Integrating Value and Risk Management in the Strategic Project Development Stage - Assignment Example

Integrating Value & Risk Management in the Strategic Project Development Stage of New City Government (Council) Headquarters. REPORT TO THE SENIOR RESPONSIBLE OWNER (SRO). ASSIGNMENT THEME: VRM in the Strategic Project development stage (identify project needs and: options to meet business needs. Confirm project still required. PROJECT: New City Government (Council) Headquarters. 1. APPROACH. This report scrutinizes the proposed project to build the new, modern and central City council (government) Headquarters. It analyses the project in general, its business needs, strategic importance, options available to meet the business needs and inherent risks, so as to establish whether this project is necessary and delivers value for money. The study is carried out in accordance with the provisions and framework laid down by the Office of the Government Commerce (OGC). The report is prepared pursuant to the instructions of the City Council (government) who is the client. The study commences by analyzing the business needs of the clients. It seeks to enumerate and elicit the objectives that the client hopes to achieve by undertaking this project. It examines the status quo to establish obstacles that hinder the client from achieving these objectives. Further, the report seeks to establish all the stakeholders concerned and the impact of the project on them. Secondly, the report analyses whether the business needs of the project are realistic. This is in terms of the business value of the project to the client and all the stake holders. Thirdly, the report examines all the options that the client could employ to satisfy its current needs, and fulfill its designed objectives. Consequently, the study determines whether the project is necessary in light of other alternatives. The approach adopted is integrated, and all involving, designed to achieve and capture the views and needs of all the stakeholders in this project. The study considers the views, objectives and needs of the client, the City Council, which it desires to achieve at the completion of this project. This was in line with the OGC 3 framework requirement for the study to unearth the long term and short term needs of all the stakeholders already identified. A deep analysis of the project is undertaken to determine whether it adequately addresses the needs and objectives of the client. The study has also set objectives and parameters, based on the needs on all the stakeholders. These parameters are to be used as the yardsticks to measure the progress of the project. The parameters set were in line with the OGC 3 framework and addressed health and safety, sustainability and design qualities using Design Quality Indicators-DQIs. The study also set performance indicators that would reflect whether the objectives set and needs of the client are being met. To achieve this, this study compared the business effect of the project and the cost involved, to determine the viability of the project. The study also relied on a SWOT analysis on the project so as to determine the ability of the city council to handle the project, by raising sufficient funds to meet the expected budget of the project. Once the SWOT analysis was over, the study carried out a value and risk management study to identify the main program risks including the track record of the council. Further, it looks into the current personnel to establish whether they have the quality and leadership skill to lead to successful completion. The study was limited in terms of time, given that only one day was available. Consequently, events ran concurrently, based on predetermined and preplanned factors; for instance in the workshop, participants were preselected to represent all the stakeholders in the project. 2. BUSINESS NEEDS. The business needs of the new building stems from the objective to centralize all the public sector departments and relocate all their staff at a single location. A central headquarter is set to achieve several benefits and cure the problems and deficiencies of the current scattered administration system. The council needs to centralize all its operations in a 12500m2 accommodation space. From the client’s perspective, it is going to eliminate transport cost required to connect all the administrative offices. This study unearthed that a huge cost was involved to transport personnel and officers around the offices, in an attempt to coordinate the affairs of the various department. Communication will also be improved, whereby it will be easier and cheaper to link the offices unlike the present set up. Moreover, it shall also add to the efficiency of the council as it shall be able to serve a record number of people in a day. This shall lead to full utilization of the resources, while delivering quality services to the residents. To add, efficiency shall be achieved from the time that is wasted coordinating and communicating between the different departments. Moreover, a central headquarter will help the council to minimize the fixed cost associated with running separate and scattered administrative offices and properties. Such costs include the cost of maintaining security, utility bills, maintenance and repairs and wages. This is because it shall be easier for different departments to share on costs. From the employees’ perspective, the city council will be in a better place to provide a better and employee friendly atmosphere that is likely to boost their morale (Che Matt 1999). For example, the council will be in a position to provide them with better facilities, such as recreational facilities at the least cost, unlike the present setup. To add, bringing all employees in a central place shall help them bond and, therefore, develop a good relationship among them. Consequently this shall lead to improved team work. The customers will also stand to gain a lot as it shall be possible to seek services that require interdepartmental input at the least possible time. It shall be, therefore, easier to complete a number of transactions in a single rather than spend a lot of time moving from one place to another in search of the services. Consequently, this study concludes that the project is viable and meets the business needs of the client. The needs of the client are clear and un-ambiguous: in terms of accommodation space required and objectives desired. It is realistic and shall deliver value for money in the long run, though the initial cost shall be exorbitant in the short run. To add, the amount budgeted for is adequate to cover the cost incurred to implement the project and proceed to the phase/stage. 3. OPTIONS TO MEET THE BUSINESS NEED Having established the business needs of the city council, the reports address the options that can be employed to achieve them. The city needs can be met by employing the following options: implementing the project, private finance initiative and non project or ‘prior options’. 3.1. Private Finance Initiative (PFI). PFIs allow partnerships consisting of private consortiums and public authorities, in that the public sector collaborates with the private sector. Consequently, it is a form of partnership.1 There has been an increased interest by the governments in recent years in PFIs.2 Patrinos et al (2009) advance three arguments in favor of PFIs. First, these arrangements enable governments to attract private investment, which benefits those whose public resources for infrastructure are declining (HM treasury 2008).3 Secondly, the private partner takes on a share of responsibility and risk for the infrastructure project as a consideration for the project (pricewaterhousecoopers 2005). Third, there is a fiscal incentive to circumvent the regular budgeting procedures because the annual rent that the government pays to the private contractor are deducted from the entire budget instead of deducting the entire amount of the investment (Sadka 2006). From the perspective of the council, therefore, PFI shall enable the council to concentrate on service delivery while it leaves work that is outside its scope to the private investor. Moreover, it is advantageous in that it spreads risks associated across to the private sector (Grahame 2001). Moreover, since the private sector is better organized, it shall lead to better utilization of resources, timely completion of the project and delivery of a better quality building. This is because most private firms have risk analysis departments especially in their financial sector unlike the public sector, a study case being the client. Government recognizes that risks should be allocated to the one who can bear them best (Treasury HM 1996). However, the partnering is expensive in the long run and more risky (Myers D 2011). To add, it shall increase the debt owing from the council. 3.2. Non project or ‘prior options’ Maintaining the status quo and upgrading the present facilities shall prove he cheapest option in the short run but it is unmanageable in the long run. 4. COMPONENTS OF THE STUDY 4.1. Pre-Workshop Activities Before the workshop started, all the participants were made aware of their role in the same. They were informed that they were expected to actively contribute in generating alternatives, help in the evaluation of ideas, give their input in the action plan preparation provide any data that they may have that is relevant to the workshop but unknown to other participants. The facilitators’ roles in the workshop were also defined as establishing the agenda and creating conducive environment for active participation, advising the participants on the agenda, encouraging the participants to come up with creative thinking, acting as the moderator to discussions, preparing the report on findings and developing an action plan. My role as the Value and Risk Management analyst was to ensure that I am sufficiently knowledgeable on the project, to challenge any assumptions held and provide alternative views, to be a technical advisor in the process, to ensure that the outcome was indeed the best value and the best obtainable from the process, to participate in the analysis and consideration of issues in the workshop and to provide an independent, unbiased opinion of the project (Che matt 2006). 4.2. Workshop In the workshop, the facilitators confirmed the scope of the study and its objectives and instilled a deep understanding of the context of the project into the participants and brought to the knowledge of the participants the concepts of value as well as value for money. The facilitators also came up with a formula for success and generated diverse ideas of value improvement. They also evaluated different ideas vis-a-vis success criteria. At the same time, a plan of action was prepared at the workshop. 4.3. Stages/Phases The workshop followed a series of stages to enhance its effectiveness during the first stage of the workshop; the participants gathered and analyzed information while exploring different ideas in the divergent mode. The second stage was in the convergent mode where they converged to fact-based solutions thus discarding assumptions. During the information phase, the invited stakeholders got to explore the project environment. They also had the opportunity to distinguish between opinion and solid facts. It is at this stage that the participants identified goals and objectives of the project, the unwanted functions. Issues connected to the project were also raised. The Analysis Phase was the stage at which the workshop attendants got to identify the major issues and essential functions that the project was expected to deliver. The key stakeholders were also identified at this juncture. These two phases gave the participants a good opportunity to share their knowledge, exchange ideas and enhance their understanding of the project as well as the issues facing the project and the essential outcomes for guaranteeing a successful outcome. In the creativity phase, the participants individually came up with ideas to eliminate all unwanted functions while delivering essential functions and addressing the key issues identified. The evaluation phase was the stage at which the participants evaluated the various ideas generated and decided whether they were to be developed further in the same workshop, developed outside the workshop, shelved to be considered as the workshop progressed or discarded altogether. At the Development Phase, the participants were divided into groups of four where they used the ideas born in the creativity phase in developing the way forward to ensure project success. The groups identified accountabilities, responsibilities and timelines. The groups also discussed policy issues and gave considerations to sustainability and financial position of the project. The various groups’ findings were then evaluated by all participants who noted the positive aspects of the proposed projects, potential dangers and improvement opportunities. 5. FOLLOW UP RECOMMENDATIONS The options to meet business needs should be established. It is, therefore, imperative to ensure that there are reliable accounting personnel and if not, ensure that they are hired. Systems that allow for regular inspection into the books of accounts should also be put in place. From the analysis made during the value study, I am in a position to authoritatively confirm that the project is indeed viable and necessary. The said studies are invaluable to the project. They are aimed at improving communication in the course of the project and serving as a basis for resolving any conflicts that may arise. The studies also challenge assumptions, instead encouraging working with tested and proven theories. The studies are also useful in identifying and consequently cutting down unnecessary expenditure. This ensures that expenditure is maintained at a minimum. It is at this studies that alternative ideas get to be generated. The studies also give junior workers a rare chance to air their voice on the project. In addition, the studies promote innovation. Financially, value management studies have been proven to maximize resources while saving on energy, time and money. The studies also often come up with ways of simplifying the conventional methods and procedures. Finally, the studies eliminate items that are redundant and update standards, criteria and objectives. However, it should be noted that Value study is not about looking for cheap solutions. On the contrary, it is about making the customer’s needs clear thus satisfying the same. It is about incorporating new ideas into the system. Value Management studies are complementary to Continuous Improvement. A possible outcome of a Value Study is the singling out of areas where application of Continuous Improvement may bring about significant gains. Value management in Singapore, one of the most rapidly growing Asian economies in all aspects including construction, seeks to create the best value and in the process satisfy the client’s needs. Singapore attempts to keep up with the global pace and, therefore, adopts Value and risk Management which has been globally acknowledged to be an invaluable tool in construction project managements (Ellis, Wood et al, 2005). The construction industry itself is a key area in Value and Risk Management both in Singapore, and in the international scene (Japaar, 2004). This study, therefore, recommends the project should proceed as it stands the best chance to meet the client’s business need and it is still viable. It meets the principles laid down in OGC 3 framework in that it has a sound business case. References Che Mat, M.M. 1999. Value Management: Towards achieving Better Value for Your Money. Johor, Professional Value for Value Management, Sdn, Bhd. Che Mat, M.M. 2002. Value Management, Principles and application. Petaling. Jaya, Prentice Hall. Che Mat, M.M. 2006. Perceptions and implementation of Value Management in Singaporean Construction Industry, Faculty of Architecture, Planning and surveying. Sham Alam, University Technology, MARA, PHD. Grahame A. 2001. ‘The Private Finance Initiative (PFI). House of Commons Library, Economic Policy and Statistics Section, Research Paper 01/117, December, p.10. Jorion, Philippe (2006). Value at Risk: The New Benchmark for Managing Financial Risk (3rd ed.). Patrinos, H.A., and S. Sosale. 2007. Mobilising the Private sector for Public Education: A view from the Trenches. Direction in Development: Human Development. Washington DC: World Bank. Male, S. Kelly, J,Gronqvist M, and Graham D ,.2007 .Managing value as a management style for projects. International Journal of Project Management. PricewaterHouseCoopers.2008. “The value of PFI: Hanging in the balance Sheet? Public Sector Research Center. http://www.ukmediacentre.pwc.com/content/Details.asp?ReleaselD=2617&newsArealD=2 Sadka, E.2006. “Public-Private Partnerships: A public Economic Perspective.” IMF Working Paper WP/06/77.Washington, DC. TW Yu, Qiping S., Kelly,J., Kirsty H,.2007 .An empirical study of the variables affecting construction project .International Journal of Project Management http://www.streetdirectory.com/travel_guide/21647/corporate_matters/value_management_in_construction.html http://www.treasury.wa.gov.au/cms/uploadedFiles/10_samf_vmg_082005.pdf http://www.constructingexcellence.org.uk/pdf/fact_sheet/value.pdf http://www.gvm.net.au/value_management.htm Read More