Value Management And Its Application In The Construction Industry Construction Essay

Value Management And Its Application In The Construction Industry Construction Essay The construction industry the world over is often perceived to be the life wire of its respective economy as it cuts across all aspects of human activities (Ayangade, 2009) and the Nigerian construction industry is not an exception to this. Its contribution ranges from enabling the procurement of goods and services to the provision of buildings and other infrastructure, thereby providing employment opportunities to its labour force while contributing immensely to the Gross Domestic Product (GDP). According to Ayangade (2009), the contribution of the Nigerian construction industry is yet to measure up to those of the western world like the UK and Australia due to its developing nature among other reasons discussed below. As noted by the same researcher (Ayangade, 2009), whereas the construction industries of other developed countries are responsible for about 22% of their respective GDPs, the Nigerian case is different as it contributes slightly below 16% to its economy. However, this could be said to be complemented by the relatively higher employment (20%) it provides for its whooping 140 million citizens compared to the 12% as in the case of developed countries. Mbamali (2004) attributed this to relatively lower use of mechanization within construction in Nigeria and the high dependency of the Nigerian economy on the oil sector. Obiegbu (2005) noted that the construction industry, unlike other sectors, is a complex one and requires articulate professionals who are ready to live up to its clients expectations. Clients in the construction industry may either be private individuals including corporate bodies or public organisations which include the government. In Nigeria the federal government is often seen to be involved in the most complex projects with about 38.4% of the market (Ayangade, 2005). This is followed by the state government which is responsible for about 19.2% of the projects in the industry, though there is still some form of partnering between different classes of clients. The players in the industry are a disparate group of individuals often assembled into temporary teams and may comprise of quantity surveyors, architects, Engineers, Estate surveyors Valuers, project managers, contractors and sub-contractors, suppliers, labourers and artisans. Activities in the construction industry are carried out on a project basis and could be within an organisation or part of a programme (..reference). The Project Management Institute (PMI) (2004) defined a project as a temporary endeavour undertaken to create a unique product, service or result. The product, in the context of the construction industry, may be a building, services installation or other infrastructural project. Hence the relevant mix of professionals is often assembled together with the aim of achieving this goal. This group of professionals is expected to possess the relevant skills, knowledge, tools and techniques to achieve the project goals. The application of these variables, skills, knowledge, tools and techniques, with the aim achieving the required objective is referred to as project management (PMI, 2004). According to Obiegbu (2005), the contractual procurement strategy, which he defined as a basis for clients action in defining the procedure to be followed fr om the inception of the project to handover, plays an important role in the performance of the industry. Some of the contractual arrangements which are often referred to as procurement routes may include, but are not limited to, the following: Traditional procurement route Design and build Management contracts 2.1.1 Nature and Performance of the Nigerian Construction Industry the economic resources often wasted in cost and time overruns, substandard work and shoddy workmanship, client-contractor-practitioners acrimonious relationships and non-performance of projects as envisaged by clients and end users Olatunje (2009) The above quote highlights the perception of the Nigerian construction industry presented by Olatunje (2009) highlights issues researched by other authors such as cost and time overruns (Aniekwu and Okpala, 1998, Oyedele Tham, 2007, Dlakwa Culpin, 1990), project abandonment (Sonuga et al, 2002, Adams, 1997) and both client and contractor dissatisfaction (Olatunje, 2009). The quote also echoes findings from Egans (1998) research into the UK construction industry. The Egan report has been formative in the UK construction industry but also for the Nigerian industry, which is fashioned after the UKs (Mbamali, et al., 2005, Oyedele Tham, 2007). The Nigerian construction industry has similar contractual arrangements as the industry in Britain which has been found to be more unsuitable for developing industries like Nigeria than it is for its own industry (Edmonds Miles, 1983, Sonuga et al, 2002). The most common procurement route used in the Nigerian construction industry is the traditional route (Ayangade, 2009). This implies that much risk is placed on the Architect to deliver the project as he is left to advise, organise and lead other project consultants to conceive and develop the project design. This procurement route has faced a lot of criticism including the separation of the design stage from actual construction. Wells (1986) found that the divorce of design from construction and the use of competitive tendering, which is based on lowest cost, are noted constraints that affect the performance of the Nigerian construction industry. Aniekwu and Okpala (1988) referred to these as systemic issues in the industry which result from the application of contractual arrangements unsuited to the Nigerian industry. Some of these issues may be accommodated by appropriate conditions of contract but these factors are considered to be withholding the development of the industry. Aniekwu and Okpala (1988) also identified some of the structural issues affecting the industry to include access to finance and lack of proper communication among consultants, contractors and the client at the early stages the project and during construction. Oyodele and Tham (2005) noted that lack of proper communication in the industry, boosted by its high level of fragmentation, has left it awash it with delay, cost and time overruns in addition to the disturbing rate of fluctuation in the prices of materials offered by the economy. The findings of the Building Research Establishment associated more than 50% of the construction defects with mistakes in project drawings and documentation due to inadequate interaction among the proj ect professionals. This is in line with the recommendation of the National Economic Development Office (1987) on the need for more accurate designs in the industry as this is responsible for nearly two-thirds of poor quality work in the industry. 2.1.2 Project Management in the Nigerian Construction Industry Odusemi et al, (2003) found that Project Management is still in its early stages of development in the Nigerian construction industry. The service is offered but only alongside other consultancy services. This is not assisted by the fact that PM is learned experientially and is not represented by established professional bodies, although many consultants are members of the Association of Project Management (APM) and the Project Management Institute (PMI). This has left the industry struggling with the challenges of satisfying the needs of its clients and the public as a whole. As noted by Oyodale and Tham (2005), the complexities presented by the industry can only be tackled by its professionals. Aibinu and Jagboro (2002) concluded that, considering the contribution of the construction industry to its nations economy, improved services in the form of greater efficiency and timeliness would certainly yield a positive impact. The research called on the need for innovative research that will improve management skills and ability, buildability, design quality, integration and communication and client focus so as to deliver value for money. 2.2 VALUE MANAGEMENT 2.2.1 Value Concept Historically, value is viewed from an economic perspective, hence its expression as a ratio of costs to benefits (Kelly et al, 2004). The concept of value is based on the relationship between satisfying needs and the expectations and the resources required to achieve them (British Standard, 2000). The above statement implies that for value to be correctly defined there ought to be some needs that are desired to be satisfied; which are then weighed against the required and available resources to achieve them. This however does not equate reduced cost to enhanced value. For instance, as illustrated in figure 2.1 below, a project manager may decide to commit more resources in the short run (which would obviously increase cost) with an intention of increasing his revenue (improved value) in the long run. Value can thus be increased when the clients satisfaction increases and the cost in terms of resources either diminishes, or increases to a lesser extent (Tassinari (1985, p37). Figure 2.1 showing the relationship between resources and customer satisfaction. (Adapted from British Standard, 2000) A need is that which is desired or necessary to perform a particular function and will differ depending on the nature of the client or the perspective from which it is defined (British Standard, 2000). This explains why value is often seen to be a subjective term (Thiry, 1997). According to Kelly et al (2004) producers and dealers may both view value as the price of a physical object while the consumers or users would see value from its performance perspective which changes with time. McGeorge and Palmer (2002) illustrate this using a modern home which has a little battery operated radio in addition to internet, phone, and television. Of course, the small radio would be perceived to have little or no value until a snow storm cuts the house off from the electric power supply which will render the radio as the only source of communication. The above example by McGeorge and Palmer (2002) shows the effect time and innovation can have on a clients interpretation of value and how it can change given a particular situation. The small battery operated radio was initially of very high value when it was the only available option but diminished with the invention and/or acquisition of internet, phone and television by the household. However its appreciation changed when the situation change. According to Zimmerman and Hart (1982Shona Flannery2010-07-24T16:24:00 p) as cited in Thiry (1997), if a design has not changed in 18 years, the product is either excellent or management has failed to improve it. However one knows that neither of these two conditions mentioned in the above statement is obtainable in the present construction industry due to its highly competitive nature. Most times clients interpretation of value is when it meets or exceeds their expectations. Kelly and Male (2007) described this using the Kanos model as shown in figure 2.3 below. Figure 2.2 Kanos Model, reproduced from Kelly and Male, 2007 As shown on Kanos model above, there are three levels of satisfaction factors; basic, performance and delighter, each having some effects on the quality characteristics including customers satisfaction. According to Kelly and Male (2007), Kanos model (figure 2.2) does not only portray the importance of achieving a clients immediate expectations from a project but also the need to go the extra mile to improve it beyond the clients expectations as this gives them a delighter satisfaction. The possible benefit from this is that projects would not become obsolete within a short period of its completion as its performance would still exceed the customers demand, thereby assuring the client of continued good value for his money. Kanos model also creates room for improved projects through innovative services and products as what was once a delighter over time goes down to basic and forms a baseline below which the client becomes d issatisfied. According to Harty (2009) one of the driving forces behind the value management concept is that it encourages innovation through research which is in line with the recommendations of Egan (1998) to improve the performance of the construction industry. 2.2.2 Defining the Client Value System Clients in the construction industry have been described as a heterogeneous group made up of private or public organisations operating in different environments with diverse reasons for their existence (Kelly et al 2007). Some of these are multinational organisations competing at the global level who already have reputations to protect while some are small upcoming organisations who are still very much profit driven. Viewed from another perspective, some of these clients are more experienced than others irrespective of their sizes or the sector in which they operate. It then follows that clients are unique in their own ways and have individual, respective requirements which determine their needs and hence what is of value to them. This is referred to as the client value system. Harmonizing and prioritizing these diverse views of stakeholders in a particular project at the project briefing stage sets the clients value system and ensures that value for money (VfM) is achieved, (OGC, 20 07). The client value system is thus seen as a basis for making decisions as to the allocation and use of resources available for a project, thereby addressing the usual mismatch between the clients actual intent and his capability (Thiry, 1996). According to Kelly et al (2004, p157) one of the most important considerations of value management is the recognition of the uniqueness of each clients value system. This creates demand for the construction industry as it is focused on the customers by making explicit what value means to the each individual client. Sequel to this, Kelly et al (2004) identified some measurable criteria which form a typical construction client value system to include time, capital costs, operating cost, environment, exchange, flexibility, esteem, comfort and politics. 2.2.2.1 Time Refers to the period from when the project was conceptualized to the period when it is completed and absorbed into the clients organisation. Often time is assessed on a continuum from when it is of essence to the point where it could be compromised (Kelly et al, 2004). For instance a project to build a sports bar for the 2010 world cup delivered just a day past the commencement of the tournament, may drastically affect its value. Hence it is necessary to determine what time means to the client. 2.2.2.2 Capital expenditure (CAPEX) Are those costs associated with the capital cost of a project, measured on a continuum between the budget being considered tight and not able to be exceeded to there being flexibility in budgeting (Kelly et al 2004). Simply put, CAPEX is what it cost to put a project on ground, from inception to handover. However, Elinwa and Joshua (2001) stated that it is sometimes difficult to separate the capital costs of some projects from its operating costs due the platform on which it was procured. For example a primary health centre to be procured through PFI, it may not be so easy to pin point the capital costs as it forms part of the total lease package. 2.2.2.3 Operating expenditure (OPEX) Spending on construction projects is not one off expenditure as the building requires to be operated, maintained and repaired throughout the life span of the building. According to Kelly et al (2004), OPEX can be defined as those costs associated with operation and maintenance of a completed project as it becomes a part of the clients organization; measured by the extent to which it is minimized to its point of being flexible. This depends on the use to which a building is being put to. For instance where the building is for residential purpose, the operating costs may include utilities, cleaning, repairs, maintenance, caretaker and security. This may be expanded to include photocopying and internet facilities and other office services for a commercial development. 2.2.2.4 Environment This defines how important achieving an environmentally friendly project is to the client. Kelly et al (2004) defined environment as the extent to which the project results in a sympathetic approach to its immediate and extended physical environments in terms of energy consumed in putting it up and in operating it. The yardstick here is the level to which the project complies with the Kyoto Agreement and Agenda 21 issues including other environmental regulations. This explains a clients interest in having a sustainable development which is resources conscious. 2.2.2.5 Exchange or resale This refers to the monetary value of the project were it to be sold, rented or valued as part of an organisations assets. Where the project cannot be traded on the open market value or there is no intention to resell ab initio, this will be indicated in the organisations value system (Kelly et al, 2004). The continuum here is between the returns from the project being of importance to the returns being of not of much or no importance to the client. 2.2.2.6 Flexibility As recommended by Egan (1998), there is a need for construction projects to be at a par with improvements in technology and changes in market demand. Hence flexibility as a value criterion is the extent to which a project parameter has to reflect this ever changing environment at its design stage (Kelly et al 2004). For instance, the nature of the healthcare industry involves constant improvements in technology and hence healthcare facilities must be compatible with the incorporation of these changes. However, flexibility depends on the nature of the project and is measured between being very easy to change its function to being impossible. 2.2.2.7 Esteem This refers to the amount of immediate resources that a client wants to forgo for attributes like prestige, aesthetic and appearance rather than performance (Thiry, 1996). Some projects may not be viable based on other value criteria but of high value to the client on esteem grounds. For instance, some projects undertaken by some countries could be just aimed at creating awareness and putting the countrys name on the map as in the case of the worlds tallest building in Dubai. 2.2.2.8 Comfort In the context of a building this refers to the physical and psychological comfort of the building as a place for working and living with its influence on human performance (Kelly et al 2004). Simply put, it refers to the ease with which the project supports the business carried out in it or other uses to which it is being put. 2.2.2.9 Politics This is external to projects and refers to the level of resources that the client wants to commit to the community, popularity and good neighbour issues which often determines how important they Shona Flannery2010-07-24T17:55:00 who?are to him (Kelly and Male, 2007). This is measured by the motive to be popular with the local community or not having any concern with them at all. In a study conducted to determine clients assessment of architects performance in Nigeria in terms of delivering value for money, Lukmon et al (2007), identified a set of 28 similar but correlated criteria which they grouped under quality of project, buildability, client focus and management skills. 2.2.3 Historical Background of Value Management A project is defined as an undertaking aimed at achieving a specific objective usually measured in terms of performance, budget and schedule, (Morris and Hough 1987). Hence project is an investment undertaken to add value to the core business of a client (Kelly et al, 2004). Value Management, as a management technique, offers the most logical approach to delivering VfM to clients (Shen and Liu 2003); Kelly and Male, 2007). Its strength may be attributed to its approach of identifying and/or verifying a clients value system among the relevant stakeholders at an early stage of the project, so that these may be reflected in the project design. According to Thiry (1996) the origins of VM can be traced back to the 1940s in what he described as more for less in the USA manufacturing industry. During World War II Lawrence Miles, an Engineer with General Electric, was faced with some strategic problems in producing some components which were easily produced in the past. As a way around this Miles, who before then has been dissatisfied with the cost of production in the industry, came to realise that most times circumstantial innovations result in better performance and reduced cost. This prompted Miles to ask what function does this component perform and how else can we perform that function (Dallas, 2006Shona Flannery2010-07-24T17:59:00 p). Miles questions gave rise to the concept of function analysis which was aimed at identifying and analysing the intended functions to determine if the materials for the proposed solution can be substituted with less expensive ones. Not long after, people started to adopt the technique of focusing on the intended function not the process which soon developed into what is today referred to as Value Analysis (VA). In many cases people perceived the technique as a cost reduction technique at the expense of improved functionality which is a total misconception of the technique (Kelly and Male, 1993). However, the technique was so successful that in less than 10 years it was adopted in the US Department of Defence to deliver VfM and from then on other industries in the USA have adapted it for application at different phases of their projects. Value Management (VM) as it came to be called, refers to a structured management of the total value equation throughout all stages of the project (Kelly et al; 2004). Figure 2.3 shows different stages and segments of the development of value management. Figure 2.3 The metamorphosis of Value Management, adapted from Dallas (2006) As illustrated in figure 2.3, Miles action in the 1940s was focused on getting alternative materials or components to perform the required function which was the beginning of value management. This was later perceived as a cost cutting technique before the adoption of a holistic structured approach to improving value (Kelly and Male, 1993). Following the development and positive impacts of value management in the US manufacturing sector, the technique was adopted into the US construction industry as a means of delivering VfM to its clients in the 1960s. Fong and Shen (2000) noted that VM was first introduced in the US construction industry in 1968 and its application in the Chinese construction industry is recorded to occur 10 years later (Shen and Liu, 2004). According to Kelly et al (2004), the value management technique was first used in the UK 30 years after it was introduced in the US manufacturing industry at the Xerox headquarters, an American company. From then on VM has grown to become widely accepted in different parts of the world as a logical means to achieve value for money (Fong, 2004; Kelly et al, 2004; Ellis et al, 2004) including in Africa (Bowen et al, 2008). 2.2.4 Benefits of Value management Value management is a proactive, problem solving service, which maximizes the functional value of a project through a structured team which makes explicit the clients value system and weights further decisions against the value system.(Kelly et al, 1998). VM aims to justify the place of a project in a clients organisation at an early stage and develops a strategic plan against which it is built on to deliver value for money. VM is often misconstrued to being a cost reduction exercise, hence seen to be synonymous with value engineeringShona Flannery2010-07-24T18:14:00 . According to Dallas (2006) cost reduction, which is an obvious output of a value management exercise, cannot after all be seen as its main motive. As illustrated in figure 2.4 below, VM incorporates value engineering and value analysis in its value definition exercise and so could be perceived to be a universal set for the three concepts. Figure 2.4 shows the relationship between Value Management, Value Engineering and Value Analysis, adapted from Connaughton and Green (1996) VM looks at a project from a holistic point of view (time, whole life cost and performance) in the context of its usage which properly fits in the definition of value for money (). Connaughton and Green (1996) identified the following benefits which a properly executed Value Management exercise can yield: The need for the project is made explicit and verified by available data. The project objectives are identified and discussed openly to reach a consensus. Rational, explicit and measurable decisions are guaranteed after alternatives have been considered. Project designs are developed from the agreed framework, which are evaluated on the basis of the agreed performance criteria. There is greater participation from stakeholders which guarantees their buy in. There is improved communication and teamwork spirit throughout the project. Improved innovation with better quality definition in the project. Unnecessary cost is eliminated which may lead to a reduction in cost. Properly executed, value management when employed at the early stages of a project can help eliminate unnecessary cost to the tune of 10% to 25% savings on the proposed capital cost of project (Ellis et al, 2004). This is considered to be reasonable compared to the actual cost of the VM exercise, which is estimated at about 0.5% to 1% of the projects cost (REF). 2.3 APPLICATION OF VALUE MANAGEMENT IN THE CONSTRUCTION INDUSTRY Any construction project should be only commissioned following a careful analysis of needs since failure to think through project requirements will almost certainly cause problems for subsequent design and construction stages. For that reason, the Construction Industry Board recommends that value management be incorporated as an integral part of the construction process (Baldwin 1998). The value management approach may differ between countries depending on the nature of their construction industry or the chosen procurement route in a particular project. However, this does not dispute the fact that the VM technique can be gainfully applied at any stage of a construction project, as clients/contractors are often faced with the challenge of finding an optimum balance between cost, time, quality and performance criteria (Fong 2004). In the UK, the USA, Australia and other countries where the value management technique is well established, VM is applied through a process referred to as the value management study (British Standard, 2000) or value management process (Kelly et al; 1998) via a workshop approach facilitated by value manager or experienced team facilitator. A value management study, as defined in BS12947, involves the application of value management to a particular business case identified within a VM programme. Baldwin (1998, as cited in Kelly et al, 1998) noted that VM is not a question of brainstorming and problem solving, rather it requires a structured methodology in order to have the required outcome. Figure 2.5 overleaf depicts a simple VM study plan developed for the European Value Management standard (British Standard, 2000). Figure 2.5 shows a simple VM study plan, adapted from the British Standard (2000) The VM study plan represents a systematic approach to ensuring that appropriate techniques and skills are utilized in the value study. According to the British Standard (2000), as shown in the VM study plan above, a VM study should aim to achieve the following objectives; Identify the objectives and targets the intended study is set to achieve; as this may differ from the project objectives. Formulate the relevant approach needed to achieve the objectives, including team selection and training (where necessary). Identify the relevant functions which will lead to the achievement of the objectives. Identify some basis for measuring changes in performance and use of resources. Set targets for performance and use of resources for the above identified functions in a way peculiar to the organisations. Identify innovative ways of arriving at the targets through the application of the above methods. Evaluate the proposal for improvement. Implement the proposal which have been chosen by the decision makers Monitor and measure the outcomes in relation to the target. Feedback results for continuous improvement of VM programme. There are different approaches to value management studies in different countries with regards to team compositions and workshop procedure. For instance in the American construction industry, VM studies are typically carried out by an independent workshop team who will have to sell their ideas to the project team later on. This is different from the UK practice where the existing project team is fully involved in the study. In a benchmarking exercise carried by Kelly et al (1998), the use of an existing project team in conducting value management studies appeared to be the preferred approach due to the following advantages accruable to the project; Cost of the study is relatively minimized Time spent project briefing the study participants is reduced Waste of resources on previously considered but failed ideas are eliminated Offers better opportunity for developing project teams during the workshop More opportunity to explore all available options Implementation is more guaranteed as team members have already accepted ideas which they generated as a team, thereby reducing the development period. However, generic VM workshop strives to add value to a project by considering the project on its whole life basis. Kelly et al (1998) who were in support of this view identified the five key value opportunities at which VM technique can be employed to include pre-brief workshop, proper Shona Flannery2010-07-24T18:44:00 ?workshop, sketch design workshop, final working design and implementation workshop. 2.3.1 Pre-brief workshop The Value Manager or Facilitator meets with the project sponsor/client to clarify the place of the project in his organisation or programme. This will give the two parties a better understanding of the functional expectations of the project so as to help form a basis for the project briefing workshop and the clients value system. This may yield solution/s to the clients problem, for example, whether a new building is needed or renovation of existing one will achieve the same objectives. 2.3.2 Proper workshop Proceeds from the identified solution in the pre-brief phase and aims to identify the clients value system. This workshop offers an opportunity to facilitate the project team, understand their dynamics and guide them to achieve the desired goal. Though it is expected that the workshop has an agenda, this should not be too detailed, thereby making the timings tight, as this may divert the focus from achieving the objectives of the workshop to exhausting the items on the agenda. The tactical skills of the Facilitator are very much needed at this stage of the workshop if its participants are to be productive and should be as brief and focused as possible. 2.3.3 Sketch design workshop Sets a base for the detailed drawings and represents the design teams perception of the