Perspectives · Benefits Management

The Value of Value Management

This post highlights the importance of incorporating value management into sustainable change delivery.  This blog post is part of a series that provides a foundation for understanding sustainable change delivery.

There is nothing so useless as doing efficiently that which should not be done at all.

Peter F. Drucker

Management of Value (MoV) was the most recent certificate I obtained from the UK Cabinet Office, mainly because it took me some time to "get it."  It took several sessions of Michael Dallas's patient explanations before I finally invested the time in reading the book and passing the exams.  Having now realized the value of value management, I believe this to be one of the most useful and practical resources in the AXELOS library. However, it is also one of the most challenging because it forces one to look at change initiatives from a completely different perspective.  Value management is deeply integrated with risk management, benefits management and business case management.  This post will provide some background to the concepts and outputs of value management.

The Value of Value Management

Building efficiently is no guarantee that the end product will be suited to its intended purpose. What is required is a shift in perspective so that the focus is not on what things are or on their output, but on what things do or on their function, which will result in an outcome. For example, a paper to the Royal Society of Engineers puts forward the suggestion that a typical ratio for building costs, when divided between construction costs, building operating costs and business operating costs, would be in the order of 1 to 5 to 200 (Dallas, Kindle Locations 334-335, 2007). This is illustrated below: Employing value management analyses early on will facilitate the making of informed decisions regarding the design, while good solutions arrived at during key initial phases will pay dividends throughout the asset’s lifecycle.  The importance of this is indicated below, showing that total asset life-cycle costing must be taken into account when considering the best time to deal with change. As highlighted below, changes are best dealt with at the very beginning of a change engagement that is based on sound analysis and which should include value management. By focusing on the actual function of what is required, better outcomes can be delivered that will provide superior asset lifecycle cost benefit results.

Definitions to provide Context

To help to provide context, the following definitions were obtained from the Management of Value guidance (The Cabinet Office, pp. 140-144, 2010): Value: The benefits delivered in proportion to the resources put into acquiring them. Value Management: A systematic method to define what value means for organizations, and to communicate it clearly to maximize value across portfolios, programmes, projects and operations. Function: What something does, expressed as an active verb and a measurable noun (as closely as possible). It may be tangible (e.g. bears weight) or intangible (e.g. operates intuitively). As outlined in the diagram below, there are three main areas where it is necessary to strike a balance:

1. Balancing the benefits and expenditure on resources used.
2. Balancing the benefits between stakeholders.
3. Balancing the use of resources.

Key Concepts

The foundational concepts of value management were initially developed by Larry Miles, an American working for General Electric in 1947. As Miles put it, “I was very concerned because it seemed that things cost so much more than they should have” (Cook, p. 74, 1984). Michael Dallas continues Miles’ story:

Production of certain components was constrained by shortages of the materials that traditionally had been used in their manufacture.

Miles was charged with finding ways to overcome the material shortages.  The approach he adopted was, at the time novel.

Instead of asking the question 'how can we find alternative sources of materials' he asked, 'what function does this component perform and how else can we perform that function'?

This approach opened the way for innovative designs that resulted in superior products that were cheaper to make.

Miles's focus on function (what things must do) was effectively a focus on the outcome of the manufacturing process rather than the process itself.

Fulfilling the essential functions of the product under investigation, with the use of minimum resources, remains at the heart of value management today. (Dallas, 2006)

 

How to Conduct a Value Analysis

At a high level, Value Management fits into organizational change delivery as outlined below.  There is a presumption that certain things, such as organizational goals and programme or project objectives that align with those goals, have been identified, and that you are able to start identifying the value drivers that will guide the design considerations and solutions. At a very simple project level, the following process is extremely helpful. What are the actual Value Management tools and techniques, and what are the outputs?  The Value Measuring Process (VAMP) is highlighted below: Function analysis is a key technique that focuses on analyzing what things do rather than what they are and avoids looking at ideas until functions are visibly mapped. Function analysis is focused on customer needs and wants.  The objectives of this analysis are:

1. To gain clarity of understanding of the project aims and to identify what needs to be done in order to achieve those aims.
2. To stimulate creativity in the search for different ways to perform the identified functions. (The Cabinet Office, p. 45, 2010)

The first task for the stakeholders is to define the statement of objectives and the next is to identify the value drivers. It is useful to consider the concept of Fair Process when working with all stakeholders.  There is an associated blog post that describes the importance of this in Silly Management Mistakes – the Importance of Fair Process. The next task is to work with stakeholders to identify the weightings so as to arrive at the Value Profile: The Cabinet Office offers the following as the principal uses of the value profile:

• For the organization, at strategic or portfolio level, articulating the organization's value priorities
• For a programme, providing the means of achieving consistency across the contributing projects
• For a project, articulating project objectives and the key project requirements in plain language
• Maximizing value consistent with an organization's value priorities
• Making decisions based on maximizing value
• Redistributing resources to where they add the greatest value
• Trading off use of resources in one area with another to maximize value. (The Cabinet Office, p. 50, 2010)

The next step is to agree on and then to assess the performance measures as this helps to provide a value index.  The key here is that everyone needs to agree on the relative importance of the weighting and the performance scale.  This provides an impartial value score that can help guide decision making. The Cabinet Office provides the following as principal uses of the value index:

• Providing a measure of how well objectives are being met, at organizational, programme or project levels and the level of effort required for a formal MoV study.
• Enabling the measurement of overall value, including monetary and non-monetary value drivers (but not showing whether the benefits represent value for money).
• Indicating the contribution of each value driver to the overall value index, thus showing where to concentrate effort to improve value.  (The Cabinet Office, p. 51, 2010)

On the basis of this analysis, and by integrating the expected cost of delivery, it is possible to assess the value for money for each value driver / function and to make appropriate decisions regarding investment choices. The Cabinet Office offers the following as the principal uses of the value for money ratio:

• Dividing individual value scores by the total cost of delivering each value driver provides a measure of value for money.
• Providing a value for money ratio for each value driver and for the project as a whole helps to focus value-improving effort on those parts that are delivering lowest value for money.
• Selecting options. (The Cabinet Office, p. 53, 2010)

More importantly though, this can be continuously evaluated at key check points throughout the engagement to confirm that value for money is still intact. Another perspective on how to conduct a value analysis study is outlined below:  

Conclusion

Below is an example of how an organization can consider implementing value management competency: If you are interested in moving forward with developing this competency, please consider some of the following Value Management training and certification options:

Accrediting Organization	Value Qualifications Available	Qualification Title
AXELOS	Management of Value	MoV Foundation and Practitioner
Institute of Value Management	IVM / European value management training and certification system	Certificated Value Analyst Professional in Value Management
Society of American Value Engineers	SAVE	Associated Value Specialist Certified Value Specialist

The list of references below will also guide you as you explore this field. Value management is a core competency in sustainable change delivery as it feeds and provides crucial decision intelligence for risk management, benefits management, business cases and asset lifecycle cost / benefit modelling for the change initiative.  Please take a lesson from me and don't wait as long to recognize the value of this competency to your business.

Series Objectives

This series is all about raising awareness of sustainable change delivery and the integral elements, disciplines and competencies associated with it.  In the graphic below, each of these elements is identified in terms of its role in empowering for sustainability.  These elements form the basis of the GPM® Global’s P5™ Standard for Sustainability in Project Management, the GPM® Global Training Programs, and the GPM® Global Portfolio, Program, & Project Sustainability Model (PSM3™) for organizational assessment.

 REFERENCES

Association for Project Management (2014). Interfacing Risk and Earned Value Management. APM. Association for Project Management. (2014). Project Risk Analysis and Management Guide, Second Edition. Retrieved September 21, 2015, from http://www.amazon.com/Project-Risk-Analysis-Management-Guide-ebook/dp/B00JJ0MSRK/ref=sr_1_1?s=books&ie=UTF8&qid=1442807872&sr=1-1&keywords=project+risk+analysis+and+management+guide Baker, Ronald J. (2010). Implementing Value Pricing: A Radical Business Model for Professional Firms (Wiley Professional Advisory Services). Wiley. Carboni, J., Gonzalez, M., & Hodgkinson, J. (2013) The GPM reference guide to sustainability in Project Management. Fort Wayne: GPM Global. http://www.greenprojectmanagement.org/the-gpm-reference-guide-to-sustainability-in-project-management Carboni, Joel (2014). The GPM P5™ Standard for Sustainability In Project Management. 1st ed. Fort Wayne: GPM Global. Cook, T. F. (1984). Welcome to Value Analysis and Value Engineering. In Save Conference Proceedings. Retrieved from http://www.value-eng.org/knowledge_bank/attachments/Welcome to VA & VE.pdf Dallas, M. F. (2008). Value and Risk Management: A Guide to Best Practice. Retrieved September 21, 2015, from http://www.amazon.com/Value-Risk-Management-Guide-Practice-ebook/dp/B0014TS2IS/ref=sr_1_1?s=books&ie=UTF8&qid=1442809546&sr=1-1&keywords=value+%26+risk+management+a+guide+to+best+practice Doerscher, Terry & Durbin, Pat. (2010). Taming Change with Portfolio Management: Unify Your Organization, Sharpen Your Strategy, and Create Measurable Value (Management Management Technique). Greenleaf Book Group LLC. Hubbard, Douglas W. (2014). How to Measure Anything: Finding the Value of Intangibles in Business, Third Edition. Wiley. http://www.amazon.com/How-Measure-Anything-Intangibles-Business/dp/1118539273/ref=sr_1_1?ie=UTF8&qid=1442806937&sr=8-1&keywords=How+to+Measure+Anything%3A+Finding+the+Value+of+Intangibles+in+Business Humphreys, K. (1991). Jelen’s Cost and Optimization Engineering, Third Edition. Retrieved September 21, 2015, from http://www.amazon.com/Optimization-Engineering-Humphreys-Kenneth-Hardcover/dp/B010WFHHB2/ref=sr_1_9?s=books&ie=UTF8&qid=1442859945&sr=1-9&keywords=jelen%27s+cost+and+optimization+engineering Kofman, Fred (2007). Conscious Business: How to Build Value through Values. Sounds True. Manas, Jerry (2014). The Resource Management and Capacity Planning Handbook: A Guide to Maximizing the Value of Your Limited People Resources. McGraw-Hill Education. SkyMark. (2016). Larry Miles and Value Engineering. Retrieved February 8, 2016, from http://www.skymark.com/resources/leaders/larrymiles.asp Stout, Lynn A. (2012). The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public . Berrett-Koehler Publishers. Sullivan, W. G., Wicks, E. M., & Koelling, C. P. (2014). Engineering Economy, Sixteenth Edition. Retrieved September 21, 2015, from http://www.amazon.com/Engineering-Economy-16th-William-Sullivan/dp/0133439275/ref=sr_1_1?s=books&ie=UTF8&qid=1442861127&sr=1-1&keywords=engineering+economy The Cabinet Office. (2010). Management of Value (MoV). The Stationary Office.