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Risks and value management are very much interrelated tasks and should be undertaken in parallel. Value management is concerned with alternative solutions based on a set of constraints that have been analysed in order to approve the best available option in terms of specification, cost, etc. Risk management looks at generated alternatives to remove any elements of surprise. Poor risk management is therefore a main cause of project collapse. An adequate understanding of both value and risk management is a major contributor in improving project performance.
In practice, a value management exercise is performed first, to determine what represents value to the project or to the business as a result of delivering the project. Once a preferred option is identified, the risks that are likely to occur if that option was implemented are also identified. An integrated project team (value management and risk management) repeats the exercise of identifying value and the associated risks until they reach an optimum balance between value and risk.
4.2 Value and value management:
Value, in a broad sense, is concerned with achieving benefit to the client. That is, the proposed project is worth it and benefits could be measured in business terms but not essentially in financial terms, for example, to create better working environments or to improve patients’ experience during treatment. Value implies ensuring the right decisions are taken to obtain an optimum balance of benefits with respect to cost and risk.
Value management then provides a systemised approach for assessing and developing a project to improve the chances of achieving project requirements at an optimum value for money. Value management is an ongoing process in which all relevant components in a project are critically appraised to verify whether more valuable alternatives are available. The emphasis of value management is on value for money and function not on reducing cost.
Benefits achieved through VM include an improved understanding of business needs and the flexibility to meet further future needs as well as the attainment of optimal value for money while meeting user requirement. VM also prevents unnecessary expenses by reducing waste, enhancing team work and having joint ownership of solutions.
4.3 Value engineering:
Value engineering follows a work plan involving a series of stages that need to be executed in order so that the most promising proposals; or options can be determined. These steps are:
Orienting/identifying: This will involve identifying the business problem, customer priorities and needs.
Collecting information: This step entails collecting information or data regarding costs, values, risks and other project constraints.
Speculating/generating: This implies generating ideas to meet project needs and priorities which have been previously identified. This process is best carried out through a workshop with involving stakeholders and team members. The purpose is to generate ideas in a ‘criticism-free’ atmosphere that encourages free thinking and creativity.
Evaluation ideas: This step identifies the most favourable option in the last step.
Development ideas: The most favourable and promising options are appraised and developed, which may be carried out by sub-groups of the above workshop.
Recommending/deciding/implementing: The results of the last step are presented to the group for a decision to be made on which proposal to follow. An action plan is then prepared to pursue the proposal.
Giving feedback: The success of the selected and implemented option is evaluated for lessons to be learned and to inform future projects.
Once a design has been developed to a reasonable cost, the team should carry out a value engineering study. The purpose of this study is to optimize the cost, quality of the design and delivery time:
4.3.1 Preparation/information phase:
This initial phase of VE analysis comprises a pre-study session
During pre-study, the facilitator collects data related to the background of the project, its requirements and cost. The facilitator will then arrange and summarize the data to be reviewed by the VE Team. The project manager will usually provide data which may require validation or enhancement once the VE team has defined the project areas that present maximum savings.
22.214.171.124 Study session:
The facilitator arranges for the project and plan managers to present to the VE team a briefing the objective of which is to complement the design documents and respond to queries by the VE team. The project and plan administrators may be called upon to address questions as they come up.
After the briefing, the VE group separates basic and secondary design functions and founding cost-to worth ratios relating to such functions. The objective is identifying poor value functions which give high cost-to-worth ratio. During the briefing the study leader asks three questions:
What is the problem or opportunity the study has to address?
Why a triple or an opportunity is considered as such?
Why is necessary to solve a problem and what consequences arise from leaving the problem unresolved?
The inputs of the workshop typically comprise:
A project-brief summary.
The role model developed beforehand
The design report.
Two techniques are used to identify the weakness of value function: the Function Analysis System Technique (FAST) and the cost model, which is generally unaccepted as a standalone technique, but it can be integrated into the FAST diagram. Developing the FAST diagram engages the VE team with the study items and imposes rapid exploration.
4.4 When to manage risk and value:
Integrating value and risk management is a continuous process right through the project lifecycle. These activities help to inform key decisions in the stages below where both risk and value management processes integrate:
4.4.1 The stage process:
The stage process reduces overall project risk through assessing the project at key stages to ensure that it can move forwards successfully to the subsequent stage. Early on in the process, a decision is made concerning the balance of cost and risk with respect to value conveyed to the client regarding business benefits. At a later stage, the focus will be on controlling risk and prospects for enhancing value, having decided about the optimum course forward.
4.4.2 Risk and value management review points:
Before Stage 0: Value management identifies stakeholders’ needs, priorities and objectives; risk analysis of high level risks and potential options.
Stage 0: Strategic assessment.
Before stage 1: High level risk management. Value management to evaluate options to meet users’ needs.
Stage 1: Business justification.
Before stage 2: Value management to improve output-based specifications, evaluate and refine options that satisfy project brief. Risk management to identify risks related to each alternative, management cost (avoidance, acceptance, design/reduction, share or transfer). Go over risk allowance.
Stage 2: Procurement strategy.
Before stage3: Value management to utilize selection and award criteria, update risk register, risk allowance and revise base estimate.
Stage3: Investment decision to be taken before decision point; value engineering to optimize design quality and cost, to assess option buildability by the integrated project team; risk management to identify outstanding risks; to control risks and risk allowances; agree and apply collective risk management method.
Decision point 1: Outline design.
Before decision point 2: Detailed design.
- Value engineering to optimize design quality and cost.
- Project team to assess design buildability.
- Risk management to identify residual risks and to continue managing risks and their allowance.
- To continue implementing joint risk management.
Decision point 2: Detailed design.
Before stages4: -To finalize the design and begin construction.
- Risk management to continue during construction.
- Value engineering for detail of finishes etc.
Stage4: Readiness for service.
Before stage 5: Ongoing risk management; review of value management; feedback on lessons learned.
Stage5: Benefits evaluated.
4.5 Integrating Value and Risk Management activities:
Both value engineering management must be undertaken at regular basis in the project
Value management and value engineering may be used some or all the following:
To establish what value means to clients in terms of priorities and business benefits.
To identify and agree on business needs.
To identify and evaluate options for business needs.
To select and agree on best option for meeting business needs.
To define and agree on project objectives.
To select and agree on best project options, and draw on the experience of independent advisers.
To set and weigh up the award and selection criteria for appointing an integrated supply team.
To evaluate the bids of the integrated supply teams against the criteria for selection and award evaluation.
To refine the design of the project to a maximize value, eradicate waste and withdraw any aspects unrelated to project objectives.
A value management advancement helps at all levels of the decision-making process. The concept of value center on associating between satisfying various needs and the resources available to do so. The greater the level of satisfied needs with fewer resources used, the better the value. Even though stakeholders (external and internal customers) may well hold disagreeing views of what really represents value, the purpose of value management is reconciling such different views such that an organization achieves greater progress towards fulfilling its stated goals using the minimum of resources.
4.6 Value and risk management application:
Applying both value and risk management is required to maximize the chances of project success. Value management concerns itself with articulating the meaning of value clearly to the clients and then to maximize the delivery of value by devising a link from the project main objectives, through the design solutions, ending with the product.
Risk management on the other hand concerns the identification of risks and uncertainties which reduce value but taking management act to reduce or avoid risk. While value is maximized by applying value management, uncertainty and resulting decline of value is minimized through risk management.
Focus of Value Part of Study
Is this the right project?
What are the project objectives?
What is the best option?
Is this the most effective solution?
Did the researcher achieve our expectations?
Is productivity optimized?
Focus of Risk Part of Study
Are the risks acceptable?
Are conditions in place to proceed?
Are risks allocated appropriately?
Are risks under control?
What can the researcher learn for the future?
Is the business sustainable?
Integration of value and risk management through the project life cycle 
Figure 9.2 illustrates the integration of value and risk management throughout the project lifecycle as well as the focal point in each technique.
Table 9.1 below highlights the integrated value and risk management reviews that clarify the type of value and risk studied, the issues addressed and the output gained from each phase in the project. It can be seen by the use of the arrows potential reiteration which may be necessary if circumstances require strategic changes to the project.
Value Study Type
Risk study type
Strategic Fit Need for Project
Recommendations to sponsor
Strategic risk study
Linking Design Consideration to project objective
Value and risk profiles project brief risk allocation management plan
RM 1nitial project risk study
Select option Procurement strategy Project organization
Brief risk register and management plan
Project risk review
Optimizing cost, time and quality
Inform design development and tender documentation risk register and management plan
Detailed project risk review
Review cost effectiveness optimize components
Refine detailed design and construction risk management plan
Construction risk management
Lessons leader for future projects identify future project needs
Operational risk review
Arrows indicate potential reiterations that may be necessary should circumstances require some strategic changes in the project.
Table 9.1: Milestones for integrated value and risk management reviews
4.7 Identifying poor value:
Two techniques are used to identify poor value functions: the Function Analysis System Technique (FAST) and the cost model, which is generally unpopular as a standalone technique, but it can be integrated into the FAST diagram. Developing the FAST diagram engages the VE team with the study items and imposes rapid exploration.
After the FAST diagram has been completed, the Value Engineering team generates ideas for each poor value in the basic function. Brainstorming is used to generate ideas that could be developed into alternative solutions to the original concept. A facilitator encourages creativity and divergent thinking by team members. The team leader defers judgment of ideas until as many ideas as possible are generated.
4.7.1 Evaluation or analysis phase:
During the creative phase, critical comments are suspended to encourage a flow of ideas. The VE team then considers the feasibility to all ideas. Therefore, the purpose of this phase is to sort out the brainstormed ideas and select the most viable ones, which will be passed forward to the next development phase. If an idea is economically and technically feasible, it will be presented as an alternative to the project design. If an idea is seen as infeasible, it will not be considered during this phase.
4.7.2 Presentation phase:
When an alternative design is developed and remains viable, the VE team incorporates it into a proposal to be presented in a coherent format. The VE proposals are presented to delegates of the project’s planner and administration. The review board meets to make one of four decisions for each proposal:
Accepting the suggestion as presented.
Revise with modifications as noted; or
Decline as presented.
Defer action until further information is obtained or additional analysis is completed.
The board must however explicitly state the rationale for each decision. If there is a deadlock on a certain proposal, it can be deferred for further reviewing in a timely manner and in the form of a report.
4.8 Value Engineering study report:
The VE report documents the VE Team activities. A preliminary report typically prepared at the VE analysis session contains all proposals evolved by the Team. The preliminary report typically includes:
A list of the VE team.
Scope of VE analysis.
The methodology used in the analysis including the team’s responsibilities.
Summary of whole brainstormed thoughts.
Summary of alternatives rejected by the VE group .
Summary of VE proposals and a description of original or other designs.
4.9 Final report:
The final report is prepared after all proposals are resolved including explanation by the review board. The report describes the nature of the VE proposals that are included on preliminary report.
final report includes:
A list of the review board members.
A summary of the cost savings due to the VE study.
Disposition of the proposals.
Implementation timetable and related costs.
The basis of the assessment board’s for their disposition.
VE proposals that have been rejected will also be included of the final report including the reason for rejection, which may be due to cost-effectiveness, unusual operation, reliability, maintenance problems, or expected delays.
Value management is concerned with the clear articulation of what represents value in terms of project benefits and relating these to the more cost-effective design solution. Risk management centres on identifying risks and the causes of uncertainty and planning mitigating measures to reduce the risks’ impact on the project. While value management can minimize risk, risk management provides opportunities to maximise value and avoid jeopardising it.
Unless value is articulated clearly at the beginning of the project and afterward delivered in the product, there will be no maximization of value. Moreover, unless risks are identified and their consequences managed, value will be distorted. This emphasises the bond between risk and value management as a strategy for increasing the success chances.
Value and risk management must not be treated separately or applied in isolation of each other. The two techniques should complement one another and consequently they are integrated at different project stages under the management team to guarantee full understanding of the value of the project and the major risks involved and hence value and risk are studied at the same workshops which brings greater positive outcomes on the project objectives.
5. Conclusions and recommendations:
The proceeding parts of this research work have aimed at realizing the research objectives pointed out in chapter 1. This process has involved a detailed review of the fundamentals of risk and value management which served as a background to determine their status in Libya in view of the VM definitions adopted in this research. The research hypothesis was tested by means of interviews with selected highly experienced engineers and academics from public and private sectors and a closed questionnaire distributed to a larger sample of professional engineers and academics within the public and private construction sector.
The literature as well as input from the field have both contributed toward the development of a value and risk management integration model which is designed to serve a large number of goals. Most important of these goals as seen by the researcher is presenting the basic techniques of integrating value and risk management in engineering projects in a clear and simplified way to be used by Libyan organizations and contractors/ engineers. Another goal of this model is the dissemination of risk and value management culture within the engineering and construction sectors, as well as removing any misconceptions about the concept of VM and RM where many engineers are familiar with the term, but not acquainted with the details.
As the result of this work to fulfill the research objectives, the researcher has arrived at the following conclusion:
Value management aspects, benefits, limitations and techniques related to engineering products were pinpointed out in the literature part of dissertation.
Risk management aspects, benefits, limitations and techniques related to engineering products were also pinpointed in the literature part of dissertation.
The relationship between value management and risk management was clarified in the chapter of risk and value management.
The implementation method of value management and risk management aspects (as a component technique) to optimize engineering project success chances throughout the life cycle of the project from concept to salvage was clarified and documented in the literature part of the research.
A model was developed to assist the optimization of project success chances.
Considerable research work relating to the value management concept and risk management concept is done outside Libya.
The initial development of VM in the late 1940's and its later introduction into the construction industry in the early 1960's has introduced VM as a proven approach in improving the value of construction projects through the elimination of unnecessary costs and reducing overall cost without impairing required level of performance. Figures published by a number of construction related organizations have shown significant savings and returns on investment as a result of the evaluation is subjecting value alternatives to risk management process.
Preliminary interviews conducted at the start of the field work have indicated that the cost factor is not considered unless cost estimates exceed the project's budget. Paramount design criteria are the owner's preferences where the A/E role is to implement these preferences regardless of the risks that may occur. Alternates to original design are only contemplated to reduce the cost estimates to fit the budget. This process translates in to cost cutting rather than improving value. It is also seen that none of those interviewed had considered combining management to optimize results.
Causes of lack of appreciation and comprehension of VM within the construction sector in Libya were reported as a result of:
1- Lack of qualified experts in this field.
2- Insufficient exposure to other countries experience.
3- Cost and time required to carry out additional studies to formulate alternatives.
4- Projects are subject to the owner's preferences regardless of the cost factor.
5- Habitual and speedy methods of preparing design solutions do not allow for evaluation bench marks to review design proposals from the cost and function point of view.
Based on the conclusions reached through this research work, the researcher advances the following recommendations for consideration by entities concerned:
The application of project management principles, tools and techniques to implement engineering projects in Libya due to its great importance.
The developed model can be used as a guide by project managers to utilize and improve projects' success chances.
The appropriate documentation of project historical data will increase future project success chances.
The integration of value and risk management studies will reduce project time and cost and grant better results as it might be facilitated by one person and carried out by the same team.
The introduction of project management training courses in various educational and training institutes.