Identify Business Needs Workshop Construction Essay

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The integration of value management and risk management started over a decade ago as increased professionals recognized the unfeasibility of separating value and risk. VM concerns comprehending what represents value for money in the aspect of project benefits while RM is covers the sources of uncertainty and possible risks to occur. Both management actions compliment each other; as VM decreases risk while RM offers prospects to increase value. The integration of VM and RM processes at the strategic development stage of the new City government headquarters are both are methodical and entails a multi-disciplinary stakeholder team in value and risk study workshops. Both workshops use a 'job plan' and brainstorming technique to facilitate the decision-making process, thus combining the two processes within this project study is practical and logical.

This is a formal project report to the Senior Responsible Owner of the client - City Government on the current status of the proposed project to build a new local government administrative headquarters located in the city centre. The report is expected to address the following: Benefits of the studies to the client and the project, required pre-workshop activities in preparation for the studies, identification of relevant stakeholders to be invited, agenda for each study indentifying appropriate workshop activities and an outline of the expected recommendations contained in the follow-up study report.

Introduction

The value management process involves ascertaining the clients perception of value, identifying business needs, sourcing options to meet business needs, choosing the most viable options, outlining the project objective (value for money) and refining the project design to maximise value for money at reduced costs. While the risk management procedure discovers risks, their impacts and possible reduction once risk and its source are noted; risk assessment determines the probability of the risk to happen and possible impact on the project, risk response covers adopting appropriate measures to undertake the risk and risk control to screen the risk. The value and risk management process is continuous throughout the duration of the project and the design of a value study is integrated in the strategic project development stage of the new city government headquarters using the chosen OGC 3 project procurement lifecycle. The appointed independent VRM consultant in this report offers advise on the following two stages of OGC 3:

Task 1: Identifying Business needs - a value study is designed to achieve the objectives of identifying both long and short term business needs, set health and safety, sustainability and design quality objectives; establish agreed performance indicators and measure objectives against key performance indicators to evaluate the success of the project. (OGC 03 (2005) Project Procurement lifecycle: the integrated process)

Task 2: Options to meet business needs. Confirm project still required- value and risk study is designed to examine in great detail and appraise these options, such options may include non-project or 'prior options' and private finance initiatives, confirm the need for the project and risk management to identify risks with options while updating the risk register. Both studies have a maximum duration of one day. (OGC 03 (2005) Project Procurement Lifecycle)

Value and Risk Management Studies Design

The value management process is carried out at defined intervals along the project lifespan. During this process, the VRM consultant will organise a one-day workshop at which each task is systematically explored, challenged and recommendations for improvements achieved through brainstorming sessions. Its expected that through the value and risk studies conducted on this project the costs will be reduced and quality of outcome improved. Benefits such as reduced staff turnover, improved cost staff awareness, commitment and motivation due to being involved in a study team while also saving time. A value and risk study is a commonly used value management technique similar to value engineering and is used at the design stage in the construction industry thus applicable to this project.

A value study comprises the 'Job Plan' (keeps the value studies on track), functional analysis (examine the project) and tools such as design and cost review while ensuring the stakeholder needs are met. The 'Job Plan' Value Study tool- Value management process is founded on a job plan, which is developed by the sponsor of the project. The Job Plan has eight comprehensive stages. Firstly the Planning stage - the value study for the above project is planned at this stage so objectives with questions of what are the key objectives of the study? (Identify business needs and options to meet business needs) also identification of the stakeholders, time scale of study (one day workshop) and so on. Secondly the information stage- where essential information is gathered such as how best to build the new headquarters and also where relevant benchmark information can be found. Thirdly the analysis stage- where information gathered from the value study is evaluated to deduce reasoning like the thoughts of major stakeholders and implications of such thoughts.

Fourthly the creative stage - new ideas are brain stormed such as use of recycled materials and how to get value for money in the building process. The evaluation stage is the fifth stage and at this stage the best ideas or options are selected; this coincides with task 2 outlined above; when options to meet business needs are chosen. Afterwhich the report stage- where top management approves the chosen options after examining the business case made for the project and if it meets the city's government financial criteria. The seventh stage is the implementation stage where the new ideas are put into practice. The last stage is the Follow up stage where the final outcome is audited- lessons learnt for the future, recommendations and feedback expected in the follow up report. It is imperative that the above steps are conformed to, to satisfy the completion of task 1 and task 2 assigned to the VRM consultant.

Risk Management study starts firstly with the identification of risks and in this study a workshop will be the study tool used. It is imperative that the sources and impacts of risk are isolated and differentiated. The next step is to assess the probability or impact of the identified risks either through qualitative o quantitative methods. Response to this risk follows based on the results of the assessments with measures such as avoidance, transfer, acceptance and retention implemented to manage the risks. The risk management process is monitored all through the project lifecycle and the activities structured to undertake the risks are recorded in the risk register to inform relevant parties on who bears the risk. The risk is to be allocated appropriately and where relevant. It is advisable for the risk register to be managed and updated at regular intervals of the project lifecycle as risks evolve over time. At this stage of the study stakeholders and partakers of the workshop are advocated to provide feedback on the effectiveness of the risk management process thus far and recommendations to achieve the project objective. The feedback and recommendations facilitates improvements in the risk management process.

Also the inclusion of risk allowance in the budget of the project (£25m) safeguards against identified risks and their potential negative financial ramifications; this allowance should not be a percentage of the budget but calculated based on quantitative measurements. The risk management plan should be developed by the project sponsor in association with the project manager and should be reviewed throughout the project lifecycle with risk being transferred based on the decisions of the project reviews. The integration of value and risk management involves merging the activities of both into one flawless process.

Benefits of the Value and Risk studies to the Client and Project

The success of a project necessitates a comprehensive study of value and risk management. Value management (VM) studies will be held by a qualified facilitator, in this case it's the independent VRM consultant appointed by the client holding a VM workshop. The maximum duration of the study is one day for each task and it provides the client and project with the following benefits. An enhanced comprehension of the project and project lifecycle as the project manager is able to affect a comprehensive analysis and project plans dawn based on the results. Also directs the project into focus of its strategic objective - value for money during the process of project design. Maximises the contribution of key stakeholders and exploits collective knowledge and utilizes the group dynamics of whole project through teamwork. Similarly project design defects with the potential to create problems are uncovered during risk identification and assessment stages of the risk management process. Improved output, competence and value for money through reduced risk and increased functionality. Enhances quality of project outcome by reducing time (study results used to estimate the project time from start to completion) and cost (during the study costs can be estimated as the initial estimate of the project cost may change during the project).

Pre-Workshop activities required in preparation for studies

Preceding the workshop the VM facilitator (VRM consultant) would meet the project manager, client and key stakeholders to determine the VM key performance indicators. The facilitator would review the expected result from the workshop; dates should be fixed in advance to avoid conflicting schedules. Also the intensity of the workshop should be within reasonable limits. The pre-workshop activities are as follows:

Documentation distribution Prior to the workshop the facilitator issues a comprehensive ephemeral pack to all the workshop participants. Thus availing them with the required important information for the workshop.

Set Clear workshop objectives The objectives of the identification of business needs and options to meet business needs should be achievable within the one-day time frame. They need to be concise and easy to understand or explain to participants to avoid confusion, misinterpretation and time wasting. Thus if necessary the option to set another workshop should be considered and its better to spread out the objectives than overload the process thus nullifying the desired objective and getting undesirable results.

Role of Participants These roles should match the objective of the workshop to identify business needs and options to match these business needs as well as confirm project required. Roles required include decision makers at this stage of the project lifecycle and participants with the relevant knowledge of the stages involved.

Number of Participants Ideally the number of participants should be between 10 and 15. The approach of the workshop should adapt to the size of the participants

Identification of Stakeholders to be invited

The key stakeholders invited to the workshop are multi-disciplinary to attain the collection of radical ideas and to ensure that information gathered is dynamic and a true representation of all the relevant parties involved. However it is also important that individuals with experience in projects are invited to offer their expertise and contribute to the brainstorming process and suggest best practice. It is the recommendation of the VRM consultant that an internal study team see's the entire project through compared to the use of a separate internal auditory team. Thus it is imperative that the right people are involved from the start. This provides the client and project the advantage of improved implementation of the ideas due to the parties involved taking ownership and also reduce the cost of the VM study.

Agenda for each study that identifies appropriate workshop activity

The business needs of the project can be identified through a one-day workshop. The objectives of the project should be clearly outlined during the workshop so as to establish the viability of the project, identify business needs and options to meet business needs from which it can be conferred if the project is required. The aim of this workshop is to analyse the project in an informal setting, identify the business needs, challenge design through function analysis, brainstorm suggestions from participants. Workshops are typically strategic and technical in nature. The workshop agenda is designed to apply VM tools in a logical sequence to deliver benefits to the project. The workshop was designed to meet the specific needs of the client and not a pre-concluded VM process. The success of the workshop is predicated on the knowledge and skill of the facilitator. The workshop agenda for both tasks are outlined as follows:

Identify Business needs one-day workshop agenda:

08.30 Registration and refreshments

09.00 Introductions, Review of workshop agenda and Value Management study

09.30 Presentation of the issue of Identification of long and short term Business needs

10.00 Review of Project Objectives: Set health and safety objectives, Set Sustainability and Design Quality Objectives and Limitations and Risks identified relative to business needs

10.45 Break

11.00 Analysis phase: Presentation of VM process, Outline mission statement of project, Review constraints/imposed limitations, Identify functions/objectives and Prioritise functions/objectives

12.30 Lunch

13.00 Creativity phase: Brainstorming ideas and Establish agreed performance indicators

15.00 Break

15.15 Evaluation phase: - Measure project objectives against key performance indicators to evaluate the success of the project

16.30 Outline the action plan and programme for options to meet business needs workshop

17.00 Close of workshop

Options to meet business needs. Confirm project still required one -day workshop agenda

08.30 Registration and refreshments

09.00 Introductions, review of workshop agenda and Value and Risk Management study

09.30 Presentation of the issue of Options to meet business needs identified and Confirm project required

10.00 Scrutinize in great detail and appraise highlighted options

10.45 Break

11.00 Analysis phase: Examination of process to meet options, Outline mission statement of project against options, Review constraints/imposed limitations

12.00 Lunch

12.30 Creativity phase: - Brainstorming ideas and selecting viable options

14.00 Break

14.15 Evaluation phase: Risk management- Identify and Assess Risks while outlining options to respond to these risks. Update risk register

15.30 Confirm project still required

16.30 Close of workshop

Recommendations expected in the follow-up study report

Herewith the expected recommendations in the follow-up study report:

The client needs to thoroughly understand the end users' requirements at the proposed new headquarters.

Value management to functional analysis can be used to understand what the project should prioritize

All functions in the project should be prioritized to meet the needs and requirements of the end users of the headquarters and eliminate any unnecessary functions.

Value and risk study will be a more effective approach in facilitating the interpretation of value if used early

Value management should be included as integral to the integrated process of constructing the headquarters

Bibliography

Ann T.W. Yu Qiping Shen, John Kelly, Kirsty Hunter, (2005) "Application of Value Management in Project Briefing", Facilities, and vol.23 issue: 7/8, pp330-342

Baccarini D. and Archer, R. (2001) "The risk ranking of projects; A methodology".

Cretu, O., Stewart, R., Berends, T. (2011), Risk management for design and construction, John Wiley & sons, New Jersey

Crouhy, M., Galai, D., Mark, R. (2005), The essentials of risk management, McGraw-Hill, New York

Dallas, M. (2006), Value and Risk Management: A Guide to Best Practice, Blackwell Publishing, Oxford.

Fewings (2005), Construction project management: An integrated approach,

Flanagan, R. and Norman G. (1993), Risk Management and Construction. Blackwell science.

Kelly J., Male S. and Graham D. (2004), Value Management of Construction project, Blackwell Science

Kelly, J. (2007) "Making client values explicit in Value Management workshop" Construction Management and Economics, v25, issue4, pp 435-442

Male, S., Kelly, J. (1993), Value Management in Design and Construction, 1st edition, E & FN Spon, New York

Norton B R and Mcelligoh W.C (1995), Value Management in Construction: A practical guide, Macmillan.

Raftery (1994), J. Risk Analysis in Project Management E and F.N Spon

Smith N J (1999) Managing Risk in construction project. Blackwell science.

Office of Government Commerce guide 03 Risk and Value management guide4.pdf

Office of Government Commerce guide04 Project Procurement Life cycle: The integrated process.guide3.pdf

Ward S and Chapman C (2003)" Transforming project risk management into project uncertainty management" International journal of project management, volume21, issue 2, pages 97-105

Appendix: Glossary

Decision and cost review value management study undertaken late in the pre-construction stage of a project

Fast Function analysis system technique

Function What something does. A function may be physical or intangible

Functional Analysis Method of analyzing the functions of the constituent parts of a project or a product

Integrated value and risk management Merging the activities of value and risk management into one seamless process

Key Performance Indicators Metrics to assess performance

Risk allowance Quantitative allowance set aside or a plan as a precaution against future need linked to the risk register

Risk analysis The assessment of the severity of a risk

Risk management The process of controlling the impact of risk

Risk manager The person responsible for leading the risk management process

Risk register A database of risks containing a summary of the information used for managing risk

Risk response Action taken to reduce the exposure to a risk

Stakeholder Analysis Method of assessing the attitude and influence of people in relation to a project

Stakeholder Conferencing Method of engaging interested parties to debate a project

Stakeholder Management Method of managing the expectations and attitudes of stakeholders

Value Assessment of the benefits brought by something in relation to the resources needed to achieve it

Value (for money) The optimum balance between the benefits expected of a project and the resources expended in its delivery

Value analysis A similar technique to value engineering, applied to an existing building or product, commonly abbreviated to VA. Also, a method of analyzing value

Value and risk management Activities to improve value and reduce uncertainty

Value driver A functional attribute that is necessary to fully deliver the expected benefits from a project (equivalent to a primary function)

Value Engineering A specific technique, which may be used to improve the value of an existing design, commonly abbreviated to VE. It is a method of analyzing and improving value

Value for Money Ratio of benefits to investment

Value Index Dimensionless measure of value for a project, not confined to cost and time

Value management An umbrella term used to embrace all activities and techniques used in the effort to deliver better value for the client, commonly abbreviated to VM

Value management study A process involving gathering and analysis of information (preparation), one or more workshops to process information, a report summarizing the outcomes and including an implementation plan, all consistent with best value management practice, designed to add value to a pro

School of Built Environment

D31VR Value and Risk Management

Adedamola Sobowale

H00119238

PART 2: VALUE AND RISK MANAGEMENT ESSAY

"An evaluation of current and potential future application of Value and Risk Management into the Project management surveyors professional services in the construction sector in the United Kingdom (UK)"

Introduction

The UK House of Commons (2008) defined the UK construction sector as " a range of different activities, covering the whole construction supply chain. IT includes the mining, quarrying, production and sale of materials and products. It also covers construction contracting, be it house building, large- scale civil engineering or repair and maintenance". Moreover "a whole range of professional services, including architectural, civil, structural, mechanical and electrical design, and project management are linked to construction". The construction Industry in the UK has experienced substantial growth over the years and is one of the largest in Europe (Datamonitor 2006) with conservatively about 2.8 million employees; due to its size it constituted one twelfth of the UK economy's gross value added in 2006. Therefore the UK construction sector is a pivotal factor in the development of the UK economy (Bower, 2003). There is a growing need for improved project outcomes and value for money decisions.

Due to prompt advancement in the construction industry and its complex features, the disposition of the business activities, process, environment, organisation, and involvement of several parties including several uncontrollable external factors such as weather and inflation, risk is an intrinsic component of construction projects, just as uncertainties and changes and these construction projects are reputable for coping with the negative influence of these issues. In addition, the construction industry deals with the increasing unemployment rates due to the recession. These challenges have affected the attitude and behaviors of clients and contractors. A shortage in the demand for construction has led to a competition between construction companies and the construction sector. This shortage has pushed construction companies to reduce costs and advance value to improve quality and risk management practices that will effectively manage risk. Value Management (VM) and Risk Management (RM) are commonly established as techniques of best practice for effective management of construction projects (Construction Industry Board, 1997). The value and Risk management process is integrated, as that is a more realistic approach. The value management process involves ascertaining the clients perception of value, identifying business needs, sourcing options to meet business needs, choosing the most viable options, outlining the project objective (value for money) and refining the project design to maximise value for money at reduced costs. While the risk management procedure discovers risks, their impacts and possible reduction once risk and its source are noted; risk assessment determines the probability of the risk to happen and possible impact on the project, risk response covers adopting appropriate measures to undertake the risk and risk control to screen the risk. The value and risk management process is continuous throughout the duration of the project.

Conversely the application of both Value and Risk Management varies across projects and construction companies and dependent on factors such as client budget and time limitations, client requirements and project dynamics. Each construction project has its unique characteristics with all involved parties having varied and sometimes-conflicting interests in the project. Thus the ability of the construction sector to successfully complete projects based on time, cost and quality significantly influences the performance of the UK economy in its entirety (Male, 2008).

The challenges faced by the construction sector in the UK encourage contractors and professionals like project managers to carry out an effective process of risk management to realize a successful delivery of construction projects. Risk should be identified swiftly, analyzed and managed appropriately for it can go to a long extent to adversely affect the successful delivery of a project. Failed risk management practices should be revised to avoid this failure to occur in future projects. This essay evaluates the current and future application of Value and Risk Management into the Quantity surveyor professional services in the UK construction sector.

Current Application of Value management and Risk Management

The UK construction industry currently faces challenges grouped into demand and supply problems, and other factors like poor management and an adversarial culture. However, there is an agreement that compared with other industrial sectors within the UK economy, the construction industry has been proven to produce low and unpredictable returns due to low performance in relation to cost, time wasted and poor durability (Bower, 2003).

The British Property Federations conducted a survey in 1997 of major UK clients, and results revealed that many clients are dissatisfied with the performance of contractors in their work in budget t and time constraints, resolving project defects, and delivering the agreed level of quality for the project during the design stage. Also dissatisfaction was indicated relating to the consultants' ability to co-ordinate the different project teams, design and innovation, producing a fast and reliable service, and in providing better value for money (DTI: Department of Trade and Industry, 1998).

Currently, the construction sector quality of product provided for the client has improved, and the proportion of projects finished in due time has increased, however there is potential for improvement in project delivery mechanisms sticking to the allotted time scale and within budget (House of Commons, 2008 p43). Consequently, the equilibrium between cost, time and quality should be considered in all project management decisions (Dick, 2004). Actually, a substantial amount of decisions made for managing projects are done under risk and uncertain conditions (Merna, 2003). It has been noted that critical decisions with prominent effects on the economy, project efficiency and value, timing and budget are done at the strategic design or evaluation stage (Smith et al., 2001).

As a result, performance of the UK construction industry is emergent and needs further improvement. This could be achieved through progress in decision-making, especially in the evaluation stage of the project when it's done under heightened uncertainty (Wood and Ellis, 2003). Banaitiene et al (2012) stipulates that risk management tools like Evaluating Risk in the Construction-Schedule Model and Cost-Time-Risk diagram allow contractors to make decisions under reduced uncertainty regarding delays as well as monitor and control project lifecycle and cost respectively. This is primarily due to a strong correlation between improving investment decisions in the project evaluation stage and superior business performance as supported by Macmillan (2000). Besides, in order to deliver the accurate project timely and within budget, there is a need to improve decision-making (Bower, 2002; Smith and Bower, 2008; Smith and Male, 2007).

The Royal Institute of Chartered Surveyors (RICS) is the professional body representing the project management profession in the UK. Project management surveyors are responsible for co-coordinating the entire project development process to maximize efficiency, communication, reduce costs within time constraints and oversee the successful completion of each specific project. The professional role requires technical competence, leadership skills, human resources and risk management. Project managers are usually appointed at the project conception stage and provide assistance to the client in developing the project brief, selecting, appointing and coordinating the project team (www.rics.org.uk accessed 28th November 2012)

Potential future application of Value and Risk Management

In the future it is imperative that the integrated Value and Risk management processes are adhered to and applied in the UK construction industry to ensure success of project outcomes. The first stage in the process of risk management is the identification of risk, which entails the project manager recognizing the potential for unexpected risks to occur as isolating the sources of these risks. This is the foundation for the other stages.

Secondly Risk assessment should be done. This can be classified into two methods: Quantitative or Qualitative analysis. Quantitative analysis consists of the use of advanced tools and techniques to assess identified risks. It is intended at trying to appraise the occurrence of the risk and to ascertain the extent of their consequences during the project lifecycle. Particular tools and techniques employed in the quantitative analysis are cost risk analysis and the decision making tree (Banaitiene et al, 2012). The successful implementation of quantitative risk analysis in future construction projects makes provision for the development of a model to base the project's exposure to risk on as well as quantification of probable occurrence of risk.

Comparatively the qualitative analysis facilitates the identification of primary risk features. These features can be identified through a qualitative process such as interviews, brainstorming, workshops or a data-driven methodology. Qualitative analysis allows risks to be classified into accurate groups and awarded to relevant parties. This category can either be low, medium or high based on the potential effect the risk on the project as well as prospect of the risk to occur.

Conclusion

The construction industry in the UK has evolved from the traditional process of risk transfer to the process of risk reduction as a preferable risk response. Thus, a mechanism for risk management can be implemented for developing a strategy for risk response that will promote collaboration. A comprehensive study can be issued to explore appropriate motivation schemes creating avenues for parties to share rewards from an effective process of risk management. This study should also be able to outline how measures tied with risks are integrated into the incentives. An approach to risk management should be developed to eradicate the barriers to risk management. This approach will indicate that the open communication process of risk management should be integrated into principles that permit procedures for resolving problems jointly and building of effective communication infrastructures. These effective communication infrastructures will lay ground for parties to contribute information to be entered into the process of risk management to enable risks to be managed effectively.

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