TechWatt Value and Risk Management - Case Study Example

TechWatt Value Risk Management Study Introduction TechWatt is a small successful business considering an expansion plan to move into a new headquarters facility. This report uses RIBA (the Royal Institute of British Architects) Plan of Work guidelines to focus and properly organise actions TechWatt must take. The purpose of this report is to ensure all parties involved understand the same goals and initial steps to achieve them. Each party involved in the project shall contribute information. Each piece is interdependent. Information is the most important contribution in the earliest stage. These are TechWatt's presently known five requirements. First, fulfil the perception of value in making such a move. Second, provide enough space for 15 people working in a laboratory and light manufacturing. Third, provide enough office space for 12 managers and administrative staff. Fourth, provide space (e.g., a conference room) to accommodate visiting customers and prospects. Two conference rooms are preferable so when visitors use one, TechWatt employees have the other as needed. Fifth, TechWatt has 5 million to make a headquarters. These pre-project objectives are an incomplete "preferred solution". It's an 'initial brief' with too little information to proceed to Strategic Briefing. TechWatt makes software-hardware products. Constructing a headquarters facility is new with many unknowns. TechWatt will rely strongly on its Architect to be the Lead Consultant (LC) responsible to apprise the company of occurring new developments at each step, and giving good advice. Using the LC's experience is the smart approach to manage and try to optimise value and minimise risk, and do a Strategic Briefing. This is a two-part VRM (value and risk management) Study. Part one is about managing value; preserving and optimising it. Part two is to manage and minimise risk. Both are the strategy. Value Management TechWatt must more thoroughly define value. The Architect/LC is in the best position to help clearly and concisely define and communicate value priorities and measurable expectations. This joint-effort Study uses RIBA's Plan of Work to clearly define value. Using RIBA methods, the LC shall guide TechWatt's work to identify and develop requirements (value), as well as identify constraints possibly blocking development. This is 'Work Stage A' or the inception of the Headquarters Project (HQP). Stage A / Inception requires careful considerations, or appraisals of as many things as it is possible to see about the HQP. The output of the Inception/Appraisal is a Strategic Briefing which is 'Stage B'. The Strategic Briefing shall define measurable value for the HQP. To make these determinations TechWatt shall work in conjunction with the LC. For now, all parties are evaluating the initial brief. Needed: Strategic Briefing with clarity - RIBA Work Stages A and B TechWatt needs to clearly determine future goals and scope of the HQP. Between now and the future, there is a gap to bridge. Management perceives value of the HQP as a bridge across the gap. TechWatt management has a Business Case mindset to support the aim to make a new headquarters. Business factors must stay in focus. Emotions must not override them. TechWatt's executive management team and front-line management (hands-on software and hardware experts) are best suited to clarify ideas for a Strategic Briefing about headquarters. To successfully launch the HQP, management must clearly define but not be limited to: - expected value added to TechWatt by the new headquarters, - 'must have' resources (accommodations, capabilities, etc.) in the new headquarters, - 'nice to have' resources (but possible to live without), - people and machines to make headquarters run well into the future, - trade-offs - pros and cons to of creating headquarters or not (cost of "Doing nothing"), - actual costs (Quantity Surveyor with input of Production, Purchasing and Accounting), and - opportunity costs (money lost by not doing certain opportunities; brainstormed largely by top management, their sales team and its forecasts, and the LC/architecture consultants). TechWatt must give its ideas on these to its HQP team. Lacking facility construction expertise, to make a crystal clear vision of the future, TechWatt's top management must get insights from its Architect-LC. TechWatt wants information for options. What are possible positives, negatives and costs of constructing a new facility compared to renovating an existing building In addition to the LC's professional experience, the LC can get information from The Design Team, structural and service engineers/specialists, environmental and/or regulators and code inspectors, a quantity surveyor, and a realty/property expert in locations TechWatt considers. Specifically, the LC must tell TechWatt costs for new construction compared to renovation. This starts with what sites are available for the size required. Designers must accurately estimate the minimum size necessary (later, consider options, if any) by totalling space needed for work lab, light manufacturing, office space, vehicle access and parking, visitors, a landscape environment which factors into the 'campus' to create TechWatt's corporate image, and other key concerns. Sites available determine what environment/hazard agencies and service and structural engineers/specialists say about costs and work to prepare the new headquarters. Available sites will also influence design, development, construction, how quickly the site can be acquired, regulation/environmental concerns, how available contractors are, timetable of the project, costs for material and speed of transport, and other factors. Designating clear assignments, responsibilities & procedures The LC sets up the HQP to run it with clear communications and project assignments, defined procedures for making decisions and reports, design input sessions and reviews, performance monitoring against the HQP's measurable benchmarks, and ensuring TechWatt stays apprised. The LC with TechWatt management's agreement shall designate responsibilities, assignments to fulfil them, specify resources available and sequence of tasks. Realtor property experts must report available sites and their costs. A structural engineer appraises stability of the property, especially any existing building. Stability of land needs verified. Environment and safety hazard experts must report about value and risks at proposed sites and costs to make problems satisfactory. Sustainable concerns and other site information, etc. are concerns. Designers must include all concerns in initial design ideas. Each will have some cost which has impacts on value. TechWatt needs good information to achieve the best possible value for all considerations and decisions about its future headquarters. The LC leads this effort by processing information and value-maximising, risk-minimising ideas reported by the Design Team and other engineers and specialists. The LC shall communicate this information in timely fashion to TechWatt decision makers about possible sites, all their factors and anticipated costs. Decision makers give the LC feedback to communicate to the Design Team and others on the HQP. The team will use TechWatt's decisions to develop other ideas, design concepts and more precise estimates, or to continue seeking a better option. This process within RIBA's overall Plan of Work process can continue until TechWatt, the LC and Design Team are sure of best/optimum value. For each cycle of the process the LC ensures correct totals and accurate information for each option and tells TechWatt management so they have good input to smartly choose the best Preferred Solution for TechWatt. Potential problems Problems can arise during any Work Stage. As a newcomer to the RIBA Plan of Work process TechWatt must avoid unrealistic expectations. This includes expecting very low costs for maximum deliverables. The LC is the experienced guide to pilot past or through problems. All parties on the HQP team should strive to appreciate the job, work and responsibilities of team-mates. All must focus on goals, delivering optimum value, and taking smart actions the first time so minimum changes are needed. The project needs guidelines for handling changes. Without controls for changes, the project can develop problems. A good way to avoid changes is for designers to know clients and needs very well. Encourage ownership through strong communication RIBA suggests having interviews/meetings to clearly define 'value'. By working closely the Design Team learns many things about the users of the new facility. Getting clear direction and answers from the start is important to make optimum value for TechWatt's future. Everyone who contributes to clear answers owns a piece of decisions. Ownership helps all people to 'buy in'. People who buy in commit to teamwork and team spirit, and build morale and optimum value. To be involved in consultations that influence decisions means sharing ownership. Also, there is a collective library of lessons learned. Each VRM team member has some of that knowledge. Team-mates who communicate effectively will ensure the best use of know-how from those past experiences and lessons. This, too, is part of ownership. Close, routine, ongoing communication is often informal. Informal channels build teamwork successes. Informal communications elevate key ideas and concerns to the formal level where they are built into the overall strategy and design plans. New or renovate The decision to renovate or construct new will frame a clear Strategic Brief with well-defined priorities and expectations. The sites available may dictate the decision. It will drive some (if not all) values and expectations in the Strategic Brief. As TechWatt selects its site, management (to the extent it wants) will involve the LC in preparing the Strategic Brief. Then they will give it to all parties for evaluation; the Design Team, various engineers, environmental, safety and other specialists. They shall start timely work on Stage C, the 'Project Brief' or outline of proposals. The Design Team will identify new innovation(s) that must be developed, as well as TechWatt prescribed elements that need no new redesign. The light manufacturing floor and arrangement of offices are two examples where space likely needs new design to enable future growth, if for no other reason. The biggest possible factor to answer the question about 'how much innovation' could be the physical layout of a building if TechWatt decides to renovate. Reviewing the Strategic Briefing The HQP team thoroughly reviews the Strategic Briefing's specific goals, values, expectations, etc. to identify if and where to study things for deeper information about, for example, energy, sustainability, and constraints of a physical, regulatory, development, cost, etc. nature. They must address each concern they identify to have answers to prepare an 'Outline Proposal' that is part of the Project Briefing. To be sure all parties who must know learn about questions that arise during review of the Strategic Briefing, the HQP team must use communication channels that the LC established and the team agreed to and accepted. If the answers to questions cascade into responsibilities of other team-mates, everyone must coordinate efforts to develop sensible Outline Proposals. For example, costs of proposed actions can be complex for something as simple (and taken for granted) as water drainage and sewage. Different systems for storm water runoff and sewage must meet specific environmental and sanitation requirements. Another example of a potential problem with the Strategic Briefing could be requirements that seem to conflict or compete. A thorough review is meant to identify such questions and discover good workable answers before going further and finding problems exist that should have been found earlier without wasting time and money. This includes identifying risks. When the HQP team believes it has found all such potential problems and satisfactory answers to them, then the expert(s) in each area can make Outline Proposals. The Structural Engineer addresses concerns and issues about the building site. The Services Engineer addresses regulatory concerns and/or energy issues, as well as health and safety. The Design Team addresses new/innovative design concerns, site development, and TechWatt's prescribed design elements. The Quantity Surveyor advises on costs. The Planning Supervisor perpetually takes the pulse of all these Outline Proposal activities that are inputs for the Project Briefing. The LC ensures (coordinates) all input is worthy of a Project Brief for presentation to TechWatt but also communicates ideas to TechWatt the ideas that look most likely to go into the Project Brief. Both the LC and TechWatt have very good knowledge about Project Brief input. They can shape it and fine tune the course of the HQP. The LC looks ahead to ensure Outline Proposals fit well together and pave the way for Detailed Proposals that shall be developed after the Project Briefing. Project Briefing - RIBA Work Stage C This meeting establishes that all HQP team members understand TechWatt's expectations that management has for its headquarters. All HQP team members become clearly focused on goals. The LC reviewed and accepted clarifications and decisions that went into the Project Briefing. Now the team can review and discuss more specifics. The Project Briefing helps crystallise the design approach and construction process. Also, TechWatt indicates adjustments, corrections, refinements or changes needed before moving further ahead. The focus is to deliver the value TechWatt wants. Be sure all Project Briefing participants know the VRM priorities for delivering value and benefits, and know their assigned responsibilities and tasks. TechWatt's HQP team shall use this understanding to agree to goals and set its next tasks and due dates as measurable milestones. Establish trigger points for special or unusual situations. Specify if TechWatt or the LC does purchasing/procurement, and who deals with other contractors and suppliers, etc. The results of the Project Briefing should be universal understanding, agreements and a clear list of needs to fulfil along the course of action to develop the new HQ facility. The HQP team shall use the needs to set priorities. Besides any changes/corrections identified as needs, priorities translate into a Detailed Proposal with milestones and smart/necessary sequencing of events. These detailed design (and construction) ideas shall be presented to and reviewed by all parties on TechWatt's HQP team by a specified date. Detailed Proposals - RIBA Work Stage D After the Project Brief, HQP team members must do tasks to produce detailed information and design ideas. Depending on the directions from the Project Briefing, design decisions may rely on facts found by a site survey, for example, or environmental, health, sanitary, regulatory, safety or other concerns. The LC sets priorities and task sequence with input HQP team input. The LC ensures all ideas and proposals fit together and comply to known requirements. Detailed Proposals go into greater depth and further develop ideas in the previous Project Brief. This increases the quality and clarity of the Project Brief. When details are complete, the detailed Project Brief is signed off with TechWatt's approval. The HQP is closer to finalising design and moving toward construction. The LC identifies needs for experts not already on the HQP, keeps a list of equipment needs, requirements and/or regulations to meet, studies and reports to be made, and tracks work progress on all such items. The goal is to do a satisfactory job of addressing all TechWatt concerns (and those of other HQP team members) from the Project Briefing. Questions, issues, problems and concerns must be solved to proceed into Development after Work Stage D. Conclusion and Recommendation TechWatt must make its Strategic Brief. Too many variables exist. Too many questions must still be answered. TechWatt can prevail upon the LC, Design Team and other HQP specialists for some answers. They can present ideas, suggestions and advise and discuss it with TechWatt. In the end, TechWatt must make decisions that put some focus and definition into this project. Some of TechWatts parameters can be determined by risk avoidance. Other parameters should centre on value optimisation, long-term monetary and non-monetary benefits. TechWatt should weigh risk and value to reach an acceptable balance. This leads to the Risk Management study. Risk Management There are multiple concerns to manage real and potential risks of TechWatt's new headquarters facility. Risks include structural concerns about the integrity of the building, whether it already exists or if it is newly constructed; risks that are part of the building site; cost risks that would not arise if the company did not relocate; a risk of losing in-house experts if people must move families and do not want to do it; risk of TechWatt's surrounding community having a bad reaction, and maybe the future community, too, if it's not the same place TechWatt is now. Some economic concerns and risks can face TechWatt each day as far as it can see the future. These aren't all the possible risks. TechWatt must brainstorm, list and prioritise risks. They can use KPIs (Key Performance Indicators) to measure effectiveness of risk management. 10 risks in architecture and construction Several factors can introduce risk. They include: - not getting needed permits, approvals, authorizations, etc. - problems that were not known earlier are found at the site/land - bad weather and/or other acts of nature delay construction - labour stops working and goes on strike, or suddenly costs more - accident and/or injury delays work - materials are not available or suddenly cost more - failure to meet client's budget - failure to meet design requirements and/or deadline that were agreed to - defects in workmanship - failure to meet technical/industry standards Risk identification, assessment, and planning Strategies and methods help identify risk, determine the size of each risk, plan how to handle it, and assign the best resources to manage risk and minimise its negative effects. The above risks are well known with strategies to handle and minimise them. This report/study considers some of them plus others. The first step is for TechWatt's team and design/architect/construction personnel to identify the most-possible risks using ideas from the list of 10 risks and related risks that have different names. Compare them to TechWatt's value priorities. Analyse the risks to assess where they fit among priorities. Assign each risk to its place in the overall plan to handle risks. Determine KPIs that will measure how well each risk is managed to protect or optimise value. Short-term and long-term, big and small risks Some risks last only the duration of preparing the new headquarters for occupancy. Other risks, if poorly managed (mismanaged, actually), can last as long as TechWatt is in its headquarters. Really, to simplify, risks come in three sizes: big, medium and small. Also, they can last any of three lengths of time: long-term, short-term and, of course, medium-term. Avoid damage by water, erosion and subsidence An example of a long-term bad risk is to construct a new building on a site at or near the bottom of water runoff, above an old mine. Water flows down the path of least resistance. If TechWatt's new headquarters is in that path, its building could suffer foundation problems caused by water runoff and/or mine subsidence. Runoff water may cause erosion or land slump, subsidence and/or a sinkhole. If insurance won't cover such trouble, TechWatt suffers facility damage or loss, and may be 'homeless' if it's very bad. Worse, TechWatt must also pay any debts. In plain English, it must pay for a facility no longer providing any value or benefit. The LC must be sure the HQP team has a site appraisal expert to research, discover and avoid such sites. There are records of mines. Land surveys show where mines are. Builders must know where storm waters go. They must learn about possible land slump, flood plains, soil erosion and such 'forces of nature'. If TechWatt constructs a new building, it must do very good 'due diligence' to minimise long-term, big risks that last as long as they own the building. Possible contractor and subcontractor problems "People problems" differ from mechanical problems. Labour can stop working, work slowly, not perform to acceptable craftsmanship or introduce other problems. To minimise this risk the LC should make contracts to protect TechWatt but are also fair to contractors. For example, agree to a project price for a well-defined, high craftsmanship parcel of work by a deadline. Include penalty clauses for late completion and poor quality of work that the contractor had complete control over. Such contract terms give maximum incentive to the contractor to do good work by the deadline. They remove or minimise reasons for human failure. The HQP team must research contractors that it considers before hiring any to do specific tasks. Be sure they have enough people with expertise. To minimise chance of work stoppage/strike, be sure their management has no problems ready to erupt with workers. Be sure they fulfil safety standards. Be sure they use equipment and materials to meet design requirements. Minimise financial exposure - Lease -VS- Own TechWatt may be not want to own the land, facility and problems of ownership. Leasing is possible. In this situation, TechWatt can lease a facility and insure its manufacturing machines. Even in a lease where the TechWatt is responsible for the mortgage, taxes and maintenance, if a natural disaster destroys the facility, TechWatt can collect insurance, replace equipment and restart its headquarters operation in another facility because the leased one was lost. The owner lost the property. TechWatt lost use of it. With favourable terms a lease can be good. For example, TechWatt can be responsible for "maintenance," only to do things limited to routine maintenance and upkeep; not to restore everything after nature destroys the facility. Also, if TechWatt makes a lease, maybe it wants a favourable long-term occupancy - but also an escape clause based on certain conditions, such as: the economy goes bad; or TechWatt outgrows the facility; or a 5-year clause to renew or opt out if it is an advantage for TechWatt. A lease of this nature uses time milestones and conditions to limit risk. There may be performance (non-performance) escape clauses. If the owner fails to do A-B-C, and failure hurts TechWatt, then the company has the right to move away. Further minimising financial risk A possible advantage of a lease is to find a facility that offers businesses 'incubator services'. Some places have services available to TechWatt and its business neighbours. In this setting businesses share expenses to maintain parking, pavement, landscaping, public lighting and other 'commons'. Perhaps TechWatt is too big for this. But if it is not, it can save costs. Such cost savings minimise monthly expenses; a method of steady risk management. Retaining resident experts TechWatt has a success formula. Its responsible people share credit for that success. It is probably smart to keep the entire team intact. At least, minimise losses of talent. This must be a factor in TechWatt's choice of location for its new headquarters. If they lose people the company pays later to replace them and teach the TechWatt way of doing business. There's also the risk that lost talent joins the competition. Keeping people should be a priority. How has TechWatt addressed this concern If it hasn't, how will it address it Avoid opportunity costs and minimise transition losses If TechWatt's physical move happens when production and customer satisfaction are very important, the business risks losing money. It may also lose money if an unexpected business opportunity appears on the days when TechWatt is moving and not ready to continue production. Moving is a temporary risk. It interferes with business operations in ways so that TechWatt loses money it normally won't if the company doesn't relocate. The move must be well synchronized to minimise or eliminate this risk. There are methods for this. Two possibilities are to plan a temporary shutdown, or operate on split-shifts that phase out the old facility as the new one starts production. Besides risk of financial loss, goodwill can be lost when customers are not satisfied. TechWatt must be pro-active with customers before the move and do its best to smartly manage these smaller, short-term risks. Prevent or minimise bad publicity This is pro-active 'damage control'. Don't let PR (public relations) nightmares happen. Community opinion can be good or bad. People may not like losing jobs if TechWatt lets go some in-house talent by moving far away. Structural risks Last in this STUDY are construction risks an existing building. If TechWatt gets an existing structure, it needs expert knowledge about its structure (foundation, main and support beams, exterior and interior walls, ceilings and roof). Each can hide risks if not discovered and properly dealt with before TechWatt moves. This includes plumbing, electricity, heating and ventilation. Thorough inspecting (and possible testing of physical and electrical load bearing, for example) should identify risks. This will enable smart decisions. Inspectors, architects and risk specialists have good checklists to identify actual and possible problems. Some may need more study. Other risks or unknowns may be all right. TechWatt and its expert consultants should carefully considered identified risks and judge what is best to do. Risk handling and monitoring Deciding what is best to do means to set risk at acceptable levels. TechWatt and its design team should do this case-by-case, and as a whole - looking at all known risks together. KPIs can help measure how effective risk management is. KPI can be tied to money. It can be tied to schedule/deadline, construction standards, TechWatt requirements and needs and expected benefits. When risks arise that possibly affect such factors, each risk should be reported through proper communication to the correct decision maker(s). The decision must be made about the best way to proceed. Decision makers must remember other possible future risks and make the smartest, best decision to maximise future value. Summary and Recommendation This STUDY reports a few key risks among all the many possible risks. Some larger risks can be cut into manageable pieces. Again, there are too few known requirements to be more specific. TechWatt can use these risk management ideas to focus its course of action and make choices. Good recommendations are for TechWatt to be sure to bring proper and adequate expertise to bear on fully identifying risks before setting a final course, and then planning ways to best manage and minimise the known risks and be flexible enough to adjust to unfolding situations. Read More