Executive Summary
Value management comprises an important aspect in the management of construction projects. It promotes the value of a project to various internal and external stakeholders. The value of the project improves due to the consideration of various value elements.
Therefore, in a bid to be successful in value management, it is imperative for project owners to define the project objectives clearly. Secondly, the value driver in the project should be outlined clearly. Furthermore, it is also imperative for the project owner to appreciate the existence of risks, which might affect the project outcomes.
The consideration of these elements fosters the value of the project to the various project stakeholders. This report illustrates the value management and risk management aspects to be considered by the local government authority in the UK in implementing a construction project aimed at improving the society’s welfare.
Introduction
Projects have become a fundamental approach through which governments are adopting in an effort to improve the welfare of the general population. Some of the major projects that have been initiated by different governments relate to the construction of public utilities such as sports centres and transport networks.
Additionally, the degree of complexity and costs of projects vary across different set ups. Nevertheless, it is crucial for contractors to adopt effective project management practices in order to deliver value to the target stakeholders. Therefore, the incorporation of optimal value and risk management practices is critical in the delivery of projects.
Dallas (111) proposes that value management ensures that the end-user requirements and the project owners’ values are maximised. Thus, value management focuses on maximising the functional benefit of the project. Conversely, risk management minimises deviation from the desired project outcome.
The definition of value is subjective, which means that it depends on the prevailing context. Some of the major contexts of value relate to the exchange value, environmental value, social value, the use value, and image value.
Despite variation in its meaning, value is comprised of different value drivers. Dallas asserts that values drivers “include the benefits that contribute to the value of the completed project to the different stakeholders” (125). Failure to incorporate value drivers limits the effectiveness with which a project attains its desired objectives.
The concepts of risk and value management are based on results. Therefore, it is essential for project managers to formulate performance measures to assess the outcomes attained. This goal can be attained by incorporating a number of generic drivers (Dallas 126).
Purpose
In its quest to improve the welfare of its citizens, the local government authority in the UK has allocated £ 9.5 million to be used in a high profile construction project. The project intends to at bring together and provide citizens with access to a number of local authority, leisure, and community services within a single facility.
In a bid to succeed in improving the welfare of the citizens, the local government authority [project owner] should ensure that the project delivers high value to the end users.
This report analyses the value and risk management aspects that should be considered in improving the project’s capacity to deliver value for money (VFM) and enrich the citizens’ experience.
Strategic definitions and value drivers
Bontempi emphasises that value engineering culture “is focused on holistic maximisation of value for money” (89). Thus, the client should consider the different elements in the delivery of the project.
The local government authority is committed to delivering a high social value by enhancing the connection between its citizens and fostering positive interaction through the construction project.
In a bid to improve the project outcome, the local government should adopt a holistic approach in managing the value and risk within the construction project. The local government authority should consider a number of generic value drivers as explained herein.
Achieve desired financial performance
The local government should assess its financial capacity to construct the intended facility by conducting a cost analysis in order to estimate the total cost of the project. Thus, the client will compare the budgetary allocation for the project and the estimated cost.
This move will provide insight on the possible financial constraints that might be incurred in implementing the project. Consequently, the client will determine the need for contingency budgeting. Furthermore, the client will determine the source of additional funds such as loans from financial institutions in advance.
This aspect will improve the clients’ capacity to deal with unprecedented project cost overruns. Cost estimation will enable the client to establish an effective basis for cost control. Therefore, the likelihood of the project being delivered successfully will increase.
Operational efficiency
The decision by the local government authority to invest in the construction project was motivated by the need to transform the community and improve the quality of life amongst citizens within the city and its surrounding.
The client intends to achieve this goal by ensuring that citizens access diverse local government, leisure, and community services under one roof. In a bid to achieve this goal, the local government authority should ensure the attainment of a high level of operational efficiency upon the completion of the project.
Some of the elements that the client should ensure involve the facility’s capacity to enhance interaction between various units established. Ensuring a high level of operational efficiency will improve the level of satisfaction amongst the end-users [citizens].
Dallas is of the opinion that a “building should actively enable the work and activities that it is designed for by offering opportunities for interaction and communication” (127).
Environmental dimension
In the process of implementing the project, the client should not solely focus on the cost of the project. On the contrary, a holistic engineering management and value management approach should be taken into account.
Therefore, the local government authority should adopt a culture that recognises different stakeholders who might be affected by the project in order to enhance the VFM. One of the aspects that the client should consider entails ensuring that the project is environmentally sustainable.
For example, the construction should not affect the prevailing biodiversity adversely or cause environmental pollution.
Cost of maintenance
The value of the intended construction project to both the end user and the project owner will be affected by the cost of maintenance. Thus, the project owner should ensure that the cost of maintenance is significantly low in order to enhance its long-term sustainability.
Additionally, the cost of maintenance should be minimal because the project will require annual funding by the local government authority. Therefore, minimising the cost of maintenance will ensure that the end-users are not over-burdened, for example, by increasing the levies in order to access the services provided within the facility.
Compliance with third-party constraints
The project owner should ensure that the construction project complies with the implemented legal requirements. Some of the elements that the project owner should ensure entail the safety and health of the end-user.
For example, the local government authority should comply with the building recommendations stipulated by the Commission for Architecture in the Building Environment [CABE]. Furthermore, the owner should ensure that the project aligns with the stipulated legal requirements.
Compliance with legal requirements should be ensured during the delivery process and after completion of the project.
Project delivery efficiency
The project owner should ensure that effective project management processes are adopted in order to improve the outcome. One of the areas that the local government should consider relates to the management of the project procurement process.
Bower emphasises that procurement “is seen as an adjunct in the delivery of value” (195). In a bid to achieve a high level of efficiency in the project procurement process, the project owner should assess the various activities that constitute an effective project value chain.
By adopting the concept of project value chain, the project owner will perceive the various project tasks as value-adding activities.
Consequently, the project owner should ensure that the project materials and resources are utilised optimally. Furthermore, the project manager should ensure that the right people are engaged in the project delivery process.
Ability to attract and retain occupants
The project owner intends to improve citizens’ wellbeing through the project. However, this goal is only attainable if the constructed project attracts employees or occupants. The facility should be characterised by a favourable working environment. Furthermore, the facility should inspire the target stakeholders by fostering a positive experience.
Project stakeholders
Hill (183) defines project stakeholders as the various individuals or entities that have some stakes in the outcome of a project. Projects have two main categories of stakeholders, viz. the internal and external stakeholders.
In the process of implementing a project, it is critical for the project manager to ensure that the affiliation of the stakeholders to the project is understood extensively. Furthermore, Hill (183) proposes that project stakeholders have a significant impact on project management environment.
Subsequently, effective profiling of stakeholders will provide insight on how to manage their influence on the project. The intended construction project will be influenced by the divergent interests of a number of stakeholders as evaluated below.
Internal stakeholders
This category of stakeholders is comprised of project participants who provide decisions and senior-directions that guide project implementation in order to achieve the desired objectives (Hill 183).
- Project Sponsor – the local government authority in the UK constitutes the principle project sponsor. The sponsor’s decision-making authority is relatively high, as evidenced by the capacity to make decisions on project continuation and termination.
- Project Management Office Director – the PMO Director should conduct project management control and oversight. The director should also assess the status of the various project activities continuously.
- Project Team [technical staff] – the project team should be comprised of members characterised by different expertise in order to ensure the successful delivery of the project activities. The integration of different experts into the team will ensure that the project team deals with complexities that might arise during the implementation process.
- Project Manager – the project manager will be charged with the responsibility of overseeing the various project management activities that need to be executed during the project’s life cycle.
External stakeholders
The project owner should identify the external stakeholders. Some of the external stakeholders that should be considered include
- End users – these involve the final consumers of the project. In this project, the end-users entail the citizens living within the city and its vicinity. The end users will be interested in deriving maximum satisfaction by consuming the services offered by the facility upon its successful completion.
- External public parties – these include the public organisations such as government agencies, trade associations, labour unions, and government authorities, for example, the construction planning departments [CABE and the Royal Institute of British Architects]. Chinyoi and Olomolaiye (82) argue that these stakeholders have legitimate authority to ensure that the intended constructions adhere to the building regulations on top of being approved by the relevant authorities.
Project risk management
Raftery (76) asserts that construction projects are complex and they consume a substantial amount of resources. However, the occurrence of unexpected events or risks may affect project delivery adversely.
Therefore, it is imperative for the project owner to identify and manage the possible risks that might occur at different phases of the implementation process. Some of the risk events that might be encountered during the construction project are illustrated below.
- Pre-design stage – the occurrence of conflicts amongst the various interest groups might lead to project delays, hence increasing the cost of the project due to changes in the market environment. Moreover, cost estimation errors might affect the execution of various project tasks.
- Concept design stage – one of the major risks that might be encountered during this stage relates to delay in the approval of the project, for example, by the construction authorities.
- Tendering stage – submission of incomplete project tender documents and unqualified bidders might also increase time management risk.
- Construction stage – the project completion might also be affected by delays and acquisition of the project site among other factors like bad weather. Additionally, the increment in the cost of the project might affect the project outcome adversely.
Considering the impact of risk on a project, it is critical for the project manager to adopt effective risk management techniques such as cost analysis and time management.
Furthermore, the project owners should outsource construction experts in order to ensure that the project risks are identified and managed effectively. The project owners’ commitment in managing risk influences the extent of support received from the various project stakeholders.
Evaluating project success
The project sponsor should consider a number of parameters in assessing the success of the project. Some of these parameters include
- Adherence to the predetermined timeframe – projects should be delivered within a specific pre-determined timeframe in order to increase their value. Thus, the Project Manager should adopt effective time management techniques. Failure to manage project time optimally might increase the cost of the project due to economic changes.
- Quality of the project outcome – the project outcome should comply with the quality specifications outlined by the project owner. In a bid to improve the quality of the project, it is imperative for the project manager to assess continuously the quality attained in the various phases of the project.
- Cost analysis – the project sponsor should evaluate whether the project has been implemented successfully within the budgetary allocation.
- Stakeholder satisfaction – the local government authority should also assess the extent to which the project outcome has met and exceeded the stakeholders’ goals.
Project development and value studies
The project sponsor is committed to ensuring that the desired outcome is attained. In a bid to achieve this goal, the project sponsor has allocated 5 days of study time that the project team will undertake on value management/ value engineering concepts in the project timeframe.
The value studies will be conducted with reference to the stages outlined by the 2013 RIBA plan of work. Best and Valence (243) emphasise that value management studies play a fundamental role in enhancing project delivery by promoting a consensus between the various project participants.
In order to improve the project outcome, it is imperative for the project sponsor to consider two main value study activities as explained herein.
- Core objectives – the success of the project in delivering the intended outcome will depend on the extent to which the project stakeholders understand the project’s core objectives. Therefore, it is essential for the project owners to train the stakeholders on the diverse project objectives such as quality objectives. By gaining prior knowledge on the project objectives, the project team members will be focused at executing the assigned tasks. Integrating the core objectives as one of the study elements will lead to the improvement of the project outcome.
- Project sustainability – another aspect that the project owner should consider during the value management studies relates to project sustainability. This study should focus on ensuring that stakeholders develop a comprehensive understanding on the various sustainability targets to be achieved. Some of the elements that should be considered during the project sustainability workshop relate to the adherence to environmental requirements, for example, the climate parameters that will be ensured in the project.
The two value management studies should be conducted at different points of the project lifecycle. The value management study with reference to the project’s core objectives should be conducted during the project preparation and brief stage.
The study will promote a high level of information synthesis amongst the project stakeholders, hence increasing their level of orientation towards the project.
The main participants during the value management-study workshop on the project’s core objectives will include the project sponsors, project manager, the project team, the end-users and the government, and non-government regulatory bodies in the construction industry.
Conversely, value management study on sustainability should be conducted at the concept design stage. Kelly, Male, and Graham (43) assert that during the concept design stage, a comprehensive structural design of the intended project is developed.
Additionally, the concept designing stage also involves outlining the preliminary project cost information and the project strategies to be adopted. The study on sustainability should mainly involve internal project stakeholders such as the project sponsor, project owners, project team members, the regulatory authorities, and the project manager.
One of the agendas that should be taken into account during the sustainability study session relates to how the project will deliver sustainable benefits amongst the target end-users. Furthermore, the study should also illustrate how sustainable VFM will be attained.
By considering these stakeholders in the value management and engineering studies, the project owner will entrench the level of participation and support during the implementation process. Thus, the probability of attaining optimal outcome will increase.
In order to improve the effectiveness of the value management studies, it is essential for the project owner to conduct the study through an isolated workshop environment. Therefore, the project owner should identify an effective location within which the value management studies should be conducted.
Adopting an isolated workshop environment will minimise interruptions from outside agents. Furthermore, this approach will foster collaboration amongst the various project participants, hence increasing the project outcome.
Value management study on the projects core objectives should take 2 days while study on project sustainability should take 3 days in order to ensure that the various stakeholders understand the various elements associated with the project such as the project cost, project strategies, and project design.
Appraisal of the effectiveness of the value management studies
The project owner should evaluate the effectiveness of the value management studies by assessing two main elements. First, the project owner should evaluate the level of understanding amongst the project participants on the value management studies undertaken.
Secondly, the appraisal process should also evaluate the project participants’ degree of commitment to ensuring that the desired outcome is attained.
Conclusion
It is important for the project owner to ensure that effective value management and risk management practices are adopted in order to achieve the project objectives.
Some of the value management practices that the project owner should consider include defining the value drivers and the parameters to be adopted in assessing the success with which the value drivers have been integrated into the project.
Furthermore, the project owners must ensure that the external and internal project stakeholders are involved in the project planning and delivery process. The project owner decision to integrate value management studies will play a vital role in improving the level of commitment, focus, and support amongst the project participants.
Works Cited
Best, Rick, and Gerard Valence. Building in value; predesigned issues, New York: Routledge, 2013. Print.
Bontempi, Franco. Structural and construction, Chicago: CRC Press, 2003. Print. Bower, Denise. Management of procurement, London: Thomas Telford, 2003. Print.
Chinyoi, Ezekiel, and Paul Olomolaiye. Construction stakeholder management, Chichester, UK: Wiley-Blackwell, 2010. Print.
Dallas, Michael. Value and risk management: a guide to best practices, Oxford: Blackwell Publishers, 2006. Print.
Hill, Gerard. The complete project management methodology and toolkit, Chicago: CRC Press, 2009. Print.
Kelly, John, Steven Male, and Drummond Graham. Value management of construction projects, Oxford: Blackwell Science, 2004. Print.
Raftery, John. Risk analysis in project management, New York: Routledge, 2003. Print.