Facilities Management

Facilities Management Value and Risk Management for FM

Value management • the name given to an enterprise concerned with providing the product or service demanded by a customer at the required quality and at the optimum cost • value analysis is an organized approach to providing the necessary functions at the lowest cost • value analysis is an organized approach to the identification and elimination of unnecessary cost • unnecessary cost is cost which provides neither use, nor life, nor quality, nor appearance, nor customer features

Terminology – construction industry • Value management relate to the business activity of the client and spans individual projects • Value engineering relates to studies undertaken on specific projects between the completion of the sketch design and the completion of construction work on site

Value Management & Value Engineering in the Context of a Construction Project

Construction orientated value management theory • Value management is a service that maximises the functional value of a project by managing its development from concept to occupancy through the audit (examination) of all decisions against a value system determined by the client • Achieved through the application of a job plan which is a structured method for the logical, sequential analysis of value and is characterised by: • Phase 1 - information • Phase 2 – creativity • Phase 3 – evaluation • Phase 4 – development • Phase 5 – presentation • Phase 6 – feedback

Construction orientated value management theory • Identification of a function – an activity for which a thing is specifically designed, used or for which something exists • Value – a measure expressed in money, effort, exchange or on a comparative scale that reflects the desire to obtain or retain an item, service or idea

The job plan – phase 1: information • All of the available information relating to the project and relevant to the stage under review is gathered together. • Objective is to identify the functions of the whole or parts of the project, as seen by the client organization, in clear unambiguous terms • Information must be obtained from the best possible source and corroborated if possible, with tangible evidence • Care should be taken not to spend unjustifiable time and effort in information seeking

The job plan – phase 1: information • Types of information being sought are: • Client needs, which are the fundamental requirements that the project must possess to serve the client’s basic intentions • Client wants which would be nice to have but do not satisfy need • Project constraints are those factors that will impose a discipline upon the design • Budgetary limits expressed as the total amount that may be committed to the project in initial capital and life cycle costing terms • Time for design and construction as well as the anticipated period for which the client will have an interest in the building

The job plan – phase 1: information • At the earliest stage, at the point at which the client perceives a problem to which a building is only one solution, the information tends to be unstructured due to • supply and demand statistics within the client organization • information relating to a problem identified but not made explicit by client’s employees or consultants • the strategy of the client executive for which there is no technical solution • users of a facility, who are not a part of the client organisation, may hold information

The job plan – phase 1: information • Concept information is largely produced by the client organization in terms of a brief and by the design team in terms of initial sketches • Once the outline proposal stage is complete (final sketch design) the design exercise becomes a technical task of answering the client’s brief • The client’s value system is locked in • Technical information is the designers’ solution to the problem described in the brief in performance specification terms.

The job plan – phase 2: creativity • The value management team may put forward suggestions to answer the functions that have been selected for study • … brainstorming, Gordon technique, synthectic technique, … • Brainstorming • requires that a group considers a function and contributes any suggestion that will answer that function • every suggestion, no matter how apparently stupid, is recorded • no criticism of any suggestion by word, tone of voice, shrug of shoulders or any other method of indicating rejection is allowed • the exercise is one of generating as many suggestions • original suggestions are as likely to come from those inexpert in a subject as those who are expert

The job plan – phase 3: evaluation • evaluates the ideas generated in the creativity phase • techniques used depend upon some form of weighted vote • a crude filter for reducing the ideas generated to a manageable number for further study

The job plan – phase 4: development • The accepted ideas, selected during phase 3, are investigated in considerable detail for their technical feasibility and economic viability • if appropriate, outline specifications or designs will be worked out and budget costs realised • The team will again consider the worked up ideas and all those which either cost more than the original or are found to reduce quality are rejected

The job plan – phase 5: presentation • The refined ideas are presented by the value management team to the body that commissioned the value engineering exercise, supported by specifications, drawings, calculations and costs

The job plan – phase 6: feedback • Some details of those ideas that have been put into practice and be given the opportunity of testing the design and cost predictions of the team

Building function – RIBA plan of work • function of a building is to provide an environmentally controlled space suitable for the activity to be carried out within that space • design of the building is a technical solution to the functional requirements of the space • building has a number of characteristics: • Comprised of manufactured components and assemblies • The components and assemblies are constructed to form elements of a building • The configuration of the elements of a building form spaces that are conducive to the activity to be performed within the building • The building represents a stage in the corporate strategy of the client organisation and contributes to the capital value of that organization

Building function – level 1: task • A value manager with representatives of the client organization will undertake a functional, structured definition of the project and its objectives • The client perceives a problem through a study of efficiency, safety, markets, profitability, etc. • If a client sees a building as a solution to this problem, a contact with the construction industry is most likely to be made • The construction industry will assume that the client has correctly identified that a building is the solution to the problem and will advise the client on how best to proceed • The client steps onto the building procurement moving walkway and is prevented from stepping off until the keys to his building are handed owner

Building function – level 2: spaces • The value management process moves to level 2 involving the value manager in an exercise with the client representatives and a design team • The design team usually would be that which was to take over the design of the building • In situations where the client wished to reserve the choice of an alternative procurement route, the design team would be commissioned for this exercise only • The exercise would address the definition of the various functional spaces required by the client and performance specification of the spaces in terms of area and height, adjacency, IT and other requirements, quality and the heating, ventilation, lighting and sound environment to be maintained

Building function – level 3: elements • “that part of construction that always performs the same function irrespective of the components from which it is made” • It has a function but rarely performs or contributes to a process • The functional analysis of an element need only be carried out once

Building function – level 4: components • Components used in building have been subjected to a process prior to their arrival on site • All parts of their process may be analysed to determine function • Having an understanding of the manufacturing process and the functional requirements of the component may lead to alternative design decisions particularly when dealing with components that are project specific

Risk management • The risk management process is a generic framework applicable in many industries, with many ways of implementing it in practice • “A structured risk management system comprises identification, analysis and response strategy to all significant project risks with the aim of reducing the opportunities for, and consequences of, loss.” The Institute of Risk Management

Risk identification • To identify all the risks that pose a threat to the project • The source and consequences of risks occurring will differ from party to party, with the contractor’s perceived risks being quite different from the client’s organisation • Assemble a list of as many potential risk events as possible tha t may adversely affect the project/organisation • For each of the identified risks on the list make some assessment of their likelihood of the occurrence

Risk identification - assessment • Method of Assessment • Test the probability using some simple qualitative exercise, by assessing each event against some descriptive scale. • Can use basic three point scale of “low”, “medium” or “high” probability, or it can be refined up to any number of descriptions. • This appears subjective or “unscientific”, but is a powerful technique when employed by experienced individuals. • Results can be quantified and expressed in more formal, numerical terms and provides a format suitable for any subsequent quantitative risk analysis.

Risk identification - assessment

Methods of risk identification • Historical data • Draw from direct experience of similar projects since most projects contain a number of reasonably standard and recognizable risk situations • UK Metrological Office – weather forecasting where prediction of future events is based on many years of recorded past events of rainfall, temperature, wind speed and direction • Insurance companies are sophisticated in risk management and also rely heavily on historical records of the occurrence and impact of past events for risk analysis • Building Cost Information Service – past trends on tender price levels and the effect that inflation has on labor and materials market

Methods of risk identification • Checklists • A checklist is simply a comprehensive list of risks that could affect any project. • Can be used as prompts in determining what the potential risks are for the project under study • Published risk checklist in texts and journal papers can be consulted • Separate lists exist for client, contractor and consultant perspectives • A convenient and relatively simple approach but it is important not to be over reliant • Can act as a straight jacket and inhibit detailed thought on specific project risks that may not be recorded on a generic checklist

Methods of risk identification • Brainstorming • A creativity technique • A short-term intensive group exercise where a team of individuals will generate as many ideas as possible for risk events that may adversely affect the project • “negative brainstorming” – a team of individuals trying to determine all the things what may go wrong with the project

Outcome of the risk identification stage • The team will have a list of risks that threaten the project, together with an assessment of their likelihood • A simple descriptive or qualitative statement of their perceived likelihood of occurrence or a more sophisticated exercise a numerical probability will be attached to each • The approach to be used will be influenced by the quality of information available and also upon the type of analysis to be carried out by the team, no correct or best approach • Level of sophistication is not necessarily an indicator of the quality of the exercise • Amount of effort expended should be commensurate with the needs of the project

Risk Analysis • Objective is to determine what the impact or consequences would be of a risk event occurring • Impact may not be restricted to the project itself • could have an impact on the whole organization, depending on how serious a risk or combination of risks, are • Limit the analysis of project risks that are most serious, namely those having a high impact on the project in terms of time, cost and quality • Worth considering risks which may have lesser, but still significant impact, if they are like likely to occur since the cumulative effect of a number of low impact risks materialising may have serious impact

Quantitative and qualitative risk analysis • Quite often there is no actual number crunching to be done is a risk analysis exercise • Can be quantitative and qualitative • Need not be mutually exclusive, can be complementary

Quantitative and qualitative risk analysis • Quantitative Risk Analysis. • Techniques that requires input of numerical data • Standard techniques used in construction risk analysis • Provides some numerical results that allow more informed decision-making • Qualitative Risk Analysis • Does not involve any mathematical manipulation or application of numerical techniques • Uses subjective assessment, based on experience and feeling to determine risk impact • No “hard” analysis, but carried out based on some structured system or rules to make it more transparent and able to present in a consistent manner. • Good when lack of resources, e.g. staff expertise and software to carry out a numerical technique, or no demand for more detailed approach, or absence of numerical data

Quantitative and qualitative risk analysis – which is best? • The type of analysis carried out will depend on considerations such as • the data available • The amount of time available • The resources of the organization carrying out the study • the attitude of management who will be making decisions on the basis of the outcome of the risk analysis • There is no overall “best “ technique, it depends on what is appropriate for the circumstances prevailing

A qualitative approach • In the initial stages, a qualitative risk analysis study will always be carried out • Any further and more detailed consideration of the most serious risks highlighted may then be the subject of more sophisticated quantitative analysis

A qualitative approach • After a risk list is compiled, each identified risk are is gone through and a quick assessment made on its impact and probability of occurrence • The risk area can be prioritised as having low, medium or high priority for further investigation and consideration Probability Probability H Medium priority High priorty M Low priority Medium priority L L M H Impact Impact

A qualitative approach • The risk grid approach is quick and easy to apply • Can be readily understood by everyone involved in the risk workshop • It is a rough technique • further analysis will be required for those risks having a higher priority

A qualitative approach • The impact of risks can be further qualitatively assessed by some classification of their impact:

Risk response • Develop some method or strategy for dealing with the risks previously identified and analyzed • Elimination • Reducing probability of occurrence • Reducing impact of occurrence • Transfer risk

Insurance • A common means of risk transfer • Convert an uncertain exposure to some risk to a known cost ie, premium • Advantages of Insuring • Smoothing out unpredictable peaks in losses via a regular annual liability to the insurer • An easy “sleep soundly” option to risk management • Suitable for organisations who could not cope with financial exposure to such losses • An unsophisticated approach to risk management • Used as a last resort or when strictly necessary, e.g. statutory reasons and contract term

Insurance • Disadvantages of insuring • Not represent value for money • Premium will be based on general claims experience of other organisations, may not reflect the firm’s own experience. • High mark up to cover the overheads and profit of the insurance company • Possibility of disputed claims and delayed payments • May be too expensive for some organisations, or unobtainable for some risks

The risk register • Results of a risk management exercise should be recorded in the Risk Register • The Risk Register serves as single source of reference for all the risks and their current status • A dynamic document that needs to be updated over time as the risk profile changes

Facilities Management