Unit 1: Introducing Value and Risk Management for

Construction Clients

1.1 Aim of the VRM course

The overall purpose of Value Management (VM) and Risk Management (RM) is to
ensure clients achieve Value for Money (VFM) in the commissioning, design and delivery
of projects that support the business. The aim of this unit is to introduce the concepts of
VM and RM related to construction projects and the clients who procure them.

The Learning Outcomes of the unit are to:

• Summarise the main principles of value, risk and its management on

construction projects.
• Identify what is meant by the strategic and tactical development of a project.
• Demonstrate the basic characteristics of construction project clients.

Value Management (VM) and Risk Management (RM) have been combined in this
course to demonstrate the power of using an informed team under the direction of a
skilled facilitator to recognise and either solve (value management), or account for (risk
management), problems occurring on construction projects in their various stages. VM
and RM are complimentary “disciplines” which have been described as being 2 sides of
the same coin. They are complimentary in their objectives, in that improving value in a
project can only be achieved if the risk associated with it is balanced and manageable.
They are also complimentary in methodology, or process, terms. The implementation
of value management and risk management, in a practical sense, is very similar for each.

Both systems require:

 The clear identification of a reference point and the client focused definition of
the relationship between time, cost and quality.

 The discovery of relevant information either through research or the

structured questioning of those who have the information.

 A team approach to the processing and qualitative and quantitative

assessment of strategic and tactical issues.

 An outcome in terms of an implementation strategy (value management) or a

dynamic risk register (risk management)
Key point for reflection
This quote below sums up why it makes sense to have Value and Risk Management as part of
the same course. Defining value in the design solution and then managing risks in its delivery
go hand in hand.

Role of VM and RM in improving construction....

“These processes [VM and RM] are fundamental to the

successful delivery of projects and should be used throughout
the life of the project”

OGC Procurement Guide 04: Risk and Value Management (2003)

Value and Risk Management can be considered two sides of the same coin.

1.1.1 Construction value management

In construction, value management is typically a proactive, creative, problem solving

service deployed through workshop interventions in a project environment.
Value management workshops are used to develop the project brief, and value
engineering workshops are used to optimise project solutions. Value management
involves using a structured, multi-disciplinary team-orientated approach to confirm the
customer’s needs and their priorities (their value system) using functional
analysis to expose the relationship between time, cost and quality. Strategic and
tactical decisions taken by the client and the design team are audited against the client’s
value system at targeted stages through the development of a project and/or the
life of a facility from the earliest planning stages to post project review.

Value is a measure of customer satisfaction relative to the level of effort to achieve

satisfaction. Value for money is the common expression although value per se
includes assessment of wider dimensions – the look and feel of a product; utility and
reliability; environmental characteristics and sustainability in relation to price; level of
effort; energy required to name but a few.

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 (BS EN 1325:2014). Value
Management can be deployed as a framework for an improvement programme or as
discrete intervention(s) within a project environment.
1.1.2 Construction risk management

In construction, risk management is typically about the identification, measurement and

control of the risks that threaten life, property and the profitability of an organisation.
Risk Management also seeks to identify opportunities and benefits from uncertainty and
exploit upside risk. Every stage of the construction process, from initial investment
appraisal through to construction and use of the facility is subject to risk for all the
parties involved. A structured risk management system comprises identification,
analysis, and response strategy to all significant project risks with the aim of reducing
the opportunities for loss, and increasing the opportunities for gain.

Construction risk management is a subject that has been attracting growing attention in
the industry over the last decade. The increasing complexity and cost of projects, ever
more demanding and sophisticated clients and increasing competitiveness have all
contributed to the recognition of risk, the need to do something about it and awareness
of the financial cost if ignored. Whilst it is true to say that risk in construction, as in any
venture, has always existed and that good project management practice must deal with
it, the emphasis on formalised and systematic risk management is more recent. The
course gives consideration to the nature of the construction industry and features of
construction projects from a risk perspective.

Risk is “uncertainty inherent in plans and the possibility of something happening that
can affect the prospects of achieving business or project goals” BS 6079-3:2000.
Uncertainty may be positive or negative. In common language risk is therefore a
possible hazard or opportunity that if it occurred or was captured would threaten
or benefit business outcomes.

Risk Management is the systematic application of policies, procedures methods and

practices to the tasks of identifying, analysing, evaluating, treating and monitoring
risk. Organisations need to establish and manage their strategic and operational risks.
Some risks must be taken to be successful and survive. Other risks if realised can
put an organisation in jeopardy and these risks should be mitigated.
Strategic and Tactical development of projects
This course is concerned with both the strategic and tactical development of projects.

Strategic project development

Strategic issues are concerned with the “front end” of the construction process
and to this end the course examines how a project fits in with a client
organisation’s overall objectives, questions its scope and audits the developing
brief. At the outset the project can be conceived of as primarily a business problem
in most cases. The “front end” is typified by the early steps of any procurement
model, usually concept and briefing stages. It is contended that too little attention
is often paid to these stages with a consequent rush to technical solution to fulfil
a perceived need. Furthermore, the best chance to achieve project VFM will be
realised through a deeper understanding of how a project fits into the
organisations corporate objectives. Value management applied at this stage aims
to define the client value system and express the project in functional terms using
a variety of tools and techniques. Strategic level VM does not presuppose a built
solution as the best way of meeting clients’ objectives.

Tactical project development

Tactical project development is concerned with built solution form, structure and
asset procurement issues. As such it deals with the “harder” end of the
construction process, at which stages the business problem or opportunity has
evolved into a construction project, and does not question the motivation to build
or surrounding strategic issues. In this context VM studies use Function Analysis
(FA) and other problem solving tools and a multidisciplinary design team to
suggest alternative elements, materials and components, as well as making small
revisions to the project concept to improve VFM. RM is a means of improving
project performance by reducing exposure to the many possible risks, threats and
hazards that threaten good project performance. Good project performance is
achieved if the building or other facility is delivered on time, within budget and to
the stipulated quality standards necessary for a happy client and construction
team.
Key point for reflection
A key theme for the VRM course will be to think not so much about what buildings are but
more about what they do and why they are needed. Buildings and infrastructure represent a
substantial investment for clients and it is important they generate value by fulfilling a defined
purpose i.e. be performance-led. This is not as straightforward as it would appear.

“At the moment decisions are all about long-term value and value
creation..... Buildings are performance-led rather than product-
led".

EC Harris, Architects Journal 2013

Consider buildings as processes that run for many years (decades?) rather
than seeing them as finalized products.

1.2 Clients
We make reference to clients frequently throughout the course. The client is the
customer and ultimately it is they who derive value from their investment as a result of
all the activities throughout the design and construction processes by all parties involved
in delivering the finished product. These parties involve both the demand side (client
representatives) and supply chain.

Who or what is “the client”? The client can be one individual in the most simple of
projects, but is more likely to be an organisation representing a range of
interests and can be complex, multi-faceted and involve competing interests. This
section provides some background information about the construction client, their
characteristic structures and their approach to construction projects.

Identification of the client body on projects of any reasonable size can, therefore, be
extremely difficult. Even assuming that all of the interest groups can be identified, the
problem then is deciding if and how they should be represented in the business case
team.

For owner occupiers, the usual way of doing this in all but the smallest of organisations
is to appoint representatives for each of the user groups (e.g. departments affected by
the building project) and form a committee to draft the brief. There is little information
available on how clients select these representatives, but there is some evidence
to suggest that many client organisations, in underestimating the importance of the
briefing process, appoint representatives of relatively low status. Consequently, their
ability to access information quickly and to make decisions is limited, and this can slow
down the briefing process.
It can also be frustrating for the design team, because they are effectively denied
access to the business case team. These representatives do however have the power
to influence the briefing process by their interpretation of information between the
client interest groups and the design team, and between the design team and the
other more powerful members of the business case team. If this interpretation is not
faithful, the brief can become distorted in relation to the real client needs and
decisions.

Key point for reflection

The quote below concisely expresses the main purpose of Value Management. The problem with
traditional design practice is that it often focuses on the development of the technical design
solution without having a full understanding of what the purpose of the project is. This is not an
easy task as clients can be complex, multi-faceted, confused, unclear and have a range of
competing interests in a project. Hence, they struggle to articulate value in a way that leads to a
balanced design solution.

"Clients struggle to articulate what value means to them, and too

few projects develop a clear brief that defines their business, social
and environmental requirements”

Wolstenholme report “Never waste a good crisis”, 2009

1.2.1 Client types

The complexity of client organisations forbids modelling of client types on anything other
than a simplistic overview. However, the following do address the most common
characteristics.

Large clients
Large clients frequently proceed to develop a brief prior to approaching the industry.
They perceive the architect (and the rest of the design team) as technicians who
will translate their stated requirements into a built solution. Most large and regular
clients of the building industry now employ in-house project managers (although
the precise meaning of this term varies from client to client). Alternatively they may
call upon the services of outside consultants to act as project managers to provide
the interface between them and the design team.

It should be recognised that the appointment of a project manager results in a

gatekeeper situation arising in that those wishing to influence the client must pass
there information first to the project manager. The converse is also true for client
representatives wishing to influence the design team. Therefore, the influence that the
actual design team has on the brief under these circumstances is limited.
Highly sophisticated clients often retain their own design consultants who participate in
the briefing process and so provide some design advice at the early stages. They may
also take the advice of letting agents about the design of commercial buildings so that
their 'purpose built' properties are not designed so specifically to their particular
requirements as to compromise their asset value and be difficult to dispose of should
this be necessary at some future time. Such clients will often have developed model
briefs for certain generic types of building such as an office, a school or a leisure
centre.

The brief for a project is developed by an in-house project manager who consults
with a facilities manager and representatives of the user groups, with advice on the
design and cost implications of decisions coming from in-house design consultants.
The extremely rigid brief is then passed to the design team who will work on the
project. The project design team must then liaise exclusively with the project manager.
They never meet the users of the building, and if they wish to deviate from the brief
they must present an extremely good case for doing so.

Large/private/owner occupier

In larger, private organisations building for owner occupation, the problems of

identifying and dealing with the client body is that much greater, and in addition to
this so is the problem of identifying the stakeholders and the decision making unit. It is
extremely rare to find one individual who will have total authority over all decisions
during the briefing stage. Instead, decisions are usually taken jointly by a number of
individuals representing the interest groups and then this information is channelled into
the briefing process by a smaller number of persons designated as client
representatives.

It is quite common for some of those interest groups which can be defined to be part of
the client body to have no representation in the decision making unit, and it is also
quite common for the power within the decision making unit to be unequally
shared. The function of the project sponsor is to overcome these deficiencies by
representing the views of those not represented. The client project manager is often
a feature of large commercial organisations that regularly procure from the
construction industry. In this situation it is less common to have a project sponsor.

Small clients
The approach taken by smaller clients reflects the limited expertise available to them in-
house. They tend to rely more heavily on the design advice of a consultant architect at
the briefing stage. The way in which these clients present their requirements to the
architect can vary.
Small/private/owner occupier

The simplest case in these terms is the small private organisation that wishes to build
for owner occupation (e.g. a small office, factory or an extension to an existing facility).
Here, the client body is composed of the management and workforce who will, to some
degree, be affected by the new facility. These two comprise the stakeholders.

Even in such a simple case, there will almost inevitably be some disagreement on
priorities between the interest groups that is between management and
workforce and indeed among the management and the workforce. Resolution of
these conflicts and final decisions are, however, likely to be the responsibility of the
business case team who may be one very senior person who is directly involved in
the briefing process.

Hence although the client body may be defined to include several interest groups,
the decision making unit is relatively easy to identify and probably autocratic in style.

Large/small private developer

The stakeholders here comprise the developer, the funding organisation, and
the ultimate occupiers of the building. The occupiers seldom have representation in
the decision making unit, and yet it may be argued that they are the ones who are
most affected by the design of the facility.

Large/small public owner occupier

The public sector presents yet greater difficulties in some respects. Here, the
stakeholders can be defined to include the public sector authority, the people who will
operate the facility and the public whom the facility is designed to serve. This is an
enormously wide definition of the client body with attendant difficulties in representing
all of the interest groups fairly.

1.2.2 Identification of client needs

Even assuming that there is fair representation of the various client interest groups,
identification of the true needs of these groups can be problematical. There is a
tendency to assume that in approaching the building industry, the client has at least
correctly identified that a building project of some kind is the correct solution to the
problem which gave rise to the needs in the first place. Larger and more sophisticated
clients are generally assumed to have investigated the need to build quite thoroughly,
however there is a consensus among writers in this field that the same cannot be said of
smaller, less sophisticated clients.

The statement of a need will tend to be influenced by the envisaged nature of the
solution, and so brief writers can find themselves attempting to solve the wrong
problem. Understanding the priorities of the user groups such that high priority needs
are not sacrificed for lower priority wants.
Some useful terminology

Business case team A team of people with an understanding of the

objectives of the client organisation, who may
be from within the organisation or outside or a
mixture of the two. In small projects one person
can fulfil the role. This team becomes the
decision-making unit. (see investment decision
maker below).

Client The customer for construction.

Client adviser The independent adviser, with a knowledge

of construction, and able to understand the
client's business needs and objectives,
including any special needs of the users.
Engaged very early in the project to give
impartial guidance on the best way to proceed.

Client project manager The individual or organisation supplying the

technical expertise to assess, procure, monitor
and control the resources needed to complete the
project. The client project manager should act in
the client’s interests and report directly to the
project sponsor.

Client representatives Individuals, often heads of department, who

make up a project committee. The project sponsor
or client project manager may chair this
committee

Investment decision maker A term used in Office of Government Commerce

documents to describe the business case team.
The investment decision-maker may be one
person or a committee.

Project owner A term used in Office of Government Commerce

documents to describe the named
individual who is accountable to the
investment decision maker for the project and
the budget.
Project sponsor A senior executive from the client organisation
who is responsible for developing and
delivering the project to meet the client’s
needs. The project sponsor manages the
client’s input into the project, co-ordinate
the client’s functional and administrative
needs, works with stakeholders and users,
resolves conflict on the client side and acts as
the formal point of contact for the project
team.

Stakeholders The key interested parties, such as investors and

end users, whose views must be taken
into account during the development
of a project.

Key point for reflection

The term Value term is widely used in modern procurement- but what does it mean? value for
whom? and how is it measured? You will gain an understanding of these as you progress through
the course.

Examples from the web

“Our vision is to be the leading International Built Asset

Consultancy, generating value for our clients, our people and the
community.”
EC Harris

“Our key strength has always been adding value throughout the
design process.”

Aecom (formerly Davis Langdon)

“Our knowhow creates value for our clients, enables us to be

innovative and solutions driven”

Cyril Sweett
1.3 Reading and self-assessment questions for Unit 1

Once you have read and understood the above you should consult the
following core reading and then attempt the self-assessment questions.

Reading

Chapter 1.3: Kelly, J., Male, S. and Graham, D. (2014). Value Management
of Construction Projects, 2nd Edition. Chichester, United Kingdom: John
Wiley & Sons. Available at: https://discovery.hw.ac.uk/permalink/
f/1nh9hb8/44hwa_alma7141958980003206.

Chapter 1: Dallas, M. (2008). Value and Risk Management. Hoboken: Wiley-

Blackwell [Imprint]. Available at: https://discovery.hw.ac.uk/permalink/
f/1el5916/44hwa_alma2126794980003206.

RIBA Plan of Work 2013, Royal Institution of British Architects (2013).

Available at: http://www.ribaplanofwork.com/.

Self-assessment questions
1. Why is it logical to integrate value management and risk management into a
single course of study?

2. What is the difference between the strategic and tactical phase of a project?

3. What is it about the nature of clients that makes it difficult to articulate value
on a project?