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
FREQUENTLY ASKED QUESTIONS
Does value change over time e.g. where a project is varied to meet budget?
It can vary, particularly if one or more of the underlying circumstances on which a decision was made changes. Such changes might alter such things as the project purpose or the performance or returns of the project, or even (at the extreme) postponement or cancellation of the project.
Contingency plans, including a specific topic on value for money management, can anticipate changed circumstances and identify ways to respond to them.
How do you get input from and ultimately agreement amongst stakeholders that have differing views, perspectives, agendas and the like?
The key is skilled facilitation of the value management study and value for money processes, where the facilitation deals exclusively with those processes without regard to the project or its eventual solution.
Facilitators will draw out issues and considerations from all study participants to build shared knowledge and understanding, and from which an agreed value statement will derive.
How do you get input and feedback from quieter/more introverted members of a stakeholder group?
Skilled facilitation of the value management process (not the project or process under consideration) is the key to a successful workshop outcome. Also, the pre-workshop information sharing phase can be used to draw out issues and begin to have stakeholders focus on the primary purpose of the entity.
How important is a value statement to project outcomes?
A value statement is the foundation on which the entire value for money process is based.
By starting with the end in mind (for example, the entity exists in order to …), the value statement underpins the development and evaluation of alternative solutions.
How are relatively intangible concepts such as equality and diversity incorporated into value for money considerations?
The value triangle in the Australian Standard for Value Management AS4183:2007 does not discriminate in these (or any) areas. It is entirely objective in its processes.
All pertinent considerations regarding an entity can (and should) be made explicit as part of the information sharing and understanding phases and included in the value statement or the supporting importance, benefits and purpose statements where relevant to do so.
What are the biggest barriers to achieving best value for money?
One of the most important factors in the success of a value management study workshop is having the right stakeholders from all impacted or related agencies in the room, and fully available and engaged throughout the study period.
How can best value for money be achieved if the focus is on the capital cost or price of an entity?
Part of the answer to this question is the perspective from which value for money is viewed. For example, a developer seeking to build and then on-sell a project is likely most interested in capital and financing costs with little regard to what it costs to operate.
An agency seeking to develop and subsequently own and operate a project will likely be more interested in whole-of-life costs, although even this can be difficult when capital and recurrent budgets, such as in the public sector, come from different sources.
Research shared by the University of Melbourne highlighted cost relativities, and the impacts of early decision-making on whole-of-life costs: $1 spent at the design phase will result in $20 in construction costs and $90 over the operational life of a construction project.
When should value for money be considered in the life cycle of planning, developing and implementing a project?
The general answer to this question is: the earlier the better, from strategic planning to project planning (purpose, options, analysis, solution).
For example, if a value management study is conducted after design is completed, the focus is more about delivering the project rather than identifying the right project in the first instance; that decision has already been made. Such studies are also often directed towards cost savings against a fixed budget, and without broader considerations of such things as business outcomes and whole-of-life costs.
What is the typical size of a value management study workshop group?
The typical value management study workshop usually comprises between 15 and 20 people but it is not unusual for groups of 50 or more to be needed for proper stakeholder representation where a project or entity involves multiple agencies and/or interfaces.
How long does it take to achieve alignment of views in a large workshop group?
Even in groups of 50 or more, agreement by the group of the primary purpose of the project or entity can usually be achieved in around 90 minutes, with lesser timeframes for smaller groups.
What is happening in Australia regarding education and training about achieving best value and best value for money outcomes?
Value management and value for money education and training is somewhat disjointed across Australia, with subjects taught variously across building/construction, engineering, finance, project management and economics faculties (amongst others). Further, topical coverage is not necessarily comprehensive when measured against the Australian Standard for Value Management – AS4183:2007. For example, economics might focus on the net present value of a series of cashflows whilst building/construction might focus on capital costs.
The IVMA accredits a number of providers offering courses based on AS4183:2007 leading to recognition as a Value Analyst or Value Management Study Facilitator upon successful completion.
Where is value management and the achievement of best value for money heading in Australia?
The IVMA recently made successful representations to the Project Management Institute (PMI) for recognition of the management of value in the next iteration of the Project Management Body of Knowledge (PMBOK).
IVMA continues to engage with all levels of government and industry about achieving best value for money for their various stakeholder groups, including the facilitated value management study workshop approach.
IVMA has been collaborating with the University of Melbourne for over five years to develop and present value for money teaching in its building faculty as well as undertaking value-related research. The two groups also collaborate in presenting an ongoing series of webinars on achieving best value for money (and from which some of these FAQs derived).
Which industries/sector are most mature in terms of formally pursuing best value and best value for money outcomes from investments?
The roads and transport sectors have been utilising value management and value for money techniques for 30 years or so in Australia. More recently, the mining sector has embraced the concepts, with one of the leaders in the sector requiring demonstrated value for money for each and every investment decision.
Preparations for the 2000 Sydney Olympic Games were subject to extensive value management studies from operational and crowd safety aspects to the individual sporting and organisation venues and transportation facilities.
When is the best time to conduct a value management study?
Generally, the earlier the better.
Studies at the briefing stage have the advantage that the value triangle can be a prompt to investigate and document the justification for a particular project or program. Questioning the justification at this stage can result in a significantly more useful product or solution.
If an organisation or industry identifies the need for change in its product or operations, value management is a valuable process that focuses on future requirements and alternative ways of achieving them.
Can a value management study be of use during the ongoing construction / development process?
The value management study will contain useful information on the required performance of the project and project elements and the decision-making rationale behind them. This can be of use if problems occur in securing materials or specialised labour or if market conditions change.
Problems can be avoided and opportunities can be realised.