Benefits Of Adoption Of Value And Risk Construction Essay

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The city authorities are planning to construct a new-build local government administrative headquarters to be located in the city centre. The idea of new headquarters proposal is to achieve the centralisation of manpower and resources in order to achieve the effectiveness and efficiency in administration of services. The functions of the proposed headquarters are:

Centralization of all public sector departments.

Relocation of the staff to a single location.

Increase efficient administration of government services.

Time and cost savings.

The proposed project is still at the early stage of development. It is great to conduct the value and risk management studies since no design or project team has been identified at the current stage.

2.0 Objective of the Study

The strategic objectives of the client for the new project are to achieve Value for money by rationalising local government service departments in a high specification modern building that befits a progressive and visionary city. The project has a budget of £25M and an initial estimate is that around 12,500m2 of accommodation is required. Hence, the objectives of this study are:

Ensure the necessary functions are achieved at the optimum cost and at the required quality in order to maximise the value.

Eliminate or minimise unnecessary expenditure through identification the potential risks and develop the risk assessment to mitigate the potential of risks.

Establish the business needs and stakeholder needs.

3.0 Benefits of Adoption of Value and Risk Study at Project Early Stage

Value and risk studies are crucial for the project at the early stage because it provides client a broad view on the value returned and risks to be anticipated of the proposed project. Value management is a systematic and multi-disciplinary effort, which the functions of the project is directly analysed to achieve the lowest overall life cycle cost with best value (Othman, 2005). The benefits of value and risk management are:

Maximise the project value within the constraints of time, cost and quality.

Enables identifying client requirements and responding to the brief development drivers can reduce later change orders.

Enables focused thinking to generate more innovative ideas.

Enables early identification of potential risks and mitigates the potential of risks to reduce loss.

Minimise the unnecessary costs through reducing waste.

4.0 Value Management Study

Value management study has to be carried out to determine the project is worth doing. This study can be divided into three stages as follow:

Set out the project task.

Define the project brief.

Implementation.

The job plan has to be developed and it is a method for the logical, sequential, analysis of value and is characterised by:

Phase 1 → information.

Phase 2 → creativity.

Phase 3 → evaluation.

Phase 4 → development.

Phase 5 → presentation.

Phase 6 → feedback.

4.1 Set out the Project Task

One day pre-workshop meeting will be organised and key stakeholders will be selected to form the committee members by the value management facilitator. The formation of the key stakeholders as committee members is to ensure the concern of the individual stakeholder needs could be included and it is required for the development of the value management study. The attendees for the value management pre-workshop meeting and their role and responsibilities are shown in table 1 as follows:

Role

Responsibility

Director / Project Sponsor

Management person from client organisation, who is authorized for decision making, resolve disputes, information provider and overall strategy.

Project Manager

An employee that competent in providing technical expertise from project initial stage to completion.

Production Manager

Responsible to provide the expert consultation and information required for production issues.

Finance Manager

Responsible to advise on the project budgetary and financial status.

Facilities Manager

Responsible the building maintenance during the life of the building.

Value Management Facilitator

Responsible to structure the study strategically.

Table 1

The agenda for pre-workshop meeting is scheduled as follows:

Time

Programme

9:00am

Gathering of attendees at main office

9:15am

Self introduction and briefing

10:15am

Tea break

10:30am

Site visit and minutes the attendee's comments

12:30pm

Lunch break

1:30pm

Brainstorming session - to confirm build solution

3:15pm

Tea break

3:45pm

Development of value system and identification of building requirement

4:30pm

Value management and workshop overview

5:00pm

End of pre-workshop meeting

Table 2: Agenda for Pre-Workshop Meeting

After the agenda fixed, value management facilitator will commence the interview with invited stakeholders to gather all necessary information. With one day pre-workshop activity, it will give better understanding on the proposed development and constraint of the project.

Objective of the Project

Client intends to enhance the quality of the government service and to achieve Value for Money by rationalising local government service departments in a high specification modern building.

Needs of the Project

The proposed build decision has to satisfied client's needs and it is as follows:

Centralisation and relocation of staff to a single location.

Adoption of advanced technology to increase the work efficiency.

Improvement of work quality.

Time and cost savings.

Client Value System

Time, cost and quality are crucial for every proposed project. For this proposed development, cost and quality are the major concern of the client, whereas time is not specifically mentioned by client as a concern. The summary of time, cost and quality in relation to proposed development is illustrated as follows:

Time: Not specified

Project

Quality: efficient administration and Cost: Budgeted £25M

high specification modern building

Figure 1: Time, Cost and Quality for Proposed Development

The expectation of client is as follows:

Greater office space for future manpower growth.

Comfortable office building to improve the working environment.

Centralised management and administration to increase the production rate.

Constraint of the Project

Higher construction cost and miscellaneous cost will be expected due to ideal location, which is at the city centre.

Project Budgetary

Initial budget of the proposed development is £25M and initial estimation is 12500m2 of accommodation is required. This initial budget is likely to be revised because it is estimated without completed design drawings.

Time

Project construction period and the commencement date of the project are yet to be confirmed by the client.

After well defined all the issues, value management facilitator will lead the members to screen through to ensure that the build decision can be proceed to satisfy client's business needs. The value management workshop will only be organised after decision to build is confirmed.

4.2 Define the Project Brief

At the project early stage, the first crucial item to be prepared is the project brief, which to give a firm foundation for the beginning of the proposed project. The project brief consists the outline and description of the project is attempting to achieve and operational requirements of the project. The value management workshop will be organised and the team members from the pre-workshop will be attended together with the design team. During the value management workshop, the functions of the proposed development will be fully analysed according to job plan, and action plan will be produced for the client.

4.2.1 Functional Analysis

The functional model for the proposed development is presented by the function analysis system technique (FAST). The FAST diagram is produced based on the ideas raised by individual attendees, which is reflected as follows:

Increase work

effeciency

Centralised management Time and

and administration cost savings

Effective

communication

New build

Headquarters

Pleasant working

environment

Modernisation Reflect government

image

Advancement

of technology

Figure 2: FAST Diagram

4.3 Implementation

The final report will be produced and presented to the client and all the parties have to be committed for the implementation stage. Systematic monitoring system shall be used during the implementation to ensure continuous project improvement. Follow up action should be applied if any threats have been identified.

5.0 Combined Value and Risk Management Study

The value and risk management are interrelated both in their objectives and implementation of workshop. One day combined value and risk management workshop will be organised and the attendees for the combined workshop meeting are the key stakeholders, design team, construction team and facilitator. The agenda for the combined workshop meeting is scheduled as below.

Time

Programme

9:00am

Gathering of attendees at main office

9:15am

Introduction and briefing

9:30am

Review client's value system and identify important issues

10:00am

Risk identification - brainstorming risk and consequence

10:30am

Tea break

10:45am

Risk analysis - Screening of risk and filtration and compilation

12:00pm

Lunch break

1:00pm

Risk response - management brainstorming

3:30pm

Tea break

3:45pm

Risk register

4:15pm

Action plan and conclusion

5:00pm

End of workshop

Table 3: Agenda for the Combined Workshop Meeting

The combined value and risk management of the proposed development will be presented in two discrete entitles with separate job plan of value management and three-step risk management framework. The intervention points for risk management in relate to the overall framework of the value management for the proposed development is shown in the diagram below.

Value Management Job Plan

Risk Management Intervention Points

Phase 1 - information

Client's building requirement and identify important issues such as time, cost, location etc.

Brainstorming of function and risk from the FAST diagram

Phase 2 - creativity

Generate FAST diagram

Risk identification - brainstorming the risk associated

Phase 3 - evaluation

Risk analysis - evaluate the risk and choose those requiring consideration

Phase 4 - development

Risk analysis and response - consider remaining risks, assess them and develop a response

Phase 5 - Presentation

Produce the risk register

Table 4: The Combined Value and Risk Management

5.1 Risk Identification

This is the most crucial stage for the risk management study. Potential of risk during the project life cycle is identified in the combined workshop meeting. The summary of the risk identified is shown in table 5 as below.

Risk / Hazard

Event

Consequence

Climate condition

Site works ceased.

Delay of project and lead to abandon of project.

Location accessibility

Long mobilisation time

Communication network

Late information among the parties

Design errors

Inaccurate and insufficient analysis of data for the project

Lead to high variation and more cost incurred to client

Contract duration / time

Exceptional inclement weather and change of design

Delay of project, higher rectification cost due to bad workmanship and more disputes during the construction works.

Management of supply chain

Late delivery and quality of material

Experience

Poor workmanship

Table 5: Summary of Identified Risk

5.2 Risk Analysis and Response

This stage involves assessment of the identified risk, which to determine the likelihood of the occurrence and potential of impact and severity. With reference to the risk analysed, introduce the risk response to mitigate the potential of risk to minimum. The risk matrix and risk analysis and response are recorded in tables 6 and 7 as below.

Risk

Likelihood

High

Medium

Low

Impact

High

1

1

2

Medium

1

2

3

Low

2

3

3

Table 6: Risk Matrix of Likelihood and Impact

Risk / Hazard

Likelihood

Impact

Risk Ranking

Risk Response

Description

Climate condition

Medium

High

1

Retention

To retain the risk but try to minimise the consequence.

Location accessibility

Medium

Medium

2

Reduction

Conduct thorough inspection and investigation to the proposed location and obtain authority approval.

Communication network

Medium

High

1

Avoidance

Develop systematic project plan and adoption of technology.

Design errors

Medium

Medium

2

Reduction

Regular meeting with design and construction teams to ensure design accuracy.

Contract duration / time

High

High

1

Avoidance

Develop monitoring system to track the work progress.

Management of supply chain

Medium

Medium

2

Transfer

Increased raw material cost is transferred to contractor by fixed cost contracting.

Experience

Low

High

2

Transfer

Cost of rectification works is transferred to contractor by the retention sum.

Table 7: Risk Analysis and Response

6.0 Recommendations of the Follow-up Study Report

Follow-up to the value and risk management report should be carried out to ensure the study can be used effectively and improves the overall performance of the project in terms of time, cost and quality. The recommendations of the follow-up study report are as follows:

The client representative has to see the feasibility of the study and maximise the utilisation of study into the construction works.

The engaged construction firm should meet best value in conjunction with project specifics.

7.0 Conclusion

Value and risk management is important to be carried out before the build decision is made to ensure that the project is clearly scoped and all potential risks are identified at project early stage. Hence, the discrepancies and disputes are resolved before proceed to another stage. In addition, this value and risk management study is also ensuring the client objective can be achieved at the required quality within the budgeted cost and stipulated time.

Part 2

D31VR - Value and Risk Management

An Evaluation of Current and Potential Future Application of

Value and Risk Management into Construction Project Management Professional Services in the Construction Sector in Singapore

1.0 Introduction

In today's increasingly globalised and complex world, the construction industry becomes more competitive and complicated, more challenges and changes have to be faced by the organisations for the survival and betterment. Thus, more innovative techniques and solutions have to be adopted by the organisations for continuing improvement. Client is the one financing the project, and is the core of the construction industry and the driving force for the improvement (Othman, 2005). In today's construction industry, one of the most significant issues facing is achieving client satisfaction. From the survey showed that there is very few construction projects are finished on time or at the budgeted cost and the finished products do not meet client's requirement and expectation, it happened the same in Singapore. Due to this scenario, the use of value and risk management in construction industry is steadily increasing as clients expect better results from their investment in the project and also more organisations realised the problem faced during the construction stage can be reduced by use of value and risk management in project early stage.

In Singapore, value and risk management is not widely used in construction industry compare to other industries such as manufacturing industry. Due to higher demand and expectation from the client nowadays, value and risk management has been increasingly recognised as being appropriate for the construction. Value management is a continuous process, which all the components involved in construction are critically assessed to ascertain whether better value alternatives are available (Crown, 2003). The construction industry is classified as a high-risk industry because of its complexity and fragmented nature. Hence, risk management is a must to be used in every single project in Singapore regardless the size of the project. Risk management is a continuing process throughout the project life cycle. It is increasingly popular and also important to be adopted because it can provide value for money (Othman, 2005). Risk and uncertainty have potential in damaging consequences for the construction projects, which the performance, productivity, quality and the budgeted cost of the project will be affected. Risk cannot be eliminated but it can be transferred or minimised (Mills, 2001).

This paper aims to provide the evaluation of current application of value and risk management and the obstacles to value and risk management development in the construction sector. In addition, the potential of the future application of the value and risk management will also be discussed.

2.0 Literature Review

2.1 Definition of Value and Risk Management

Value management is a systematic and multi-disciplinary effort, which the functions of the project is directly analysed to achieve the lowest overall life cycle cost with best value (Othman, 2005). According to Male and Kelly (1998), value management is the team based "process-driven" methodology to deliver a service or project at optimum performance and cost without detriment to quality. By using this team of experts, it allows value management process to identify best solutions for design and construction which provide the best value for money with regard to the client requirements. The value management process encourages the better understanding of the objectives and views of various stakeholders, and the effective achievement of these objectives (Shen and Yu, 2012). The relationship between value, quality, function and cost can be represented by the equation as follows:

Value = (Function + Quality) / Cost

Where Function = the specific worth that a design must perform

Quality = the client's needs and expectations

Cost = the project life cycle cost

Value management aims to optimise the project life cycle cost and improve the value through identifying removal of unnecessary costs while the quality, performance and other factors will meet client's expectation. Workshops of value management to be developed at project early stage, it enables key stakeholders participate in the briefing process to clarify their interests and needs and to create commitment to the solutions (Shen and Yu, 2012). It will generate better understanding of client requirements and business needs through workshops. Job plan based on value management techniques will be produced and is characterised by the phases as below (Shen and Liu, 2004).

Phase 1 Phase 2 Phase 3 Phase 4

Preparation Analysis Creativity Implementation

Selection of subject Gather information Alternatives creation Approval

VM Team Function analysis Alternatives evaluation Review

Plan production Function evaluation Recommendation production Feedback

Figure 1: Outline of the Job Plan

Risk management is the decision-making process involving detail consideration of risks which can have significant impact on the final outcome of the project. Risk management in construction includes the developing and maintaining a join risk register, and identifying and analyzing the risks in terms of seriousness and likelihood of the risk (Crown, 2003). According to Mills (2001), the seriousness of the risks can be measured as the probability of the activity and its consequences or loss:

RI = L x C

Where RI = Risk Impact

L = Likelihood

C = Consequence

Risk management is a continuing activity throughout the life cycle of the project and the value of money can be achieved by reducing risk in the project (Othman, 2005). The systematic sequence of the risk management is described as below (Mills, 2001).

Step 1 → Risk identification

Step 2 → Risk analysis

Step 3 → Risk response

Step 4 → Feedback

The effects of serious risks occurred in the project can be very damaging, it can cause the time and cost of the project overruns and turn the profitable project into a loss-making venture.

3.0 Value and Risk Management in Construction Project Management

3.1 Current Application of Value and Risk Management

In Singapore, the use of value and risk management in building projects is comparatively higher than infrastructure projects due to the complexity of the project. It is useful to use value and risk management in project early stage, which can have better understanding of client requirements and better value for money can be achieved. In order to identify the possible needs of the project, the value and risk management consultant is engaged by the client for assessment the proposed project. The value and risk management consultant identifies the business needs through workshop and ensure it achieves the client expectations (Othman, 2005). Value and risk management facilitator is appointed and key stakeholders are selected to form the value and risk management team. The team members define all the issues and screen through in detail to ensure the build decision can be proceed to meet the client requirement. Then after, the value and risk management workshops are organised to gather all information and thoroughly studied in order to provide best solutions for the foreseen problem. Some common problem that happened in the building project in Singapore is showed as follows (Hlaing & Singh & Tiong and Ehrlich, 2012):

Underestimating quantity.

Sharp and sudden increase of materials price.

Human factors - one or more people never perform their roles and responsibilities.

Misunderstanding and disputes between team members.

Hence, the best alternative solutions such as use of material fluctuation index have to be generated by the team members to overcome the common problem. The value management technique that commonly used is functional analysis. In functional analysis, the functional requirement of the project is generated and reflected by FAST diagram, which are the ideas raised by the team members. Beside it, the project budget and contract period also need to be considered in the workshops.

Risk management is not one-off activity, it is the continuous process throughout the project life cycle. The application of risk management at project early stage clarifies the objectives and assists in refining the project brief (Mills, 2001). Risk is anticipated as many as possible, so that the unnecessary cost can be reduced to minimal, which directly help client to save cost. The potential risks of the project are identified, analysed and responded by team members. There are few main potential risks in building project and it was highly concerned by the authorities of Singapore such as Building and Construction Authority (BCA) and Ministry of Manpower (MOM). These main potential risks are listed as follows:

Risk Identified

Risk Analysed

Risk Control

Falling from height

Bad injuries / dead

Provision of firm railing.

Use safety hardness.

Falling object

Injuries

Provide catch netting.

Erect toe board.

Topple of crane

Bad injuries / dead

Provide stable platform.

Ensure outriggers are properly extended.

Lift within safe working load.

Table 1: Main Potential Risk in Singapore

Besides that, other risk factors need to be concerned include speed of the construction, project location, complexity and familiarity of the work.

3.2 Obstacles to Value and Risk Management Development

Good quality of the product is the important objective by the Singapore government. The government is emphasising the delivery of good finishes product and ensure good quality control on materials and construction works. However, overemphasis on quality has created conservative attitude of construction professionals against creation, change and innovation (Shen and Liu, 2004). Any innovative idea on possible impact on quality could be stifled even though it may give some time shortening or cost savings of the project. Thus, the effectiveness of the value and risk management study will be affected by this conservative attitude. The beneficial proposals generated by value and risk management study are unable to implement effectively if the conservative attitude cannot be changed.

In Singapore, value and risk management is not widely used in construction industry. Lack of practical guidance for implementing the value and risk management is one of the factors causing low application of value and risk management in construction industry (Shen and Liu, 2004). This is because the characteristics of the construction industry are not introduced accordingly in value and risk management books. Practical framework has to be established for implementing the value and risk management in order to promote the use of value and risk management in the construction industry.

4.0 Benefits of Adoption of Value and Risk Management

The use of value and risk management is more applied on larger project scale in Singapore. This is due to large scale project is more complex and more alternative solutions have to be applied in the construction to ensure the project progress with minimal problem. To achieve best value of money and client requirements, the appointed value and risk management team develops the project task and brief through workshops before kick start of any physical works. The planned series of workshops of the project incorporates with project programme beginning at project description-strategic level, and then after continuing to construction technical level. The lesson learned in the workshops can assist in improving the performance of the project.

Risk management is not a new concept, it is adopted by majority construction firms in Singapore to register, analyse and control the risks before the commencement of construction works. This is because the establishment of risk assessment is required under Singapore law. The productivity and performance of the project will be severely affected if the risk is not being well managed. The benefits of current application of value and risk management are as follows (Othman, 2005; Weatherhead & Owen & Hall, 2005):

Better understanding of client objectives and needs to prevent wasted resource in production time, design time and the cost of change.

Client requirements are identified at the project early stage and respond in the brief development to minimise later change orders.

The views and requirements of the stakeholders are perceived and reflected in the brief development and getting stakeholders' commitment to carry out the selected decision through workshops.

To promote the common team understanding and close coordinated effort to meet the client objectives.

Foreseen problem is thoroughly studied and generate the innovative alternatives in order to reduce the unnecessary cost.

Potential risks are identified, analysed and responded to reduce the damages caused to the project.

Achievement of best value of money by reducing risk and unnecessary cost.

Successful value and risk management needs commitment from the senior management, ownership and understanding of the process. The senior management aware the important of value and risk management in order to obtain the optimum balance of benefit in relation to risk and cost.

By seeing the effective outcome by use of value and risk management in the building project, more and more projects such as infrastructure projects are begin adopting value and risk management techniques in order to achieve the value and expectations. Due to tight contract period, high client's demand, increasing material and labour costs in Singapore, there is the great challenge to balance and achieve the objectives of the project. Thus, use of value and risk management technique is the best essential tools assist to achieve their desired objectives. In the value and risk management study, the best value is not about cost cutting, but is to improve the understanding of the client requirements and business needs.

5.0 Potential of Future Application of Value and Risk Management

In the developed country like Singapore, the business environment is more competitive. Due to this more dynamic and competitive business environment, it fosters the development of value and risk management and increase awareness of the use of value and risk management in construction industry (Shen and Liu, 2004). In increasingly globalisation of world's economy, the client expectations will increase gradually and the complexity and difficulties of the project will be increased as well. Thus, the need for the value and risk management is even desired for better return value and quality.

Application of value and risk management has potential to promote the sustainable design and development during the construction project life span (Shen and Yu, 2012). The functional value of the project can be maximised by use of value and risk management, which by managing the development from concept to use. By using the value and risk management, the awareness of the sustainability issues can be raised by the construction personnel and allow the integration of sustainability into the projects. With the systematic job plan, the participants can be guided effectively to consider the sustainability issues throughout the project life cycle.

In comparison to the sustainability issue, value and risk management also contributes towards the green building design, but it is limited. Integration of sustainability with value and risk management is proposed and practical guidelines to be developed which enable the green building issues to be considered and evaluated during the workshops (Shen and Yu, 2012). The features of value and risk management workshops such as knowledge dissemination opportunity, process effectiveness, strategic time and effective techniques and tools could guide the participants to consider sustainability and green building issues. The sustainable construction minimises the waste generated; maximises the energy efficiency and use of recycled materials; minimises and optimises the use of raw materials and natural resources; minimises risks of health to those who construct the building and manufacture the materials and provides the required quality for the optimum price.

Profound renewal of the value management ideas and practices could be provided by value management for green building design. The appropriate strategies to be used for better integration of green building design and value management, which will enhance the possibility of high performance building with best value of money in future.

6.0 Conclusion

The use of value and risk management is rather important to increase the overall performance of the project. It helps to provide better understanding of the client requirements and expectations. Furthermore, the improved and cost-effective solutions are generated to give better value that meet client requirements as well as reducing uncertainties through risk identification, analysis and responding. Value and risk management is increasingly recognised as the best essential tools to assist to achieve the desired objectives. It is expected that the demand for the use of value and risk management in construction industry will be increased and the full potential of value and risk management can be fully developed when the practical guide develops and incorporates with the latest value and risk management methodology.

The demand for sustainability in construction industry is increasing for the past two decades. The idea of sustainability should be considered in project early stage and it should integrate into activities in project development process and address the sustainability concept in the pre-workshop phase of a value and risk management study. This is because the potential of value and risk management in promoting the sustainable design and development during the construction project life span.

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