An introduction to value management

Editor's Notes

• #3: Introduction – (Opening page)   Agenda
• #4: Introduce presenters Adam Roberts - Project Manager London Underground Full member of the APM Committee member of the APM VM SiG Final year of MSc. Strategic Project Management (Leeds Met)   John Heathcote (MBA) – Senior Lecturer Leeds Metropolitan University Full member of the APM Chairman of the APM VM SiG   This presentation has been created with the purpose of stimulating some open discussion between attendees and the presenter. There are companies and government departments that sincerely believe that they are monitoring Value and continually following various Value Management processes, however if this was the case, then why are there still so many projects failing to deliver significant value.   The first 40 minutes of this presentation we will discuss the history of Value Management, the various definitions of Value and what the APM say about Value Management. Then I am going to ask everyone to partake in a little experiment, which will take about 15 min; after that John Heathcote will continue with the discussion on Value Management, while I process the data from the experiment. The last 10 min; I will be sharing the findings from the experiment and I will discuss the results with you.   This should bring us to around 20.30
• #5: ORIGIN OF VM - Lawrence Miles – 1947 (GE -Procurement)   Value Management was developed by Lawrence Miles in the United States, while working for General Electric Company during the 1940’s. This was out of the necessity to find replacement components and materials due to the shortage created by World War II. Value analysis as it was then known was recognized as a formal process in 1947 and arrived in the UK 10 years later in 1957.   During the preparation of this section of the presentation I came across a video on You Tube, that had everything that I wanted to say and more; so I thought that I would play this short 10 minute clip today as it sums up both the history of Value Management and pays tribute to the father of Value Management – Lawrence D Miles, who died in 1985 at the age of 81     Source: Institute for Value Management
• #6: WHAT IS VALUE? The Value Management Vocabulary, Terms and definitions EN 1325-1 defines Value as “a measure of how well an organization, project, product, or service, satisfies stakeholders’ objectives in relation to the resources consumed”  The concept of Value is based on the relationship between satisfying needs and expectations and the resources required to achieve them, which may change both with context and time. Interpretation of value will therefore tend to vary from person to person and will be influenced by the situation and may change over time. - Source: EN-1325-1
• #7: WHAT IS VALUE? Represented as the ratio of satisfaction of needs (OGC / EN12973) Both the OGC - 2010 publication of “Management of Value” and the European standard EN12 973, describes Value being represented as “the ratio of satisfaction of needs”, whereby: Value is proportional to Benefits over the Cost; thus if the cost is higher than the benefit then the ratio will be less than 1. - Source: OGC / EN 12 973
• #8: WHAT IS VALUE? The EN 1325-1 defines Value as “a measure of how well an organization, project, product, or service, satisfies stakeholders’ objectives in relation to the resources consumed”  The concept of Value is based on the relationship between satisfying needs and expectations and the resources required to achieve them, which may change both with context and time. Interpretation of value will therefore tend to vary from person to person and will be influenced by the situation and may change over time. Source: EN-1325-1 Both the Office of Government Commerce’s 2010 publication of “Management of Value” and the European standard EN12 973, describes Value being represented as the ratio of satisfaction of needs, whereby: Value is proportional to Benefits over the Cost; thus if the cost is higher than the benefit then the ratio will be less than 1. Source: OGC / EN 12 973 Before I continue with this part of the presentation, I would like to ask – just by way of a show of hands – if you think of Value Management is a Subjective process or if you think it is an Objective Process? This question has caused for some real interesting debate in the SiG in recent months; so I was interested to see how divided this group may be? In most cases when looking at value (and arguably all cases) we will express the value outcome in currency – which would suggest that value can be measured in £’s and pence. (in the UK anyway) if value is measured in currency then we can expect that value can be identified and quantified with certainty; and to a certain extent accuracy. According to the OGC – Value as in Portfolio, Programme’s and Project Management is effectively – Value for Money, which is usually reflected in measurable cost. Source: Office of Government Commerce (2010) Management of Value The OGC, are very clear, whereby they state that “Value is subjective” The APM BoK 6th Edition states that: “Value is a subjective term” and means different things to different people. However can we not specify the amount of Value (in currency) we wish to create by the implementation of a project and then objectively manage the performance of the project, resulting in managing the value outcome? (Discuss) - Then surely the management of the specified sum of money, can only be objective? (Discuss) - As it will be the projects objective to deliver the specification as set out in the requirements definition. It is the requirements that will need to specify the value outcome that the project team is required to deliver? (Discuss) - For those of you that believe that Value Management is subjective, is it possible that if you had the full set of requirements and if those requirements were extremely accurate, that you could objectively manage those requirements and in turn objectively manage the Value that the project has been commissioned to deliver? (Discuss) - Could this then raise the question between stakeholders as to how much the deliverable would be worth? (Discuss) - If all stakeholders were in agreement of the monitory value of the project deliverable then surely there is a clear quantifiable value as to the net worth of the project deliverable! Can this deliverable then be managed objectively? (Discuss) Source: OGC (Value of Management) APM BoK 6th edition In his book, Managing Projects for Value (2002), John Goodpasture talks about Value as being a balance of quality, resources and risk; this could be where the anomaly is introduced, as the value assigned to the quality and various risks can be subjective, which would support the consensus that value is subjective. I would say that there is a sliding scale – the less the Project manager knows about the requirements that they are commissioned to deliver the more subjective the value management will be for that particular project and visa versa. It can therefore be expected that if a full set of requirements are locked down at the onset of the project, with complete approval and acceptance from all Stakeholders that the expected delivered value can by managed objectively and the more objectively that the value can be managed the higher the probability of achieving project success. (Which could open up the debate as to what is Project success?) – Not NOW! Goodpasture states that “Truly successful project managers understand that project exist only to promote and benefit the organisation at large” Source: John C Goodpasture Managing Projects for Value
• #9: WHAT IS VALUE? In most cases when looking at value (and arguably all cases) we will express the value outcome in currency – which would suggest that value may be measured in £’s and pence. (In the UK anyway) if value is measured in currency then can we not expect that value to be identified and quantified with certainty; and to extent, accuracy? According to the OGC – Value as in Portfolio, Programme’s and Project Management is effectively – Value for Money, which is usually reflected in measurable cost. Source: Office of Government Commerce (2010) Management of Value
• #10: WHAT IS VALUE? APM – Value is a subjective term / OGC Value is subjective So if Value is subjective, does it not follow that the management of value would also be subjective? (DISCUSS) However can we not specify the amount of Value (in currency) we wish to create by the implementation of a project and then manage the performance of the project objectively? Resulting in managing the value outcome? (Discuss) Then surely the management of the specified sum of money, is objective? (Discuss) It will be the projects objective to deliver the specification as set out in the requirements definition. It is the requirements that will need to specify the value outcome that the project team is required to deliver? (Discuss) For those of you that believe that Value Management is subjective, is it possible that if you had the full set of requirements and if those requirements were extremely accurate, that you could objectively manage those requirements and in turn objectively manage the Value that the project has been commissioned to deliver? (Discuss) Could this then raise the question between stakeholders as to how much the deliverable would be worth? (Discuss) If all stakeholders were in agreement of the monitory value of the project deliverable then surely there is a clear quantifiable value as to the net worth of the project deliverable! Can this deliverable then be managed objectively? (Discuss)  
• #11: WHAT IS VALUE? In his book, Managing Projects for Value, John Goodpasture talks about Value as being a balance of quality, resources and risk; this could be where the anomaly is introduced, as the value assigned to risk can be subjective, which would support the consensus that value is subjective. Could this mean that there is a sliding scale – the less the Project Manager knows about the requirements that they are commissioned to deliver the more subjective the Value Management will be for that particular project and visa versa. It can therefore be expected that if a full set of requirements are locked down at the onset of the project delivery, with the approval and acceptance from all Stakeholders that the expected delivered value could by managed objectively and the more objectively that the value is managed the higher the probability of achieving project success. (Which could open up the debate as to what is Project success?) – Not NOW! Goodpasture states that “Truly successful Project Managers understand that project exist only to promote and benefit the organisation at large” Source: John C Goodpasture Managing Projects for Value
• #12: APM BoK 6th edition Unfortunately the 6th edition of the APM’s Body of Knowledge does not have a specific section for Value Management, however it is quite interweaved with the section on requirements; whereby the APM define requirements as: “the process of capturing, assessing and justifying stakeholders’ wants and needs” Source: APM BOK 6th edition Incidentally, Jeremy Warhurst will be delivering a presentation on ‘The Fundamentals of Requirements’ in London on the 10th July this year; as it can be expected that if the requirements are not correct then it will be near impossible to determine the expected outcome value. The APM state that both requirements and Value Management is about capturing, assessing and justifying stakeholders’ wants and needs but is value management also about managing the Value that can be achieved from the wants and needs of the stakeholders? (Discuss) Source: APM BoK 6th edition The APM refer to the process having four steps: Framing, Gathering, Analysing and processing. Framing the work involves establishing the high-level principles within which requirements will be managed. It will establish how functions such as stakeholder management, risk management and resource management will be integrated with requirements management to maximise value. 
This step also involves an early assessment of the high-level requirements by developing a Value profile that estimates the relative contribution to the Value of each requirement. 
 Source: APM BoK 6th edition The gathering of requirements can be done in any number of ways. It ranges from personal interviews, surveys and workshops, to focus groups, modelling and simulation. 
Some methodologies, including Agile approaches, are designed to enable the continuous gathering and refinement of requirements on the assumption that the stakeholders may not be sure of their needs. 
One of the advantages of a formal method, such as Value Management, is that it provides lessons learned that could be used to review how similar requirements may have been managed previously. Source: APM BoK 6th edition Analysing requirements combines information from functions such as schedule management and investment appraisal with specific Value-based techniques such as function analysis and function cost analysis. The result is a thorough understanding of requirements and the Value they contribute to the overall objective. Source: APM BoK 6th edition The ‘process’ step is primarily about providing feedback to stakeholders, building consensus, and generating ideas. The results of the analysis are communicated through individual consultation or group workshops. This leads to a debate about functionality and alternative ideas. The result is a baseline set of options for functional requirements. Source: APM BoK 6th edition
• #13: Framing the work involves establishing the high-level principles within which requirements will be managed. It will establish how functions such as stakeholder management, risk management and resource management will be integrated with requirements management to maximise value. 
This step also involves an early assessment of the high-level requirements by developing a Value profile that estimates the relative contribution to the Value of each requirement. 
 - Source: APM BoK 6th edition
• #14: The gathering of requirements can be done in any number of ways. It ranges from personal interviews, surveys and workshops, to focus groups, modelling and simulation. 

Some methodologies, including Agile approaches, are designed to enable the continuous gathering and refinement of requirements on the assumption that the stakeholders may not be sure of their needs. 

One of the advantages of a formal method, such as Value Management, is that it provides lessons learned that could be used to review how similar requirements may have been managed previously. 

 - Source: APM BoK 6th edition
• #15: Analysing requirements combines information from functions such as schedule management and investment appraisal with specific Value-based techniques such as function analysis and function cost analysis. The result is a thorough understanding of requirements and the Value they contribute to the overall objective. - Source: APM BoK 6th edition
• #16: The ‘process’ step is primarily about providing feedback to stakeholders, building consensus, and generating ideas. The results of the analysis are communicated through individual consultation or group workshops. This leads to a debate about functionality and alternative ideas. The result is a baseline set of options for functional requirements. - Source: APM BoK 6th edition
• #17: What is Value Management? In the book ‘Value Management of Construction Projects’ the authors define Value Management as a process and links the functional benefit with the client’s expectation. This may suggest that value is subjective, but once the value criteria has been agreed and established i.e. the stakeholder requirement is clearly outlined. Could the management of that expectation possibly be objective? (DISCUSS)   In this respect it can be suggested that it is imperative to have a clearly defined definition of the expected Value outcome for the project before attempting to manage the stakeholders expectations. Source: John Kelly, Steven Male & Drummond Graham Value Management of Construction Projects Value Management is a process and links the functional benefit with the client’s expectation
• #18: What is Value Management? The European Standard defines Value Management as “a style of management, particularly dedicated to motivate people, develop skills and promote synergies and innovation, with the aim of maximizing the overall performance of an organization” - Source: (EN12973)
• #19: The Institute of Value Management define Value Management as “a structured team based approach to identify functional requirements of projects and / or contracts to achieve Optimum Function for Minimum Cost” - Source: Institute for Value Management website
• #20: A White Paper was produced last year by the Value Management Specific interest Group and it describes Value Management as a technique, that if used correctly and at the right time in the life of a project, it can greatly enhance the Value for money that a project can deliver. It also suggests that we should not be willing to accept benefits at any price but only benefits at a cost that makes them worthwhile, thus creating Value. (Discuss) It is suggested that there is often no linkage between the successful delivery of a product to the project manager’s triple constraint (Time, Cost, Quality) and the achievement of benefits. The example of Wembley Stadium is referred to regarding the fact that it was late and over budget but there is still every chance that the benefits as the national football arena will be felt for many years to come. (Discuss) The paper then suggests that Value Management and Value Engineering are techniques that can help to create value early in the life of a project? (Discuss) Source: Peter Langley & The VM SiG White paper (2013) We are coming up to the end of the first part of tonight’s presentation; but before I finish I would like to quote a passage from the European Standard for Value Management: “The EN 12 973 represents a consensus of views and provides a benchmark of good practice.  It is designed to provide flexibility and can be applied in a very wide range of circumstances.  It captures the essence of Value Management and provides a framework for its application.  It describes a range of useful tools and encourages the selection of the most appropriate methods to achieve the desired outcome” - Source: EN 12 973
• #21: A White Paper was produced last year by the Value Management Specific interest Group and it describes Value Management as a technique, that if used correctly and at the right time in the life of a project, it can greatly enhance the Value for money that a project can deliver. It also suggests that we should not be willing to accept benefits at any price but only benefits at a cost that makes them worthwhile, thus creating Value. (Discuss) It is suggested that there is often no linkage between the successful delivery of a product to the project manager’s triple constraint (Time, Cost, Quality) and the achievement of benefits. The example of Wembley Stadium is referred to regarding the fact that it was late and over budget but there is still every chance that the benefits as the national football arena will be felt for many years to come. (Discuss) The paper then suggests that Value Management and Value Engineering are techniques that can help to create value early in the life of a project? (Discuss) Source: Peter Langley & The VM SiG White paper (2013) We are coming up to the end of the first part of tonight’s presentation; but before I finish I would like to quote a passage from the European Standard for Value Management: “The EN 12 973 represents a consensus of views and provides a benchmark of good practice.  It is designed to provide flexibility and can be applied in a very wide range of circumstances.  It captures the essence of Value Management and provides a framework for its application.  It describes a range of useful tools and encourages the selection of the most appropriate methods to achieve the desired outcome” - Source: EN 12 973
• #22: What is Value Management? And finally I would like to reiterate what Value analysis is NOT. Value Management / Analysis is definitely NOT a cheapening process. Reliability and performance should never be sacrificed just for the sake of cutting costs. (Discuss)
• #23: Findings   An attempt has been made to illustrate the effect of not giving a complete set of requirements. The hand out’s contained two different sets of requirements. Although very similar, half of the pages that were handed out for the purpose of this experiment contained an additional 3 words. Each page contained 100 words of instructions, informing you of the requirement, however 50% of the pages included an additional 3 words (103 words) effectively resulting in 3% additional information. The three words were – read diagonally upwards   The purpose of the experiment is to determine the percentage time difference that has resulted, in this case, by giving an additional 3% of information.   The result has been …… To be added on completion of the presentation