Value Analysis (VA)

for
Excellence in Managing Projects

Mushtaq Rabbi AVS, RPP, MCIP

Infrastructure Delivery, Water Resources, City of Calgary
Mind ~ Parachute

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 Agenda

• What is Value?
• What is Value Analysis?
• Origin of VA
• How VA works?
• Experience of other agencies
• VA at The City of Calgary
• How VA is different
• Opportunities

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 Can’t afford NOT to do VA

Key Characteristics of Unsuccessful Projects:

- Failed to deliver the Business Value

- Higher than expected Maintenance Costs
- Suffered budget overruns

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 Can’t afford NOT to do VA

Reasons for missed Value:

• Poor planning (including time or resource estimates)
• Unclear goals and objectives
• Lack of project sponsor and stakeholder
involvement
• Breakdown in communication

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 What is Value?
Value = that which is good & is right! (...and affordable)
• Personal perspective of one’s willingness to pay for the
performance of a product, a process or a project Types of Value
• Use Value
$ 50,000 - $101,000 $ 2,000 • Cost Value
• Exchange Value
• Esteem Value
• Goodwill
• “I Feel good”
• Good Value: when the necessary performance can be
defined & delivered at the lowest LCC

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Project Management & Asset Management

Project Management
PERFORMANCE

SCHEDULE COST

Asset Management
RISK
 Concept of Value

Value = reliable performance of functions to meet customer needs

Function = natural or characteristic action performed by a product or service
Cost = expenditure necessary to produce or maintain a project, service, process
Source: SAVE International Value Standard, 2007
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 Approaches to increase Value

Source: SAVE International Value Standard, 2007

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 Focus of VA: Project Lifecycle &
Asset Lifecycle

Value Cost to
Potential Change
Benefit

Cost
Asset Lifecycle Plan Design Build O&M Replace/ Upgrade
Project Lifecycle Initiate Plan & Design Execute Monitor & Control Close
 When to use VA?

Value Creation

Value Value Uplift

Value Realization

Initiate Plan & Design Execute Monitor & Control Close

(Concept)
P r o j e c t L i fe c y c l e

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What is Value Analysis?

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 What is Value Analysis?

• Also known as:

• Value Management

• Value Engineering

• Value Methodology

• Value Planning

• Value Assurance

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 VA is designed to answer....

– What is it? (Need or Problem)

– What does it do? (Current State/ Use)
– What MUST it do? (Primary Function)
– What does it cost? (Life Cycle Cost)
– What else would do the job? (Alternative)
– What does that cost? (Life Cycle Cost)

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 Definition

An approach used to
optimize project life cycle costs,
save time,
increase profits,
improve quality,
expand market share,
solve problems and/or
use resources more effectively

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 Origin of Value Analysis

1943 Developed by Lawrence Miles, a purchasing engineer of GE

The process did not solve the problem!
It unraveled the function for a better understanding
of the problem, and therefore a better solution!

Problem: could not obtain strategic materials to produce

turbo-supercharger for B-24 and B-29 aircrafts.
Production was increased from 50/week to 1000/week!

Analyzed the function of those materials to understand

performance characteristics

Result: Miles spent $1.0 M and saved GE $200.0 M

1947 GE adopted VA as part of business practice

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 Progress of Value Analysis

1954 US Navy Adopts VA as Value Engineering, hence VE

1959 Society of American Value Engineers (SAVE International)
1964 US Corps of Engineers adopts VE
1965 Japan embraces VM
1972 USEPA - VE for All Projects Over $10 M
1982 New York City VE Program
1996 President Clinton signs Public Law 104-106

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 Progress of Value Analysis

Public Law 104-106, enacted February 10, 1996,

amended the Office of Federal Procurement Policy Act (41 U.S.C. 401 et seq.)
by adding the following:

“Sec. 36. VALUE ENGINEERING.

(a) IN GENERAL. - Each executive Agency shall establish and maintain cost-effective
value engineering procedures and processes.

(b) DEFINITION. - As used in this section, the term ‘value engineering’ means an
analysis of the functions of a program, project, system, product,
item of equipment, building, facility service, or supply of an executive agency,
performed by qualified agency or contractor personnel, directed at
improving performance, reliability, quality, safety, and life cycle
costs.”

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 VA in Canada

1972 McGill University - Value Engineering workshops with industry

1993 Canadian Society of Value Analysis was founded - 15 members
1994 Society of Management Accountants of Canada – Management
Accounting Guideline 28
1995 BC Ministry of Municipal Affairs - Water & Sewer projects > $10M

1997 Ministry of Transportation Ontario started VE program

2009 Canada-BC Building Canada Fund - VE for solid waste projects >$15M
2010 Value Management (VM) Program by Alberta Infrastructure

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 November 2010 – British Govt. adopts VM
Management of Value (MoV) by Office of Government Commerce (OGC), UK

Cabinet Office Efficiency and Reform Group

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Understanding the Problem

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 How do we determine Value?

• Value may be an informal management decision or design

suggestion
OR
• Simply by delivering a project (on time, in budget, to scope)
OR
• Do a SMART Charter, engage key stakeholders
AND / OR
• A rigorous formal analysis, review and selection process

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 Why VA?

 Deliver the RIGHT Project

 Improve Performance or Functionality
(Programs, Projects, Processes and O&M)

 $ave Money
 Reduce Unnecessary Cost (Stretch Budget)
 Avoid Budget Overrun

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 VA helps to....

Get Essential Functions at the minimum Life Cycle Cost

Make Better Complex Decisions

Reduce RISK

Achieve Sustainability goals

Transparent and Comprehensive Audit Trail

Senior Management Assurance!

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Why VA works?

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 Why VA works?

• The Design Process focuses on expected solutions

• All Projects have unnecessary Costs

• Decisions are often made without knowing the Life Cycle Cost impact

• Cross Functional Team challenges paradigms

• Function Analysis ensures compatibility

• Focus of a VA Study : “How Can We Improve Value?”

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 VA Workshops
Typically 3-5 days, depending on project scope

The team approach used for VA studies are comprised of 3 specific phases:

I Pre-Study Phase

II VA Study Phase
- detailed information sharing, function analysis, creativity , develop ideas,
present ideas to the sponsor

III Post Study Phase

- negotiate, review processes, implementation and lessons learned

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 Phases of VA
• VA is the study of FUNCTIONS of a project or a program
• A structured 6 step process
VA Workshop (3 – 5 Days)

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Pareto Law (80-20 Rule)

Vilfredo Pareto, a 19th-century Italian economist

Basic principle - most project cost results from a

small number of components

i.e. 80% of cost is caused by 20% of the

project elements

VA Target: Components within Pareto’s 20%

1. Information Phase

“What…
Is the scope?
Are the design criteria & assumptions?
Are the reasons for the project?
Are the components & component costs of the project?

Value mismatches where:

Cost >> Worth (Target Selection)

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2. Function Analysis

F (X)

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 Key to VA

• Key question: What must it do?

(primary function, instead of How to do it?)

• Tool used: FAST Diagram

(Function Analysis System Technique)

• Use of How/Why logic

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 Why focus on Functions?

• Projects are multi-disciplinary

• Forces Conciseness of Thinking by Separating Functions
• Fosters a Mutual Understanding & Helps Brainstorming

• Gets to
– What must be done?
– Rather than How it is done?

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 Defining Functions

• All functions can be defined in two words:

• An Active Verb and a Measurable Noun

• Item Function:
– Refrigerator Cools Air
– Foundation Support Structure
– Roads Route People
– Eye Glasses ? ? ? ? ?
– Automobile ? ?????
– Pencil ? ?????

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Functions associated with Pencil
 Classification of Functions

To clarify project: FAST Diagram

– Higher Order Function: Reason for basic function

– Basic Function: Primary purpose

– Required Secondary Function: Essential to provide basic

function

– Secondary Function

– Lower Order Function

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The First FAST Diagram...Charles Bytheway, 1964

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 Function Analysis System Technique (FAST)

FAST Diagram – Ground Rules

How? Why?

DESIGN
OBJECTIVE
Secondary
Functions
That Happen
When? DESIGN “All the Time”
OBJECTIVE Critical Path
of Functions

HIGHER BASIC REQUIRED REQUIRED REQUIRED LOWER

ORDER FUNCTION SECONDARY SECONDARY SECONDARY ORDER
FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION

Secondary Functions
That Happen
“At the Same Time”
and/or “Are Caused By”
Some Other Function

Scope of Problem Under Study 38

Function Analysis System Technique

Scope of Problem Under Study 39

Function Analysis System Technique

HOW? WHY?
F.A.S.T MODEL
OVERHEAD PROJECTOR

FACILITATE
PORTABILITY
OBJECTIVES OR
SPECIFICATIONS
ALLOW
SAFETY
OUTPUT INPUT
(concept)

W CONVEY PROJECT GENERATE CONVERT RECEIVE TRANSMIT

Information IMAGE LIGHT ENERGY CURRENT CURRENT
H
E
GENERATE
N FOCUS (concept) HEAT
IMAGE

SUPPORT DISSIPATE
IMAGE HEAT

AMPLIFY
GENERATE
IMAGE
NOISE

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3. Creative Phase

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 VA enables Creativity

What is Creativity?
It is the art of bringing something new into
existence - something new and different

Roadblocks
 FEAR of making mistakes & risk of pioneering
 Desire to conform . . . To “belong”
 Belief that fantasizing . . . (imagining) . . . is a waste of time, and
childish!
 The erroneous belief, “I am not a creative person”!!!

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 Information for Sceptics

 What is believed to be "common knowledge" is NOT ALWAYS truly

"correct" in the long run.

 Consider the following quotes denying the existence of, or impact of,
innovations and discoveries of their time.

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 Information for Sceptics

AEROSPACE
 "Heavier-than-air flying machines are impossible."
[Lord Kelvin, president, Royal Society, 1895]

 "Airplanes are interesting toys but of no military value."

[Marechal Ferdinand Foch, Professor of Strategy, Ecole Superieure de
Guerre]

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 Information for Sceptics

• COMPUTATIONAL SYSTEMS

• "I think there is a world market for maybe five computers."

[Thomas Watson, chairman IBM, 1943]

• "There is no reason anyone would want a computer in their

home."
[Ken Olson, Chairman and founder Digital Equipment Corp., 1977]

• "640K ought to be enough for anybody."

[Bill Gates, 1981]

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 Information for Sceptics

MEDICINE

• "Louis Pasteur's theory of germs is ridiculous

fiction."
[Pierre Pachet, Professor of Physiology at Toulouse, 1872]

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3. Creative Phase

Blast Create Refine

• Generate number of alternatives - no rules, no limits

• Speculate on the FUNCTION
• No regulations, policies or politics control your thinking
• CHALLENGE ….conventional wisdom!
• A PARADIGM SHIFT in thinking is required!
 VA enables Creativity
• What is the biggest number you can think of using three 2s?
Common Answers:
» 2+ 2+ 2 =6
»2x2x2 =8
» [(2)2]2 = 16
» 22 + 2 = 24
» 22 x 2 = 44
» 222 = 222
» 222 = 484
» 222 = 4,194,304

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 VA enables Creativity

• Outside the Box Answers:

– 2 (2x2)! = 16,777,216
– 222! = 1.1205 x 10426
– 2 (22)! = α
– Log-1[HypCos 2(22!)] = α

• VA combines concepts of VALUE with CREATIVITY

Function
Value =
Cost
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4. Evaluation Phase
“Every man with new ideas is a crank until
those ideas actually work” - Mark Twain
Evaluate creative ideas :

How feasible is each idea?

Will each idea perform the function?
Can any be modified or combined with another?
What are their benefits?
Will it be difficult or easy to implement?
5. Development Phase
• Specific changes in proposed design
• Present design sketches
• Document information
• Provide back-up calculations
• Identify capital cost implications
• Life cycle cost implications

Does it have any impact on:

- Quality - The Environment
- Safety - Code and Standard Compliance
- Procurement - Operations
- Accessibility - Maintenance

- Would you approve it?

6. Presentation Phase

• VA Team develops short presentation

• Each recommendation is presented on the basis of:

• Function/performance/quality benefits
• Capital cost implications
• Life cycle cost implications
• Other advantages
• How to overcome disadvantages & roadblocks

• Preliminary and Final VA Study Reports are prepared

 VA Optimizes Projects for NYC

• Program Background

• Initiated in 1982: recovery mechanism from the fiscal crisis

• Followed GSA & US Navy model

• Avoid future embarrassments

• Located at OMB, Office of the Mayor, NYC

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 VA Optimizes Projects for NYC

• Objectives of VA Program

• Provides accurate assessment of entire project/ program

• Identifies constraints, issues, risks
• Improves project performance
• Reviews initial & LCC
• Clear scoping & informed decision making
• Remedies deficiencies & omissions

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 VA Optimizes Projects for NYC

• Common Applications:
WATER TREATMENT WASTE MGMT. LANDFILLS
SCHOOLS IT PROJECTS FIRE HALLS
FERRY TERMINALS GARAGES BRIDGES

PARKS POLICE STATIONS JAILS

TRANSPORTATION LABORATORIES CLINICS

MUSEUMS COURTHOUSES DATA CENTRES
DAMS RFPs HOSPITALS

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 VA Optimizes Projects for NYC

• Business Process Applications:

Procurement process
Payment System
Homeless Intake process
Change Order process
ACS Eligibility process
Housing Renovation
Child Support Documentation
Daycare contracting
Leasing process
Mail Handling
Legal Services
Citywide IT Services
Construction Safety
HHC Revenue Enhancement

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 VA Optimizes Projects for NYC

• VA Results Summary 2001-2007:

• Over 100 projects studied

• Total cost savings $1.19 billion
• Average: 5% saved on each project

• On avg., every $1 spent saved $71 (ROI 71:1)

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 VA Optimizes Projects for NYC
Public Space Project, New York City
The Highline Linear Park: adaptive reuse of industrial infrastructure

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 VA Optimizes Projects for NYC
Background
- Former train bridge
- Built between 1929 -34
- First such project in North America
- 2 km long, 6.7 acres of land
- 30’- 60’ wide
- 20’ – 30’ high from street level

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VA Optimizes Projects for NYC
Value Planning Concepts
KEEP IT SIMPLE

KEEP IT WILD

KEEP IT QUIET

KEEP IT SLOW

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 VA Optimizes Projects for NYC
VA Team

Planner
Landscape Architect
Architect
Structural Engineer
Bridge Designer
Cost Consultant
City Staff

• NYC has standing offers for both VA and Cost Consulting Services
• VA Workshop includes full time cost consultant

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VM Experience of Alberta Infrastructure

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 Ministry of Transportation Ontario (MTO) Success…
18 $800,000,000

16 $700,000,000

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$600,000,000

Cost Savings/Avoidance
Number of Studies

12
$500,000,000
10
$400,000,000
8
$300,000,000
6
$200,000,000
4

2 $100,000,000

0 $0
1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
99 00 01 02 03 04 05 06 07 08 09 10
Fiscal Year

# of Finalized Studies Cost Savings/Avoidance

MTO has achieved over $750,000,000 in cost savings/avoidance using VE

Avg. 5% - 15% savings; ROI 132-325:1
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 Not Just Capital Projects …..

• I & IT Projects
– Traffic Volume Information System
– Contract Services Management Portal
– Geographic Information Systems Mapping Services
– Location Referencing Services

• Business Process Studies

– MTO Commercial Vehicle Inspection Facilities
– Prioritization of Expansion Projects
– Quebec Ministry of Welfare Restructuring
– Quebec Correctional Services Restructuring
– Quebec Public Curator
– Quebec Youth Facilities

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Value Innovation at

67
Value Innovation at

68
Value Innovation at

69
Value Innovation at

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 Value Innovation at

Product Planning
Technology Innovation
Marketing Strategy
Cost Control
Organizational Culture Shift
Supply Chain Management

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VA at cubeit

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VE Experience of Other Agencies

 Business plan
 Maximize efficiency of staff
 Concentrate on high value activities
 Manage time
 2009 – 119% growth, Revenue: $1.24M 73
 VA at The City of Calgary

Macleod Trail / Anderson Road Interchange

Southwest Connector Value Planning (Decision Making)
NW LRT Extension & Related Crowchild Tr. Improvements
Glenmore Tr. / 18 Av SE Interchange
Pine Creek Waste Water Treatment Plant (2003)
McKnight Blvd. / 36 Street NE Interchange (2007)
7th Ave LRT Station Upgrade (2007)
North Calgary Sanitary Sewer Trunk Upgrade (2009)
NW LRT Extension (Crowfoot to Rocky Ridge/Tuscany) (2009)
Automation Strategy for Treatment Plants (2010)
Biosolids Management Strategy (2011)

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 VA in Water Resources
Bio-solids Management Strategy (April 2011)

• 3 day workshop (24 hours)

• 18 participants incl. 6 external specialists
• 167 new ideas generated
• Identified Potential Cost Avoidance: $5.38M - $ 8.6M (17.8% - 28.5% lower)

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 VA in Water Resources
Nose Creek Sanitary Sewer Trunk (Aug. 2009)
• 5 day workshop (40 hours)
• 16 participants incl. 5 external specialists
• 83 new ideas generated
• Estimated capital cost $77M

• Identified Potential Cost Avoidance :

$8.43M (11% lower)
• Increased capacity from 2035 to 2075

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 General Misconceptions

• “We do It everyday…..anyway”

• VA creates adversity

• VA ignores consultant’s expertise

• VA is a management trend

• VA is a cost cutting exercise

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 Roadblocks

• We don’t have the time

• We’ve never done it before

• Honest wrong beliefs

• Fixation with previous design concepts

• Why change? It’s working O.K.

• Let’s form a committee!!!

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 Reasons for Lesser Value

• Time & Budgetary constraints

• Tactical vs. Strategic approach

• Ill defined problem and unclear scope

• Lack of consensus among stakeholders

• Disconnect between Capital & Operating budget

• Political influences & improper Risk Analysis

 HOW IS VA DIFFERENT?

CONVENTIONAL VALUE
• Item or element oriented • Function oriented

• Analytical, based on habits • Creative & Innovative (not based on habits)

• Cost analysis by components • Cost analysis by function (primary, required

(material, labour etc.) secondary, secondary etc.)

• Individual oriented ( planner, • Team oriented (brain storming by Cross

engineer, peer reviewer?) Functional Team)

• How To Do It? • What Must It Do?

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 Enterprise Transformation Models

BUSINESS THEORY OF SIX SIGMA LEAN VALUE

MODEL CONSTRAINTS MANAGEMENT
RE-ENGINEERING
GOAL Breakthrough Eliminate bottlenecks Reduce variation in Eliminate waste Increases return on
solutions Enterprise
investment

FOCUS Business Process Throughput All sources of All enterprise Function analysis
product variation processes and
people and function worth

SCOPE Business unit Enterprise Enterprise Enterprise Value Business unit

Stream

CHANGE Radical Continuous Process specific, Evolutionary and Incremental &

continuous systematic
PROCESS Innovative

BUSINESS Increases enterprise Increases financial Minimize waste Deliver value to Increases value to
performance & performance of & increase customer all stakeholders
MODEL customer value core enterprise satisfaction customers or
stakeholders

Source: Value Engineering Handbook, Institute for Defense Analyses, September 2006
 How can you decide (for VA)?

PROJECT SELECTION CRITERIA:

 Define Problem
 Unclear Scope
 Stakeholder Alignment
 Clarify Deliverables
 Conflicting Purpose & Need
 Alternative Solutions (scope & cost)
 Politically Sensitive

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 How can you decide (for VA)?

PROJECT SELECTION CRITERIA:

 Prioritize Projects
 Highly Visible
 Multiple Construction Stages
 Significant Environmental impact
 Decision Making
 Cost >>> Benefit
• Target: 20% of project elements consumes 80% of the cost
(Pareto Law)

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 Why welcome VA?

Additional credible expertise

VA Team may challenge scope

Clarifies project/ program tradeoffs

Project Mangers and Consultants are the decision makers

PMs & Consultants get the ultimate credit for the final project

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 Road to Value Specialization

SAVE International (est. 1959) is the premier international society devoted to the
advancement and promotion of the Value Methodology

1. Associate Value Specialist (AVS)

 Module 1 Training (40 hours)
 Exam (2 hours)

2. Value Methodology Practitioner (VMP)

 Module 2 (24 hours) Advanced Training
 240 hours (6-8 studies) of Value Studies completed
 Exam (2 hours)

3. Certified Value Specialist (CVS)

 AVS + VMP
 480 hours (12-16 studies) of Value Studies completed
 Exam (3 hours)
 Scholarly paper
 Practice of Value Methodology

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Opportunities Ahead…….

• Confirms to sponsor (s) that we are providing best value

• Fosters a culture of innovation within the organization
• Expand to business process areas
• Integration with:
• Safety
• Engage
• Project Management
• Risk Management
• Asset Management

• Improve working relationships with stakeholders (internal and external)

• Develop a Value Management (VM) Program

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 Closing Thoughts

Abraham Lincoln
If I had an hour to cut a tree ……………
I’d spend the first 50 mins. sharpening my axe!

Lawrence Miles

Value Analysis is a system for use when

better than normal results are needed.
 VA is about doing the RIGHT project, RIGHT…

For more information on

Value Management/ Value Analysis:

Mushtaq.Rabbi@calgary.ca
403.268.4988