Lecture 1

DCQ6272
VALUE MANAGEMENT
W. MOHD HANIFF BIN W. MOHD SHAUPIL
QUANTITY SURVEYING UNIT
DEPARTMENT OF CIVIL ENGINEERING
POLYTECHNIC KOTA BHARU
CONTENTS

1. Introduction to Value Management

2. History of Value Management

3. Concepts of Value Management

INTRODUCTION TO VALUE MANAGEMENT

 Value Management originated in the

United States emerging as a result of
components and materials shortage
in the manufacturing sector.

 The technique is very much

accepted in various industries that
includes construction industry.
INTRODUCTION TO VALUE MANAGEMENT

 The fundamental contribution by the Value

Management is to eliminate unnecessary
costs, which does not contribute to the
value of the services, products, systems and
projects.

 Value Management generates these cost

improvements without sacrificing the
needed performance levels.
INTRODUCTION TO VALUE MANAGEMENT

Value Management has proved to be

successful in many developing countries
and its significant contribution lies in the
unique study process that leads toward
enhancing value of the projects.
A DEFINITION OF VALUE MANAGEMENT

Value Management is the name given

to a service in which the sponsor of a
project, the client, transmits a clear
statement of the value requirements of
that project to the project designers.
A DEFINITION OF VALUE MANAGEMENT

VM has been defined in a number of

ways such as:

Dell ‘Isola (1982):

“the creative organized approach

whose objectives are to optimize the
cost and/or performance of a facility
or system”.
A DEFINITION OF VALUE MANAGEMENT

Kelly & Male (1991):

“Value Management is an oriented

effort to attain optimum value in
product, system or service by
providing the necessary functions at
the lowest cost”.
A DEFINITION OF VALUE MANAGEMENT

Australia’s Department of Defense:

“Value Management is the systematic effort

directed at identifying the function of
systems, equipment, facilities, procedures
and supplies for the purpose of achieving
the essential functions at the lowest cost,
consistent with the needed purpose,
perfomance, reliability and maintainability”.
A DEFINITION OF VALUE MANAGEMENT

Mohd Mazlan Che Mat (2004):

“a rigorous, systematic and innovative

methodology with multi disciplinary
approach to achieve better value
and cost optimization for projects,
products, facilities, systems and
services without sacrificing the
required performance levels”.
A DEFINITION OF VALUE MANAGEMENT

The Institute of Value Management, United Kingdom:

“Value Management is a style of

management particularly dedicated to
motivating people, developing skills and
promoting synergies and innovation,
with the aim of maximizing the overall
performance of an organization”.
A DEFINITION OF VALUE MANAGEMENT

A useful one sentence definition of Value

Management in terms of construction
industry is:

“A service which maximize the functional

value of a project by managing its
development from concept to completion
and commissioning through the audit
(examination) of all decisions against a value
system determined by the client.”
Kelly & Male (1991) characterized VM as:

• System oriented that uses a formal job plan to identify

& remove unnecessary costs.

• A multi-disciplinary team approach, i.e. teams of

experienced designers, estimators & VM Consultants.

• Life cycle oriented that examines the total costs of

owning and operating a facility.

• A proven management technique.

• Function oriented that relates the function required to

the value received.
CONCEPTS OF VM
According to Carlos Fallon, the relationship
between Value, Function (worth), Quality and Cost
can be symbolized as follows:

worth
value =
cost

Worth = the least cost of providing the needed function and

the required performance is found by means of
comparison of the costs of units which are functionally
equivalent.
Cost = the life cycle cost of the product/ project.
 According to Carlos Fallon, value can be
classified into three categories namely:
• Esteem Value
• Exchange Value
• Use Value

1. Esteem Value
 The monetary sum an owner or user is willing
to pay for prestige or appearance
 The motivated desire to process for the sake
of possession
 The worth of a sell function
2. Exchange Value
 The monetary sum for which a product or
service can be traded or exchanged
 Also the market value at a given point in time

3. Use Value
 The cost of basic function only
 The monetary measure of usefulness of a
product or service
Another relationship by Dell ‘Isola ,
Value = F + Q
C
(F) Function = The specific worth that a design/
item must perform.
(Q) Quality = The owner’s or user’s needs,
desires and expectation.
(C) Cost = The life cycle cost of the product/
project.
Value = The most effective way to reliably accomplish
a function that will meet the user’s needs, desires
and expectation.
 Value can be increased by the following
approaches:
(i) (ii) (iii) (iv)
(F) + (Q)
Value =
(C)
Cost Function Compound Expanded
Reduction increase approach growth
approach approach approach

i) Reducing cost but maintaining the function

ii) Increasing either the function or quality or both but maintaining the cost
iii)Reducing the cost and at the same time increasing the function and
quality
iv) Increasing the cost but at the same time improving function and quality at
a higher proportion
 Value Management

Value Value Value

Planning Engineering Analysis

“The VM Family”
 Eric Adam (1993) relates the Value Analysis,
Value Engineering and Value Management
at the various stages of application.

 Value Analysis is applied on the existing

product or systems, Value Engineering is
applied during the design stage whereas
Value Management systems approach is
applied at all level.
 Terms Terminology
This is term used to describe
the entire philosophy and
Value range of techniques.
Management Therefore, value planning,
value engineering and value
analysis form a subset of
value management.
 Terms Terminology
This, as the term may suggest is carried out
in the early part of the project prior to the
decision to build or at briefing or at outline
design stage. Value techniques are use to
reach a group decision in term of the
Value criteria for a proposed design or the criteria
Planning for a business strategy. It is possibly a
common misconception that the used of
value techniques is intended for problem
solving, typically for the remedying of a
budget over-run, following the production
of a scheme design.
 Terms Terminology
This is term used to describe
value techniques that are
Value adopted during the detailed
Engineering design stage and construction
stage when completed design or
elements of the design is made
available for the study.
 Terms Terminology
This is term used to describe
value techniques that are
Value carried out following the
Analysis completion of a building/
project.
 TOTAL VALUE CONCEPT

Cost Value Value Value

reduction Analysis Engineering Management

Part Function Function Function

Oriented Oriented Oriented Oriented

5 to 15% 5 to 95% on Cost Value

savings existing reduction at Management
products design stage systems
system approach at
COMMITTEE all level
VALUE MANAGEMENT TEAM
 VALUE MANAGEMENT
VALUE PLANNING VALUE ENGINEERING VALUE ANALYSIS
(Strategic)