We see the term ‘Value Management’ everywhere in the project management world, but despite this it is something that isn’t practiced enough. And it should be practiced regularly because of the impact it has on deliverables and client satisfaction. To better understand value management, let us look at the definition first. “To give” may be the simplest definition of what “value” is. Below is the definition of Value from the Institute of Value Management (a bit more lengthy than my short, one word definition):
“Value is created when a need has been satisfied through the use of an appropriate level of effort or resource.”
And here is their definition what ‘Value Management’ is:
“Value Management is concerned with improving and sustaining a desirable balance between the needs and wants of stakeholders and the resources needed to satisfy them. Stakeholder value judgments vary, and Value Management reconciles differing priorities to deliver best value for all stakeholders.
Value Management is based on principles of defining and adding measurable value, focusing on objectives before solutions and concentrating on function to enhance innovation.”
Looking specifically into EPC projects, the main measureables come about by achieving the results and benefits originally set for the project (and more if possible). This is one of the reasons that EPC projects have a set or several sets of program activities; to ensure that these results are reached. Due to their complexity and typically of their magnitude, managing program activities can be challenging which is why PMI createdthe Standard for Program Management (Third Edition). It is stated that a program is a group of related projects, subprograms and program activities that are managed in a coordinated way to obtain benefits not available from managing them individually. That’s right, aside from managing them individually there has to be someone overseeing all of them as a whole.
All of the above definitions imply that specific benefits need to be defined as an expected outcome to be achieved by a set of projects and activities which ultimately creates value for the stakeholders involved. Of course, we could say that a specific business value is sometimes directly generated for an individual project and the company executing the project benefits and creates revenue and profits. However, this may be too simple an aspect and may also be limiting for the company executing the job. As an overall goal, an EPC project should deliver benefits for all stakeholders involved and eventually measurable value to satisfy even a bigger group of people like a community, neighborhood, city or country.
As an example, a railway project can have clearly defined benefits in terms of public transport, connecting living and working areas, provide a platform for tourism, reduce traffic jams, reduce pollution etc. This sort of EPC project provides a greater value such that when these benefits are achieved, it may eventually improve the economy of a specific area or even of the nation. This would be a way of calculating between investment and the value for such an undertaking and can be found in the business case of that program.
Looking more into the EPC projects itself, value management could be improved in many projects to balance the investment with the real benefits and ultimately the value of the project. In many cases, the business case just focuses on the monetary aspects and typically in short-term
ROIs (return of investments) only. However, sustainable value needs a long-term view which typically is 5 years or more. Especially in EPC projects for renewable energy, the return of investment is typically 5 to 12 years and reaping the benefits is only possible if there was proper engineering and value engineering using RAMS (Reliability, Availability, Maintainability and Safety) as a principle to ensure the system will last with the minimal necessary maintenance.
Taking short-cuts in the engineering and construction aspects of an EPC project will typically reduce the benefits of the project and with it the long-term value. However, by applying Value Management from the very beginning of a project and by defining the business case until the completion of the project using few and clear metrics, which are communicated to the project stakeholders, this can improve the potential benefits of the EPC project tremendously. Value Management practiced jointly by the client and contractor can effectively improve the returns from these projects, for both parties.
It is recommended to use Value Management as a best practise based on the Standard for Program Management from PMI to ensure best value for each
dollar spent. To check this out, simply google ‘Standard for Program Management from PMI’ and you will find loads on the subject! Until next time, happy project managing!