example project value improvements

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Annex II

Example Project Value Improvements

Value and risk management methods are applied in many countries, for a variety of goals across a range of business and service sectors. Some example applications and outcomes are outlined below. Despite their different focus, project value and risk management are inseparable and should be practised in concert. Perhaps the most commonly overlooked benefits of a VRM approach are those of firmer and quicker agreement of definition scope and strategy, subsequently reduced development time and greater confidence in the cost estimates. The examples that follow cover a wide range of application. Additional examples (elsewhere) relate to business process improvement as well as manufacturing, petrochemical & offshore complexes, government works and urban development.

In this Annex:

� Stage A, Study Type V1: Strategic Direction

� Stage B, Study Type V2: Project Definition

� Stage C, Study Type V3: Project Execution

o Cost Reduction and Risk Management

o Project Rescue

o Acceleration of Implementation Schedule

� Stage D, Study Type V4: In-Service Systems Optimization

Value and ddd risk managaagement methhododods ss are applied in many countries,s,s, for a varara ieeetyt of googoals across aa ranaa ge of business and service e seeectc oro s.

Some eexample applications and outcomes are oooutuu lined belooow.ww DeDeDespiti e their different focuuus,s,s, pppror ject value and risksksk mamm nageg ment are inseppaarabble and ssshohoulu d be pp prar ctised in nncocc nceree t. Perhaps the mooststst commo lnly overllo kok ded b benenefits of a VRVV M approach are thththososse ofofo firmer annd dd qquq icker agreememe ent of deedefinition scccopopope e and strategy, subsequently rerereduced development timemm and greatereer cononfif dence e ini the cost esstimates.

The examples thththat follow cover a wide range of apappplp ication. Addititional examples (elsewwwhehh re)) rerelalate to business ii procoo ess improvoo ement ass well as mamam nufacturing, pppetrochemicccalaa &offff shff ore complexeees,ss government workskk annnddd urbabb n development.tt

In this s Annex:

� Stage A, Study yy TyTT pe V1: StStS rateeegic Directcction

� Stagaa e B, Study TyTyypepepe V2: Project Definition

� Stage ee C, Study yy TyTT pe VVV3: Project Exxxecution

o CoCoCost Reduction aaandd Risk Managememement

o Project ReRescue

o AcAcAcA ceceec lelerarar titionon o of f f ImImImplplplememmentation Schedule

Annex II Example Project Value Improvements

In Search of Value - Aligning the Road to High Performance Part 1, Managing Expectations: Understanding the Conditions for Success Page 1 -212

Stage A, Study Type V1: Strategic Direction

Studies are conducted at this stage to determine cost-effective options and potential concepts for clear and acceptable business strategies prior to formal commitment to develop program(s) and projects. Effort spent in developing unambiguous and workable strategic direction is undeniably a sound investment for proper direction of subsequent effort. Typical Reason for Study: To build stakeholder consensus on issues and

opportunities; to set direction and define a framework for resolution. Outputs: � Business case; policy / strategy document; master plan; options

identification; project requirements definition; system-wide standards & specifications.

Example Applications: � Formulation of a municipal Environmental Strategic Plan Policy Document:

� Formulation of Greenhouse Gas Emissions Reduction Strategies for municipal

operations and community-wide local action plan

– A managed risk approach to environmental management across the corporation

– improved stakeholder awareness and communication and cooperation

– development of stakeholder consensus at all levels and across the community

– initiation and shared funding of programs of environmental improvement projects

OutcomesOutcomes

Sustain &Enhance

Environment

DesiredOutcome

Areas

Vision/Overall Goal

KeyResult Areas

HOW?

ConserveResources

LandMaterial

Energy

Preserve NaturalHeritage Natural Areas

Biodiversity

Ambient AirIndoor AirSurface WaterDrinking WaterSoil/Subsurface

SCOPE & FRAMEWORK

EnsureHealth &

Quality of Life

Healthy CommunityHealthy Individuals

Global Impacts

DEVELOPMENT of ENVIRONMENTAL STRATEGIC PLAN

WHY?

Strategies &Initiatives

Healthy Environment

ProtectPhysical

Environment

Scope of Plan

– A managed risk approach to environmental management across the corporation

– improved stakeholder awareness and communication and cooperation

– development of stakeholder consensus at all levels and across the community

– initiation and shared funding of programs of environmental improvement projects

OutcomesOutcomes

Sustain &Enhance

Environment

DesiredOutcome

Areas

Vision/Overall Goal

KeyResult Areas

HOW?

ConserveResources

LandMaterial

Energy


Biodiversity


SCOPE & FRAMEWORK

EnsureHealth &

Quality of Life


Global Impacts


WHY?


Healthy Environment

ProtectPhysical

Environment

Scope of Plan

Sustain &Enhance

Environment

DesiredOutcome

Areas

Vision/Overall Goal

KeyResult Areas

HOW?

ConserveResources

LandMaterial

Energy


Biodiversity


SCOPE & FRAMEWORK

EnsureHealth &

Quality of Life


Global Impacts


WHY?


Healthy Environment

ProtectPhysical

Environment

Scope of Plan

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� Development of strategy to increase reliability of supply and reduce system risks for water network in a national capital city

� Facilitation of River Water Quality Task Force and initiation of program of projects to improve river

Stage B, Study Type V2: Project Definition This type of study is to derive optimum functionality and cost effectiveness and to confirm or modify the concept / initial project definition for optimum scope, budget, timeframe, standards and risk management approach. Typical Reason for Study: To finalize definition of project concepts and to

develop the framework for project implementation.

Outputs: � Feasibility and risk assessment; concept choice; target cost; key

performance indicators; project implementation plan; functional performance specification.

Example Applications: � New technical institute to transfer knowledge locally rather than have

students learn overseas: � Bid improvements for 30-year, major design-build-own-finance-operate-

transfer project for major infrastructure urban renewal programs and projects

OutcomesOutcomes– A range of options was

identified to:

• reduce capital costs

• add value in terms of better space utilization and functionality through only marginal cost increases

• reduce facility operational and maintenance costs

• accelerate project schedule

Substructure12%

Superstructure13%

External Cladding

16%Int. Ptns. &

Doors4%

Vert. Movement2%

Finishes11%

MEP42%

Substructure12%

Superstructure13%

External Cladding

16%Int. Ptns. &

Doors4%

Vert. Movement2%

Finishes11%

MEP42%

Substructure12%

Superstructure13%

External Cladding

16%Int. Ptns. &

Doors4%

Vert. Movement2%

Finishes11%

MEP42%

Facility Scope:• Petroleum Geosciences

• Chemical Engineering

• Mechanical Engineering

• Electrical Engineering

• Petroleum Engineering

• Student Services

• Mosque

• Foundation

• Recreation

• Resource

• Administration

• Central Services

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� Analysis at functional design stage of extension to urban highway and light rail transportation scheme. 13% capital cost savings & improved features

� Concept definition and vertical & horizontal route alignments for 65 km urban rail system plus configurations of 55 stations

� Options identification, master plans and implementation strategies for learning facilities and for health care centres.

� Critical review, functional enhancement, schedule acceleration and implementation plan for major urban flood protection project.

� Courts centre development through a P3 (Public-Private Partnership), later design-build-operate contract, for design, construction & long-term operation:

Reproduced with permission of Alberta Infrastructure, Capital Projects Division, Project Delivery Branch, Canada

o Value assurance through series of strategic sessions along with risk and value studies

Completed facility consolidates operations by replacing (and expanding upon) 7 old courts facilities located around the city. Houses 600 officials and support staff; the public entrance security clears 4000 people each day. Project fast-tracked after 20-year period "on the books".

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o Quicker implementation; risk transfer; value for money on life cycle basis; world-class competitors; innovation; integrated approach; incorporates 30-year operations and cyclical renewals.

Stage C, Study Type V3: Project Execution This has been the most common application stage of the traditional value engineering and risk methodologies: to verify and "tighten" project design and implementation proposals for optimum project performance.

Typical Reason for Study: To improve project delivery, resolve concerns over schedule and ensure maximum cost efficiency within the allocated budget.

Outputs: � Concept development; design to target cost; functionality, schedule cost &

constructability improvements; operations and monitoring plan, client’s or contractor’s Value Engineering Change Proposals.

Example Applications: � Luxury high-rise development:

ngineering and risk methodoloogieseses: :: toto vvererify y anaa d "tighten" project design anmplementation proposalsss fffor optptimmmumuu project performance.

ypical Reason forrr SSStudy: To imimmprove projjecece t t deliveryyy, resolve concerns over chedule and ensussus re maximumumum cost efficiency wittthihiin n thhe allocated budget.

Outputs:ttConcept dedd velopment; design to target coc st; functionalitity, schedule ccoc st & constructaability impprovements; operations and monitoring g g plan, client’ss o r contrarr ctor’s’ Value EEEngineering Change Propososo als.

xammmpplp e Appplications:� Luxury high-rise developmmpmenent:

OOuuttccoommeess - Options identified to improve

constructability and accelerate the construction process

- A range of capital cost saving options and ways to minimize project operations and maintenance costs

- Confidence was provided that optimum choices of key project elements were made in terms of representing best value for money and optimum function / marketability

- The basis of a management plan was established for continuing value improvement and a managed risk approach.

Photograph courtesy of the Hyundai Engineering & Construction Company,

Seoul, South Korea

Luxury High-Rise Complex: Three apartment tower blocks of 69, 59 and 54 floors, a 9-storey podium, a 6-floor basement and a 7-storey department store

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� Analysis of major engineering-procurement and construction management oil refinery projects.

- Identification of up to 12% capital savings at Pre-FEED & FEED stages

� Analysis of project tender for water supply extension to serve population of 6 million

- Confirmation of project elements and 28% capital cost savings � Risk, value & scheduling review for highest quality retail development

� Cost-effectiveness review of $5.6Bn. luxury development on reclaimed land. Project Rescue A particularly powerful application of the value methodology is for project rescue, i.e. when the project is about to stall and other methods of keeping the project going have been deemed ineffective at this critical juncture. Examples are:

� Cost reduction of over-budget, design/build management contract for transportation terminal and commercial centre.

- Capital savings of 8% identified

� Cost reduction for iron ore mine electrical system upgrading. - Deadlock over project implementation resolved

� Cost reduction for over budget design-build contract (under construction) “brownfield” scheme to relocate waste management site make the old site available for prime commercial development and thereby finance new major sports and entertainment complex.

- 7% capital cost savings identified to enable completion of project

� Cost reduction relief of stakeholder “stand-off” for over-budget design-build (D-B) management contract to install coastal wastewater treatment plant:

- Confirmation of projject elellelememmenentssts andnndd 28% capital cost savings� Risk, value & scheduuuliinngn review w w for highest quality retail development

� Cost-effectivenessss review of ff $5$ .6Bn. luxuxuuryryy developpmemm nt on reclaimed land.

oject Rescueueuparticularly powerful application of the valalue methhhodologggy y is for projeeectcc rescue, . when the project is about to stall and other methods off k eeping the prp oject ng havevvv been deemedede ineffective at this criticaaal juncture. ExExamples are:

� CoCCost redduction of over-budgetett, dedeesigngngn//bubuilildd mam nanagegemementnt c cononontrt act for trtranspporo tation terminal and d cocoommmm ercial centre.

- Capital saaavingggs ofofof 8%% identified

�� Cost reduction for iiron ore mine eeelectririicacc l systememem upgrading.- Deadlock ovev r project implementation resolved

� Cost reede uction for ooover budget deeesis gn-bubbuilild d coc ntract (under construcuu tion) “brownfield” scheme ee to relocate wawawastss e management site make the o oold siteavailablbb e for prime cooommercial deveele opopment andndnd t hererereby finance new major sports aaand entertainmemm nttnt coomplex.

- 7% capital cost sas vings identified to enablbb e ee ccoc mpmpmpleleletitit oono of prrrojject

� Cost reducucuctittiono relief of staaakekk holder “stand-off” f ororor over-bub dget design-build (D(D-B) mamanaaagegg ment contracttt to install cooasasa tal wastewatereer treatmentnnt planttt:

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Acceleration of Implementation Schedule - Example Value Improvement Training Projects: Project: Sewage Disposal for 1Mn. Population City Status: 15% construction completion Scope of Study: Sewerage network and sewage treatment system Workshop Output: Potential 14% capital cost saving, some annual operational cost savings, 1-year earlier operation, reduced odour, less land take, more consistent effluent quality. Project: Water Intake and Conveyance System Status: 10% construction completionScope of Study: Water offtake from existing dam, plus 95 Km. canals for supply of irrigation water to 72,000 hectares of land. Workshop Output: Team consensus on revised approach. 5% cost & time savings. Project: Concrete Arch Dam Status: Construction 41% complete Scope of Study: Dam body, spillway, plunge pool, grout curtain, concrete production, placing, cooling and curing Study Output: 2% construction savings but 2 months earlier impoundment for 1-year additional generating capability. Project: 9 Km long, 3.7 m Diameter Water Conveyance Tunnel Status: Construction stage optimization (construction 20% complete) Scope of Study: Tunnel, adits, access shafts, portals Study Output: Optimization of construction technique for potential 5% cost saving; 6-months acceleration in construction schedule. Stage D, Study Type V4: In-Service Systems Optimization Efficiency reviews to optimize an in-service process or facility. Outputs from this type of study application commonly form the inputs to, or base case for, stage V1 in a subsequent cycle.

Typical Reason for Study: To provide a clear understanding of options to improve performance of in-service product, service or system. Cost reduction, cycle time reduction, resource optimization, product/process improvement.

Outputs:

� In service functional enhancements and operational efficiencies; risk and reliability study; needs assessment; optimization plan; recommendations for strategic and organizational change.

Workshop Output: Potential 14% caapipiip tataal l cocoststt savaavving, some annual operational cosavings, 1-year earlier opeerationnn, rereredudd ced oddour,r less land take, more consistent ffluent quality.

roject: Waterr I Intake and d CoConveyyance Systeeemmmtatus: 10% cooonsnstrrructionoo completionncope of Studyd : Water offtake from existing gg dam, plus 95 KKm. canals fooor r supply origation watter to 72,000 hectares of land.

Workshhopo OuO tput: Team consensus on revised apaa proach. 5% cost & time savaa ings.

rojjjecee t: CCCono crete Arch Dam tata us: Construction 41% ccomomompllp etecopopo e ofoo Study: Daam bobob dyd , spillway, plpp ungeg pool, grorr ut curtain, conccrreterodododuction, placing, coooooling and curingtttuudu y Output: 2% conssstrttruction savings but 2 months earlier impouououndment for -year addditittional generararatit ng capabilittyyy..

rrojoo ect: 9 KmK long, 3.77 m Diameter WaWWater Convveyannce Tunnel tatus: Conssnstruction stage ee oppptimim zation (construction nn 20% cocompmpplete)copopope of Study: Tunnel, aditts, access shafts, portalssstuddy Outputtt: : : Opptit mization of ff construction technnnique fffor pppottenene ttiall 5% cooost ssava ing-momonths accccelelelerere ation in consttruction schedule.

Stageee D, Studyyy Type V4: IIInnn---SSSeeervice SSystems Optimmiiizatttiiioon fficiency reviews to opoptimize an inn-servrvrvice process or facility. Outptptputs from thiype of study yy application commonnlylyly form the inputs to, or base caseses fforor, stage Vn a subsequeneee t cycle.

ypical Reason for Studydydy: ToTTo p rovide a clear understanndidd ng of options tmprove performance e ofofof in-service prprodododuct, serrrvivv ce or r sysyystem. Cost reductionycle time reduction, resourcee oooptp imization, produductcct/pprocess improvement.

Reproduced from:



Example Applications: � Analysis of bids for renewal of city cleaning operations contract. 5-year

target price of reduced by 40%

� Analysis of reliability of power supply to treatment plants and identification of necessary improvements

� Review and definition of critical infrastructure and strategies to increase reliability at lower cost for municipal water supply system

� Optimization of control system for 1200 km. transmission pipeline and oil storage / shipping terminal

� Process Control System upgrading for 530 MMSCFD sour natural gas plant - to determine best value for money project and fit project elements with operational budget cash flow constraints.

� Investigation to determine means of obtaining efficiency gains for operating refinery; 1.2 M bbls per year hydrocarbon recovery / performance improvement

� Analysis of vehicle manufacturing plant process; assembly cycle time reduced by 10%

� Workshops to devise an aggressive strategic plan for corporate growth through new product lines and new approaches:

OutcomesA series of action plans was set up with sponsors:

• for the Board to identify and implement change• to provide resource and focus for each region• to raise regional profile• to determine the level of human resources needed to achieve

planned outcomes• to improve safety standards and procedures• to ensure the organization understands its role in product

development• to improve communication at all levels and measure performance.

Rapidly Expanding CompanyRapidly Expanding Company

How � �WhyIncrease ProfitsIncrease Profits

Sell Houses

Sell Houses

BuildHousesBuildHouses

� Review and definition of criititit caal ll infrastrucu tuurere and strategies to increase reliability at lower cososst t for muninn cipal waw ter supply ssysy teeem

� Optimization n n of control syssstem for 1200 kkkm.mm tttransmission pipeline and oil storage / shhhipping tererrmimiminannal

� Process CoC ntrol System upgrading for 530 MMSMSSCFD sour natural gggasaa plant -to determine best value for money projojo ect and fit projjjeccct elements with operationnan l budgetee cash flow constraints.

� InInnvvesttigiggation to determine mmmeans of ff obo taininng g efficiency gains for operaaatitiing refineryryry; 1.2 M bbls per year hyhyhydrd occararbobonn rerecovevev ryry // p pererfoformrmmana ce imi provement

�� Annnalaa ysis of veehih clclle e e mam nufacturing g plant process; assembly cycle ttime reduced by 10%

�� Workshops to devvvisi e an aggressive strategic plan for cooorpr orate growthhhthrouguggh new producuu t lines and neenew w apprpproaches:

OutcommesesesA series off f action plans wasa setetet uu up with sponsors:

••• for the Board to identtififify yy and implement changeg• to ppprovide resourcrce ee and focus for eaaach rrege ion• to raise regional l prpp offililee• to determiminenene the level of humamaman resourcecces needdededed tto achieve

planned outcomessss

appi y Expanding CompanyyRapidly Expanding CompanyRRRapppiddlly Expanding CompppanyyRapidly Expanding Company

How � �WhyIncrease Profits

SSell Houses

BuilddHousesees

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example project value improvements

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