Managing a Value Program. Kathy Bethany, Executive VP SAVE International

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Managing a Value

Program

Kathy Bethany,

Executive VP

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Managing a Value Program

$0 $100 $200 $300 $400 $500 $600 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Yr 16 Yr 17 Yr 18 T ot a l S a v ings A c c e pt e d (M il li ons) Year

Value Engineering Program History

Cumulative Accepted VE Savings

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Presenter's Background

 Professional Experience

 Director of the Office of Cost Management

Overseas Buildings Operations (OBO) US Department of State

 Value Engineering Manager, Configuration Manager, & A/E Liability Coordinator – OBO

 Project Controls Specialist - Sandia National Laboratory

 Cost Estimating Chief, Project Manager, Cost Estimator, & Scheduler - Voice of America

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 Positions held in SAVE International

 Executive Vice President; SAVE International

 VP Membership

 VP Government

 Director National Capital Chapter

 Education

 Bachelor of Science Civil Engineering - Old Dominion University

 Master of Business Administration - University of New Mexico

Managing A Value Program Seminar 4

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Agenda

 What Is A Successful Value Management

Program?

 (How does it look/feel/exist?)

 How to Set Up and Run a Successful Value Management Program?

 Does a Value Management Program Include Other Initiatives, Processes, or Tools?

 (or Only the Value Methodology?)

 Success Stories & Pitfalls

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What is a Successful Value

Management Program?

 What Defines Success?

 What are Indicators that a VM Program is

Successful?

 What are Indicators that a VM Program is

not Going as Well as Expected (or Needs Help?)

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What Defines Success?

 Optimize Costs while Improving Performance

and Quality

 Different Definitions for each Client, Owner,

Project Manager, Plant Manager

 No One is Happy (except financial or senior

stakeholders)

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Indicators of Program Success

 Measurable Results

 Asked to Share Success Secrets  Managers Seek Value Studies

  % Recommendations Accepted &

Implemented

 High Participation

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Measureable Result Sample

$0 $20 $40 $60 $80 $100 $120 $140 $160 $180 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 A cc ept ed S av ing s ($,M ) Fiscal Year

OBO VE Savings By Year

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Measureable Result Sample

$145.20 $22.33 $0.00 $85.07 $56.57 $1.25 $0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 $160.00

Planning Design Development Construction Documentation

ROI fo r e a c h $ s pe nt on V E

OBO VE Return on Investment Summary

D/B D/B/B

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Indicators of Program Problems

 Constant Challenges of Program Need  Recommendations Not Implemented  Low # of Viable Recommendations  No “Converts” to Value Methodology  Studies on Falsified Projects

 Value Manager Not in Senior Management

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How to Set Up and Run a Successful

Value Management Program?



Important Components of a Successful

Value Management Program



Questions to Answer by the Value

Program Manager



Questions to Answer with the

Organizational Champion

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Important Components of a Successful

Value Management Program

Strong Manager/Program Champion

Program Metrics

Supportive Upper Management

Qualified Study Leader and Team Members

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Strong Manager/Program Champion

 Ability to think outside the box

 Respected in the office  Can persuade effectively  Sees big picture

 Great communicator  Full time or Part time?

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Program Metrics

 Measures the identified indicators of

Success

 Sell why Value Program is good for the

organization

 Track performance of Value Methodology

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Program Metrics Sample

Managing A Value Program 16

Value Engineering is a function oriented, systematic, applied creativity, team process which concentrates on lowering life cycle costs while improving

quality and performance. The OBO VE program requires at least one

independent VE study, or a waiver, on all projects with an estimated cost of construction greater than $1M.

2030 1570

# of VE Ideas Accepted for Implementation

$40 to $1 $381.3M

(includes $49.3M O&M)

$9.3M (156 Studies) From Year 1 – Year 18

$57 to $1 Return on Investment $518.5M (includes $98M O&M) Total Saved: $9.5M (160 Studies) VE Program Cost:

From Year 13 – Year 20

Results From OBO VE Program

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Program Metrics Sample

% Proposed Savings by VE Team*

 Goal 10% (Actual 16.6%) % Accepted VE recommendations*  Goal 5% (Actual 5.8%) Return on Investment  Goal $20 to $1 (Actual $25 to $1) Year A Results:

21 VE Studies had 263 implemented VE recommendations for a total savings of $32M which includes $12M in O&M cost savings

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Program Metrics Sample

Year ROI # of Studies Acc Savings ($,M) Yr 1 $9.40 6 3.3 Yr 2 $10.36 4 3.3 Yr 3 $27.72 5 9.4 Yr 4 $- 2 Yr 5 $22.17 5 7.3 Yr 6 $12.82 3 1.1 Yr 7 $(3.18) 3 -0.6 Yr 8 $50.32 3 4.0 Yr 9 $10.29 5 1.7 Yr 10 $0.66 2 0.1 Yr 11 $23.20 11 12.7 Yr 12 $13.81 13 9.1 Yr 13 $73.72 16 64.0 Yr 14 $36.34 10 22.6 Yr 15 $55.47 25 69.9 Yr 16 $24.52 21 31.9 Yr 17 $96.32 21 135.1 Yr 18 $77.64 32 168.1

$0 $100 $200 $300 $400 $500 $600 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Yr 16 Yr 17 Yr 18 T ot a l S a v ings A c c e pt e d (M il li ons) Year

Value Engineering Program History

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Measuring Performance Sample

Contractor Total # of Studies Average % of Ideas

Implemented Average ROI

Average Proposed/ ECC Average Accepted/EC C GOAL 40% $20 10% 5% A 32 47% $28 18% 6% B 26 64% $120 33% 14% C 24 49% $45 11% 8% D 8 32% $119 15% 3% E 8 39% $41 32% 11% IH 6 37% $9 11% 2%

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Measuring Performance Sample

40% 47% 64% 49% 32% 39% 37% 0% 10% 20% 30% 40% 50% 60% 70% GOAL A B C D E IH Contractor

Average % of Ideas Implemented

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Measuring Performance Sample

Yea

r of ProjectTotal ECC Proposed/ ECC Accepted/ ECC

Return on Invest. (ROI) % of ideas accepted 8 10,761,760 47.91% 17.26% $34.69 87.50% 112,000,000 10.25% 6.56% $94.47 68.18% 58,916,578 4.66% 2.99% $26.61 55.00% 86,129,414 26.67% 11.88% $133.81 60.71% 64,507,301 5.32% 1.77% $13.27 40.63% 55,900,000 15.13% 6.76% $47.22 59.09% 7 47,537,279 2.25% 0.00% $0.00 20.83% 32,000,000 14.27% 5.63% $25.23 38.10% 12,200,000 6.83% 0.00% $0.00 0.00% 52,037,030 7.38% 0.14% $0.89 3.23% 10,320,915 2.55% 2.48% $4.81 45.83% 6 2,700,000 108.88% 0.87% $0.59 22.22% 44,850,000 8.80% 8.26% $55.65 62.50% 2,693,616 19.82% 11.48% $6.81 33.33% 53,000,000 21.51% 20.29% $198.09 150.00% 15,000,000 52.83% 7.54% $23.95 88.89% 5 44,348,000 1.06% 0.00% $0.00 0.00% 27,627,000 16.07% 1.75% $8.65 33.33% 867,000 21.59% 5.77% $2.23 61.54% 2,498,491 7.65% 3.52% $2.39 62.50% 1,342,086 13.15% 5.58% $3.34 47.06% 54,718,683 16.81% -0.07% ($0.74) 21.88% 4 5,875,505 31.19% 29.89% $38.60 88.24% 5,505,534 19.30% 17.36% $20.62 61.90% 3 15,000,000 9.67% 0.00% $0.00 50.00% 7,100,000 17.58% 2.57% $4.33 27.27% 12,473,136 8.82% 0.00% $0.00 0.00% 13,743,000 4.61% 2.67% $7.74 52.38% 170,000,000 -7.80% 6.04% $80.17 86.49% 2 8,066,000 14.58% 5.59% $11.34 24.14% 40% 62% 22% 71% 38% 75% 43% 26% 33% 0% 20% 40% 60% 80% GOAL 8 7 6 5 4 3 2 1 Year

Average % of Ideas Implemented

5% 8% 2% 10% 3% 24% 2% 10% 1% 5% 10% 15% 20% 25% Average % of Accepted/ECC Contractor A Details

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Supportive Upper Management

 Reviews & Tracks Results

 Attends the Out Briefs of the Studies  Makes Value Program a Priority and  Insists That It Is Used

 Supports the Value Manager

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Qualified Study Leader & Team

Members

 CVS?  Team has  Resume  Credentials  Stature  Communication Skills

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Questions to Answer

by the Value Program Manager:

 Purpose of Value Program?  Results Sensitive?

 Who/What are Program Champions?  Who/What are Program Challengers?  Which Projects Need a Value Study?  At What Point Should a Value Study Be

Conducted?

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Questions to Answer with the

Organizational Champion:

 Where in the Organization Structure should

the Value Program Manager Reside?

 In-house vs Contract (or consultant) VE

Facilitator/Teams?

 What do the Champions want the Value

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Key Point --

 Continuously



Educate

 Up, Down, Sideways  Never Stop Educating

 (& yes it will feel like you are repeating

yourself over and over again)

 Don’t Forget to Educate!

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Sample of Educating

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Educate (& Result) Sample

(Special Study Projects not included) VE Return on Investment Summary

Includes projects from 2000 through Sept 2007

$0 $20 $40 $60 $80 $100 $120 $140

Planning Design Development Construction Documentation

R O I fo r e a c h $ s p e n t o n V E D/B D/B/B 46 Studies 10 Studies 21 Studies 62 Studies 3 Studies 0 Studies

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Educate (& Result) Sample

VE Proposals Exterior Building Enclosure

244 VE Proposals Accepted with $65,498,000 Accepted Savings

 Examples:

 Project A proposal using native stone, accepted

savings $2,000,000

 Project B proposal using paint in lieu of stucco for

the exterior, accepted savings $530,000

 Project C proposal providing stone cladding for

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Educate (& Result) Sample

VE Proposals Electrical

277 VE Proposals Accepted; $70,359,000 Accepted Savings

 Examples:

 Project G proposal using co-generation, accepted

savings $1,004,000 with life cycle savings $21,770,000

 Project H proposal using duct banks to reduce

homeruns, accepted savings $220,000

 Project I proposal deleting voltage regulator and

make provisions for the future if needed, accepted savings $235,000

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Key Point!

Use Program Metrics and Communication Skills to

Educate

Every Chance You Get!

Suggestion:

Create slide decks, good news stories, etc that can be used in multiple ways at a moment's notice.

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Other Initiatives?

 Does a Value Management Program

Include Other Initiatives, Processes, or Tools? (or only the Value Methodology?)

 Six Sigma

 Lean Construction

 Risk Analysis

 Target Costing

 Cost Reduction

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Success

Stories &

Pitfalls

 Hiring the Wrong Value Program Manager

 External “Kudos” that Unexpectedly Sold

Senior Managers on the Program

 Assuming that a Couple of Success Stories

will Sell the Program in the Future

 Requiring a Vocal Critic of the Value

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Questions?

Thank You!

[email protected]