Value creation

Published: 5-Apr-2004

Geoff Hayes of The Wates Group explains the concept of 'value creation' and the significance to the construction process for the client

The idea of 'value' is one that is gaining increased credence across the construction industry – the value that a building provides to the business or businesses it shelters. The Royal Academy of Engineering came up with the 1:5:200 ratio, which essentially purported that, by taking a long-term view and seeking to add value over minimising cost, buildings can become free to build and use. Quite a claim. However, the idea at the heart of this is important. To say that a building should be appropriate for its use is to state the obvious, but to go beyond that and say that a building should add value is really nothing more than good sense. However, in the construction process, too often the idea of adding value to a business through a building gets buried and immediate, building issues take precedence. Wates created its value creation team in 1999, with the brief to maximise the value of a project by assisting in its development. The view taken was that value creation is not about fixing building issues per se. The building comes second to the actual return on investment and in an ideal world it should also provide value. To put it simply, Wates' value creation team has the view that a building can and should be a means of achieving a client's business goals. The process is a structured approach, ensuring the transfer and sharing of knowledge; that 'buildability' and business issues are addressed; that risks are highlighted and managed; that the project's potential is maximised and the supply chain is involved. Ensuring that all of this happens is vital to the success (and spirit) of value creation.

Value creation process As one would expect, value creation involves a process that encompasses a number of carefully defined steps: 1. Value drivers are established 2. The value creation team is formed 3. A brainstorming meeting is held 4. Ideas are categorised/graded 5. Champions are allocated 6. The value creation team ideas are developed 7. The value creation ideas are quantified.

Value drivers One person's idea of value will be different to the next and if a value creation exercise is to be successful, it is vital to understand the client's business issues. Establishing the client's value drivers is the first step in the process, because they form the basis and impetus for the whole exercise. Value drivers are extremely varied and will very much depend upon the nature of the client's business. For example, with a hospital, ultimately the value driver of its management should be to make people healthy, faster. If that happens, beds are made available sooner and the cost per patient is less (with obvious, accompanying, financial benefits). But if, in the process of construction, a certain type of air conditioning was chosen over another for cost reasons and this adversely affected the quality of air within the building, it may also result in a negative effect upon the health of those populating the wards. This is an extremely simplistic example but it does demonstrate that if, during the construction process, you lose focus of the business issues at stake, the ultimate value the building presents to the client is lessened and the cost to their business increases. Another extremely important value driver for any business is the issue of staff retention. It is acknowledged that a company's people are one of its most valuable assets but this would not necessarily be a factor for consideration in the construction process. However, within industries such as the pharmaceutical industry or the context of an R&D environment, there are employees that represent significant intellectual capital to the organisation. To replace these 'geniuses' would be extremely costly and difficult. If a building does not address issues that are important to these people, they may be lost at a much greater cost to the company. For the typical cleanroom client it is also imperative that projects are delivered on time, to the right quality, and of course, safely. Therefore value drivers could include complying with cGMP; on time, no defects delivery of the project; safety or business continuity. When you think that a pharmaceutical client should be making millions of pounds a week on a production facility, late delivery on the construction has extremely serious consequences. In fact, Wates has worked on live facilities before and in instances such as this the successful continuation of the client's business was utterly paramount and would have been a key value driver. 'Right first time' construction is in fact a key value driver to the cleanroom client. There is a significant cost to the client in allowing a contractor into a cleanroom environment to correct building deficiencies. The cleanroom has to be decommissioned to allow the contractor in and when the corrective work is finished the room has to be cleaned, sometimes sterilised and recommissioned. This process could take several days. Ultimately, the importance of value drivers is that they are relevant to the client's business issues and a building (whatever its purpose and function) should ultimately support the activity that takes place within it. Having established the value drivers it is then possible to identify the appropriate team.

Value creation team The value creation team consists of a core of people from different disciplines who form the nucleus of the team. Because the value creation process is seen as a partnership, all members or partners need to contribute to the process if the goal of achieving real added value is to be reached. Having this solid core ensures that knowledge is passed from project to project and continuous improvement occurs. (With this in mind, it is also important to have members in the team who will retain ownership throughout the project's life). Members will come from the contractor, (including architects or designers; commercial managers, structural engineers and planners), from the client as well as individuals from the supply chain and other possible specialists, such as supply chain experts, archaeological consultants, risk managers, or temporary works engineers.

Brainstorming meetings With the team chosen, they then attend a number of brainstorming meetings. A trained facilitator normally holds these meetings and it is important at these meetings to encourage all to contribute, as it is often the wild idea that is developed into a solution that generates real added value. For the cleanroom client the selection of an appropriate (or different) cleanroom panelling system might be an idea that is thrown into the pot. There are systems available that will allow the cleanroom envelope to be made available for equipment installation and for IQ validation tests to proceed while the external envelope construction is being finished. This overlap in construction programme would save significant time, which would translate into extra production and extra profits for the client.

Categorise ideas Suggestions are then ranked to indicate which ideas have the greatest potential. This enables resources to be allocated to ensure that generating the idea does not cost more than the value obtained. At the end of this exercise a value list of ideas is produced with the idea having the greatest potential placed at the top of the list. At this stage, some ideas may be rejected for various reasons and this can happen even in the final idea development stage that takes place further on in the process. This list of ideas is then categorised into the following: 1. Risk issues 2. Design or technical issues 3. Management issues 4. Strategic or business issues

Allocate champions Once the ideas have been categorised it is possible to establish which members of the value creation team have the relevant experience to develop each idea. Champions are then assigned to develop each idea.

Develop and quantify ideas Ideas are then developed and quantified. This enables the complete package to be put to the client with regard to the potential and/or added value. More often than not, the value creation exercise involves making small adjustments rather than dramatic changes to the construction process. However, the change of mindset involved in recognising the importance of adding value to a project, rather than cutting costs, benefits the client in many ways. Looking at projects through the client's eyes has also effectively enabled Wates to become part of their business rather than part of the supply chain and by acting in partnership value can truly be added to the construction process.

Wates Group T: +44 (0)1372 861000

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