client fails to understand the problem well enough to allow the solution to be designed, though all proceed from the assumption IT will be the answer, usually an IT solution also requires a business process redesign too. 11
  12. 12. Business/investment case To properly develop the carefully selected solution, it should be p[resented in terms of ‘objective criteria’ Ury & Fisher (1999) suggested problems & solutions should be presented using ‘objective criteria’, that’s to say measurable criteria that allow the Business case to be measured, monitored and evaluated later on, (See link with Benefits Realisation) For instance measurable criteria might include: – Anticipated increase in sales; – New revenue; – Increased performance; – Reduced operational costs; – Improved market share; – Greater no.s treated, compared to pre-project. What is should NOT be, are un-measurable claims, such as: – To improve the reputation of the company/org; – Because a stakeholder/manager will be ‘pleased’ with it; – It meets a policy directive, (It might do, but demonstrate a measurable value too!) 12
  13. 13. Contemporary flaws with Business/Investment Case 2 Benefits & their costs have RISKS... – Each business case should reveal the risk s associated with the promised benefits, for instance: • Each benefit should have a minimum & maximum expectation; • Each cost associated with each benefit should also show how reliable that estimate is. Project business cases in recent times (Grey report; Flyvberg) have demonstrated a remarkable capacity to exaggerate their benefits, while underestimating risk. A ‘Conspiracy of Optimism’ (ref) 13
  14. 14. The [facilitated] Team Much of the VM process outlined in this shortened presentation identifies critical parts of the early project lifecycle to illustrate the thinking required to make VM be a positive influence on projects. It is largely presented as better decision making, deciding on the problem first before looking at solutions, thinking about other alternative solutions and using objective measurable criteria to present the ‘value case’. To support that better decision making VM-type processes advise using a team approach (so more information is available), a workshop, and a facilitator who facilitates the rational decision making process (and doesn’t get involved in the detail). So VM-type processes tend to be focussed around team working, workshops, lasting 1 or 2 days typically. (Often perceived as expensive, but these are minimal costs compared to most VM outcomes.) 14
  15. 15. The [facilitated] Team: The ‘Job Plan’ Here’s a simple outline of a team workshop process: 1. Present the Information we have. (Info Phase); 2. Define the problem; 3. Generate options for solution; 4. Evaluate the options (using risk and objective criteria for defining benefits); 5. Make a recommendation...Supported by a business case 15
  16. 16. When VM/VE is flawed? In the VM SiG’s road show tours to APM UK branches repeating themes reoccur from APM members: As a process many people who have a good faciLove it or Hate it... litated workshop experience become converts! However the processes are (abused?) in some instances to simply reduce project costs to fit within an assigned budget perhaps, in such cases value is stripped out of the project faster than cost and leaves a sour taste in the APM member. A good deal of criticism is aimed at the cost cutting use of VE. While reducing cost can add value, functionality or benefit should be protected and the chief concern of the team. Mentioned earlier where: - Exaggerated business case benefits; Risk should accompany estimates to demonstrate to decision makers the reality of the situation. - Benefits realisation processes will help with this, to ensure there’s audit of the business case promises. 16
  17. 17. Concluding short guidance to PMs If you only remember 3 things, about VM remember: 1. If there’s no (defined) problem there’s no project! 2. Don’t succumb to the 1st good idea error; have a longer think, consult.. 3. Make sure your business case has measurable objective criteria, so you don’t fool yourself and others! 17
  18. 18. Limitations of this presentation version It’s Just an outline, Tries to demonstrate the ‘thinking’ principles behind Value Management. To do so it leaves out (for later), Much about the myriad of methodologies that might be utilised: VM, Value Engineering; Value Analysis; Lean; Six Sigma; Waste Stream Mapping; etc. & it leaves out: details about the important ‘facilitator’ role; How the VM process might be used apart from just at the start of projects; How VM ought to be thought of as an iterative process; Methodologies to support better problem definition; Methodologies associated with option generation, lateral thinking & innovation. 18
  19. 19. Natural Links between Value Management & Other APM SiGs Benefits (Benefits Management is critical to the VM concept... V = Benefits/£) Governance (A Governance process that has gated decision points and informed oversight at the points of ‘problem definition’ & ‘investment case’, plus has a change process to handle changes when the project moves from the original forecasts in the ‘investment case’ will be a powerful support to any Value Management intention ..PRiNCE2 does some of this.) ProGramme Management (Critical to the ideas mentioned so far is Benefits Management, & Realisation.) People (VM as a process recommends facilitated workshops, and utilising the potential power of the team to innovate in problem definition & beyond 1st good idea error.) Risk (It is difficult to consider proposing an ‘investment case’ without considering the risks to it. A Risk Management process should be utilised alongside the Value Mgt process to: test assumptions; evaluate options; &to qualify decisions/proposals.) 19
  20. 20. Appendices 20
  21. 21. Client focussed VM methodology: 21
  22. 22. Images for VM processes: &sa=X&ei=teWxUevyEunV0QWSqoGIBA&ved=0CDcQsAQ&biw=1280&bih=632 22
  23. 23. Value Engineering Value Engineering is seen as: From Wikipedia: Value engineering (VE) is a systematic method to improve the "value" of goods and services by using an examination of function. Value, as defined, is the ratio of function to cost. Value can therefore be increased by either improving the function or reducing thecost. It is a primary tenet of value engineering that basic functions be preserved and not be reduced as a consequence of pursuing value improvements. [13] 23
  24. 24. GE’s original ‘Job Plan’ approach, 1 of 2 Value engineering is often done by systematically following a multi-stage job plan. Larry Miles' original system was a six- step procedure which he called the "value analysis job plan." Others have varied the job plan to fit their constraints. Depending on the application, there may be four, five, six, or more stages. One modern version has the following eight steps: 1. Preparation 2. Information 3. Analysis 4. Creation 5. Evaluation 6. Development 7. Presentation 8. Follow-up Four basic steps in the job plan are: 1. Information gathering - This asks what the requirements are for the object. Function analysis, an important technique in value engineering, is usually done in this initial stage. It tries to determine what functions or performance characteristics are important. It asks questions like; What does the object do? What must it do? What should it do? What could it do? What must it not do? 2. Alternative generation (creation) - In this stage value engineers ask; What are the various alternative ways of meeting requirements? What else will perform the desired function? 3. Evaluation - In this stage all the alternatives are assessed by evaluating how well they meet the required functions and how great will the cost savings be. 4. Presentation - In the final stage, the best alternative will be chosen and presented to the client for final decision. Source: 24
  25. 25. GE’s original ‘Job Plan’ approach, 2 of 2 How it works: VE follows a structured thought process to evaluate options as follows. Gather information 1.What is being done now? Who is doing it?What could it do?What must it not do?Measure 2.How will the alternatives be measured? What are the alternate ways of meeting requirements?What else can perform the desired function?Analyze 3.What must be done? What does it cost?Generate 4.What else will do the job? Evaluate 5.Which Ideas are the best? 6. Develop and expand ideas What are the impacts?What is the cost? What is the performance? 7.Present ideas Sell alternatives Source: 25