Value for money is sought, specified and required in almost every investment endeavour, business transaction, Board recommendation and project brief. Value Management provides the processes that help deliver better value for money outcomes.
Value Management is a planning and review process which is distinctively different to other processes because of its structured approach using a prescribed Work Plan and an analytical focus to achieve best value or, where appropriate, best value for money.
The Value Management process is proven to deliver better value outcomes than alternative approaches.
Value Management started life known as value analysis in General Electric and then later as value engineering in the USA as an initiative to better manage scarce resources during post-war economic reconstruction. It has been a key element in the ongoing success of General Electric by encouraging boundaryless behavior of its employees, as described by Jack Walsh, the chairman and CEO in the 20 years in which the company’s stock value increased by 4000%.
In Australia we have embraced the various titles assigned to the process under the single name: Value Management. This is the basis of the approach employed in the Australian Standard for Value Management and in the Institute’s efforts in the value debate and education course criteria.
An important starting point in understanding Value Management is the recognition that value and value for money are not the same thing. In Value Management, value and value for money are treated separately.
A complicating aspect in this is that the term value is used in different ways and means different things according to context as well as sometimes being used as an abbreviation for value for money.
It is primarily for these reasons that the Australian Standard was introduced – to provide standard terminology and definitions for the purposes of undertaking the Value Management process.
One of the main tasks of the Value Management process is to identify the value of the entity being considered (but not its monetary value). The Value Management process deals with money separately.
We can capture the perceived value of any entity in three factors, namely:
- the useful purpose fulfilled by the entity
- the benefits that flow from fulfilling that purpose
- the important features and characteristics of the entity.
Value Management Study Facilitators generally refer to these as the value factors. Collectively, they form a value statement.
Value is fundamentally a matter of perception and, therefore, will be different from person to person, organisation to organisation, and from time to time. The facilitated workshop phase of the Value Management process provides the opportunity to capture the value factors from a variety of perspectives.
Value for money
This is where the cost element is introduced into the picture. Having established the value of an entity, we can then explore opportunities and develop proposals to achieve best value for money. The cost element may be in the form of capital costs, recurrent costs, whole-of-life costs, or, in some instances, the resources utilised.
Value for money is a performance measure used to compare options or alternatives. By having already established the value of the entity, alternatives (or options) can be considered to determine which of those costed alternatives delivers best value for money. This is achieved through systematic analysis of the degree or quantum of value provided by each alternative, compared to the other alternatives.
Value Management in action
Value Management can be applied to virtually any entity, activity or decision making task.
The Value Management process may be carried out as:
- facilitated workshops involving key stakeholders or stakeholder representatives at discrete points during the formulation or life of an entity
- by an individual Value Analyst, usually working alone as part of their day-to-day activities.
In both cases, there is a structured work plan to follow which is set out in the Australian Standard for Value Management (AS 4183:2007). This Standard was reviewed in 2018 and found to remain current and relevant.
Value Management workshops are intended to nurture learning, collaboration and understanding about value factors, current proposals (if any), and the context within which an entity is being considered so that stakeholder groups can work collaboratively in developing alternative ways to achieve best value and value for money.
Value Management facilitators are trained to work with multi-disciplinary groups, taking the groups through the work plan in pursuit of agreed objectives. A register of accredited Value Management Study Facilitators is maintained by the Institute and available from here.
WHY IS IMPROVING VALUE FOR MONEY IMPORTANT?
- People seek better results and better outcomes in their transactions
- Value Management processes help optimise the use of finite resources
- Understanding value for money helps make choices easier, and enables involvement in and understanding of decision making
- Introducing more science and less art into decision making through Value Management processes helps understanding and leads to better decisions