Cutting costs – how to select an optimum solution Workshop Session E2

Mike Walker FIRM FRICS

Principal - redamber consulting

Date: Tuesday 22 March 2011

Agenda

Cutting costs – how to select an optimum solution

•Introductions/housekeeping

•Short presentation on value & cost

•Practical study (in teams)

•Close

redamber consulting

Rules for a VM workshop (& today)

•All ideas are welcomed, no matter how radical, innovation is encouraged

•Free flow of ideas is encouraged/spend some time on “blue sky thinking”.

•Do not dominate

•Build, combine and improve on others ideas.

•No killer phrases or put-downs/criticism of others ideas is not allowed

•This is a no fault, no blame process (a blame free zone!)

•‘Stupid’ questions are allowed (ie. there is no such thing as a stupid question)

•Please comply with my reasonable requests

•The ‘shelf’ for parking of ideas

•Mobiles on silent please

.

Drivers of risk management – (a reminder)

Source: A Structured Approach to Enterprise Risk Management (ERM) and the requirements of ISO 31000IRM, AIRMIC, Alarm 2009

The process of managing value

What do we need?

A structured way to define what value means to an

organisation, and a way to establish a clear consensus about

objectives, and how they can be achieved.

“Value Management is concerned with improving and sustaining a

desirable balance between the wants and needs of stakeholders and

the resources needed to satisfy them. Stakeholder value judgements

vary, and VM reconciles differing priorities to deliver best value for all

stakeholders” The Institute of Value Management: www.ivm.org.uk

Why manage value?

•to clearly establish at the outset all organisation or

project needs, objectives, priorities, risks and constraints

•to separate needs from wants

•to establish a shared understanding and consensus

amongst key departmental stakeholders

•to define & optimise “value”

•to ensure time, money and effort are spent where most

needed (eg. the ‘space pen’)

Definition of valueWhat does “good value” mean to you – it can vary!

•Relative

•Subjective

•Highest performance, or Lowest maintenance?

•Short term, or Long term?

•Sustainable/Recyclable/Renewable

•Reliable

•Aesthetical

•Whole life cost, or Capital cost?

•Lowest cost without detriment

•Income generation only?

Functional analysis

•This technique is at the heart of managing value

•shows the functions needed to enable the objective to be achieved

•A Function is a short two or three word statement

•A verb (a doing word) and a noun (an item or thing)

eg. ‘provide security shelter’ (not ‘build a 3m x 4m structural glass walled air conditioned reception kiosk’)

•If there is a technical description – get to its function by asking

• Why is it wanted• What does it do

What is value?Can be described as:-

The reliable performance of what is required to perform a function, at the optimum overall resource expenditure.

or: (Function) WHAT YOU GET

(Resource) WHAT YOU PAY

eg. - a penthouse or a prefab?

- a mont blanc pen or a plain pencil?

Ways to improve value

Change the ratios or proportions to:

• Reduce resource/cost while increasing or

maintaining function

• Increase function while maintaining

resource/cost

• Increase function while increasing

resource/cost (by a proportionally smaller

amount)

• Identify over-specification, decrease

resource/cost by a proportionally greater

amount

The value hierarchy

A simple hierarchical layout with the overall objective

at the front end:

•First identify individual Functions

•Prioritise by giving a score to each Function

•Use the scores to derive an importance weight for

each Function

•The weighted scores should sum to ‘1’

•This is called a ‘value hierarchy’ (or sometimes termed a

‘function hierarchy’)

Value hierarchy example showing weightingsSpace per person

Internal environmental conditions

Internal layout

Staff car parking

Accommodate different uses

Provision for future expansion

Environmental impact

Visual impact externally

Visual impact internally

Flexibility for short term changes

Adequacy of storage space

Visibility of entrance

Waiting area size

Visitors car parking

Building maintenance and repair

Energy costs

Security, cleaning etc

Good staff accommodation(0.35)

Flexible for future change(0.20)

Good design impact(0.15)

Efficient in use(0.12)

Accessible for customers(0.10)

Low maintenance costs(0.08)

Accommodate the department in one location

etc

Outline of a value exercise (the process)

Run a formal review workshop to:

•Identify all stakeholder objectives & rank them

•Identify functions (through function analysis)

•Use these to inform & prepare a value hierarchy (VH)

•Identify a range of options for achieving objectives

•Appraise the feasibility of options by giving a score as to how each satisfies the requirements of each individual function on the value hierarchy.

•Carry out a weighted evaluation • multiply scores given for each solution/option by the relevant weighted Function values)

• Sum these weighted scores to give an overall ‘value of option’ score

•Highest score identifies the most promising option for further detailed investigation

redamber consulting

• Mike Walker is a qualified risk manager and a registered risk practitioner. A chartered surveyor, he has been the organiser and facilitator of numerous risk & value workshops; he has also trained many staff and clients in risk & value management, and risk awareness.

•RedAmber Consulting specialises in reducing and removing the risks present in business and project endeavours.

For further information contact Mike Walker: mobile - 07980 327 672 email - mike@redamberconsulting.com

Tel: +44(0)20 7709 9808Fax: +44(0)20 7709 0716

The Institute of Risk Management6 Lloyd’s AvenueLondonEC3N 3AXUnited Kingdom