(Solution) Value Management (VM) and Risk ManagementIndividual Inquiry-based Report
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Description
Solution
Table of Contents
2.2 Function Analysis in Value Management 5
2.3 ISO 31000 Risk Management Framework. 6
2.4 Literature Review Summary. 7
3.0 Emergent Insights and Knowledge. 7
4.0 Key Learnings and Action Points. 9
1.0 Scope of Inquiry
The hotel project in Riyadh provided an opportunity to evaluate the impact of value engineering (VE) and explore how a more proactive Value Management (VM) approach could have enhanced project outcomes. In the course of the project, VE was applied at RIBA Plan of Work Stage 4, after the design had been finalized and construction was underway. The VE exercise was aimed at identifying cost-saving opportunities without compromising the quality or functionality of the project. The savings were achieved through changes such as alternative fireproof coatings, adjustments to substructure waterproofing materials, and revisions to the mechanical, electrical, and plumbing (MEP) specifications. The cost-saving measures ranged from SAR 13.4 million to SAR 20.4 million, reflecting substantial savings potential as shown in table 1 below.
| These are tabled below for consideration by DGCL for further negotiation and agreement with the recommended bidder, or as a post contract variation. No. | ||||
| Identified Value Engineering Opportunity | Bidder 1 | Bidder 2 | Bidder 3 | |
| 1 | Application of cementitious fireproofing coating (to a similar acceptable specification) to columns, beams and trusses in concealed areas. | -469,200.00 | -1,031,931.83 | -2,144,520.00 |
| 2 | Cold applied bituminous paint of appropriate specification in Substructure waterproofing in lieu of the specified Waterproofing. | -2,289,701.00 | -8,723,090.37 | -11,735,136.44 |
| 3 | Additional cost for CMU (Concrete Masonry Unit) in lieu of adobe block. | -2,283,762.00 | -710,045.44 | 5,682,515.83 |
| 4 | Concrete change in mix specifications | -658,753.00 | -1,635,771.62 | -2,400,923.45 |
| 5 | MEP value engineering proposal schedule | -7,790,455.00 | -8,387,155.15 | -3,017,531.53 |
| 6 | Roof waterproofing changed to combo roofing system | -444,717.00 | Not Offered | -223,885.62 |
| Total (Incl. VAT) | -13,936,588.00 | -20,487,994.41 | -13,839,481.21 |
Table 1: Cost Saving Opportunities
This reactive VE process, however, raises an important question: could these cost-saving opportunities have been identified and implemented more effectively earlier in the project lifecycle? This is the primary focus of my inquiry. By shifting to a Value Management (VM) approach applied at the start of the project, it is possible that a more strategic and value-focused framework for decision-making could have been established. VM that aims at enhancing value by ensuring that objectives are, cost, quality and functionality aligned at an early stage could have offered a more integrated approach with regards to selection and specification standards of materials. Originally VM would have provided a better option of decision making during the conceptual along with the design phases meaning that VE measures would not have to have been so reactive at the subsequent phases.
The inquiry also looks at the disadvantages of the reactive VE which typically happens once there is enough progress to compromise the project schedules, costs, and quality. For instance, the post-bid savings approach in items like fireproof coatings and other waterproofing materials may bring a number of compromises in to the system which in turn can affect the project wrongfully. Due to the need to make decisions and keep within certain budget expectations, these kinds of reactive decisions may call for optimal solutions which are often based on the cost instead of making choices that are best for the project in terms of value for money ad performance over time.
From the literature on VM and risk management, the following implications provide understanding of how such challenges could be tackled at advanced stages of the project life cycle. Had the project considered VM concepts including function analysis, cost consideration, and identification of stakeholders, the project could have concentrated on value optimization, cost, function and performance with minimal compromise on many of the principles. In addition, had the risk management techniques been incorporated within the initial developmental stages, it may have been possible to prevent the emergence of conditions that could lead to cost overruns or unexpected alterations in direction by assessing critical risk factors at an early stage and formulating plans which could reduce the effect of such a factor on the overall development of the project .
The purpose of this report is to investigate how VM at the initial stages might have affected the result identified in the VE exercise and to elaborate the shortcomings of reactive VE and how using proactive approach could eliminate those problems. Thus, answering these questions, the report will give understanding of the further purposes of VM and risk management in relation to project goals and expenditures for its economical usage. The research results could prove useful as a reference in enhancing future project performance, as far as value creation, project cost, and overall success is concerned.
2.0 Literature Review
2.1 Introduction
This literature review elaborates Value Management (VM) and Risk Management frameworks
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