Transcript Slide 1

Best Value Business Model
Kenneth T. Sullivan, PhD, MBA
Arizona State University
PBSRG’s Research Results
• Worldwide as a leader in Best-Value
Systems
 18 Years
 210+ Publications
 550+ Presentations
 1500+ Projects
 $5.7 Billion Services & Construction
 98% Customer Satisfaction
 Various Awards (PMI, NIGP, IFMA, COAA, IPMA)
 Clients: Federal, State, Local, School Districts, Private
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Tested Application Areas
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Construction & Design/Engineering
– Large GC, infrastructure, municipal, laboratory, education, hospital, financial,
large specialty, etc.
– Small GC, renovation, repair, maintenance, roofing, demolition, etc.
– DBB, CMAR, DB, IDIQ, JOC, Low Bid, IPD
– Development, supply chain
IT
– Networking, Data Centers, Software (COTS, custom), ERP, etc.
Facility Services
– Maintenance, industrial moving, custodial, waste management, services, etc.
Business, Municipal, & University Services
– Dining, Document Management, Multi-Media Rights, Fitness Equipment, Online
Education, Bookstores, Material Recycling, Furniture, etc.
Health Insurance, Medical Services
Manufacturing
International Efforts & Partners
University of Alberta
United States 65 clients
6+ years
Infrastructure
€1.8B plus €1B
Tongji University
Brunsfield
Complete Supply Chain
Fulbright Scholarship- RMIT
University of Botswana Teaching IMT
PIPS tests
PBSRG platform
University of Alberta – Best Value Performance
Project
Value
Cost
Savings
Schedule
Impacts
Satisfaction /
Performance
1. Custodial Services
(campus-wide)
$18M
$2M
10%
5.5%
performance
Improvement
10 (out of 10)
2. DB Construction
(Research Facility)
$30M
$8-12M
25%
14-18 months
9.7 (out of 10)
3. Design Services
(Building Redevelopment)
$4M
$500k
12%
0% Cost &
Schedule CO’s
$190k in Value
Added Options
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IT Industry Performance
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28% Projects are Successful
46% Projects are Unsuccessful
26% Projects Completely Failed / Cancelled
202% Average Cost Overrun
111% Average Schedule Overrun
COST
SCHEDULE
OVERRUN OVERRUN
Standish (1994)
189%
222%
Johnson/Standish (1996)
142%
131%
Standish (1998)
69%
79%
Standish (2000)
45%
63%
Johnson/Standish (2002)
43%
82%
Johnson/Standish (2004)
56%
84%
Organization W (2002)
113%
Organization X (2006)
1001%
Organization Y (2006)
67%
Average
202%
111%
GROUP
CRITERIA
1994
Percent Successful (OT/OB/HQ) 16%
Percent Unsatisfied 53%
Percent Failed/Cancelled 31%
1996
27%
33%
40%
1998
26%
46%
28%
2000
28%
49%
23%
2004
29%
53%
18%
2006
35%
46%
19%
2009 AVERAGE
32%
28%
44%
46%
24%
26%
The Standish Group, Chaos Reports - Collects case information on IT failures. Has studied over 70,000 projects in 15 years
(Eveleens and Verhoef, 2010)
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“The Greatest Risk that I
always face, is how to
accomplish all of the things
that our sales team promised
we could do.”
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Best-Value Concepts
What Percent of RFP’s
Are 100% Accurate?
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Who Should Know
More About
Performing/Installing
the Services Required?
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It Is More Important For The
Vendor To Know What To Do
Than It Is For Client To Know
What The Vendor Should Do
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“Experts” vs. “Non-Experts”
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Has more experience
Has a higher success rate
Needs very detailed instructions on how to do the task
Needs others to tell them what to do
Requires minimal management of their services
Able to complete the project/task faster
Can see the project from start to end
Can clearly layout a plan of how they will accomplish the project/task
Able to provide simple/understandable explanations of the options
Able to see all the potential risks before they occur
Proactive
Are more efficient
Are more expensive
Are always looking out for everyone’s best-interest
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Impact of Minimum
Requirements
High
Low
High
Low
Vendor 1
Vendor 2
Vendor 1
Vendor 2
Vendor 3
Vendor 4
Vendor 3
Vendor 4
Low
High
Low
High
Potential Problems
Owners
Vendors
“The lowest possible quality
that I want”
“The highest possible value
that you will get”
High
High
Maximum
Minimum
Low
Low
We Know: Vendors are Not a
Commodity
…but how do we
know who to
select?
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Best Value Objectives
• Minimize cost, increase efficiency
– Transfer Risk
• Outsource to experts (not just transfer risk...but minimize risk)
• Have a “Supply Chain” mentality
• Minimize risk of non-performance
– Complete to the expectations w/ no changes
– High Client satisfaction / No Finger pointing
• Minimize the need for client management, direction, and decision
making.
• In return, the vendors can maximize profit by being more efficient
What we have observed:
Best Practice for Risk Mitigation and Performance Optimization
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Best ways to mitigate risk and have success on a contract or project
– Compete & Identify best value experts
• Ability to identify and minimize risks differentiates expertise
– Use the expert team to set a plan that considers risks & constraints
• Experts optimize plan within constraints (ID if anything not reality)
• Work as a team to define roles and responsibilities
• Transfer the risks and control to the experts to manage the project
– Hire/select the experts
– Let the experts do their work and report weekly on any deviations to
the plan
Best Value Model
Best Value Model
Best Value Model
Selection
• Hiring or selecting who will create the plan and
execute it
• The quality of the plan and its execution is
directly linked to the individuals creating it and
doing the work
– Quality of Plan = Minimization of Risk & Cost
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What are we trying to accomplish?
Question:
If Purchasing wants to buy a “green
circle”, in which scenario is hiring the
right “green circle” easiest to justify?
Scenario 1
Scenario 2
BV Process
Filter 1
Current
Capability
Low
Filter 4
Filter 3
Filter 5
Weekly
Reporting &
Post-Rating
Cost
Interview
Prioritization
PreKey Personnel
(Identify Reasonableness & Planning &
Best Value) Dominance Check Risk Min
Blind Rating
Risk Assessment
Project Capability
Value Added
Financials
PPI
Award
Quality of Vendors
High
Filter 2
Measurement of Risk & Performance
During the Contract
Time
Selection – Value Based Proposition
Selection dictates the maximum capacity to achieve a quality plan
Procurement methodologies to identify expertise:
• Risk and Value focused RFP Process
• Simple, brief, anonymous evaluation process
• Evaluation of key project personnel
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Proven Past Performance Information
Ability to identify, prioritize, and minimize risk
Interviews of project delivery personnel
Focus on specific project needs
Minimize marketing information
• Cost/Financial
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Example of Solutions
Risk: Design of Heating/Cooling System
Type: Project Capability
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Plan 1
– We will use our 20 years of experience in working with mechanical
systems to minimize the risk of the heating and cooling system design.
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Plan 2
– We have identified the design of the heat/cooling system as a risk. It has
not been used before in the area. Will ensure that the system
performance and installation is verified in the pre-award period.
– We have bid using best rated mechanical contractor in the area (rated at
9.8 out of 10.0, next best rated 9.1)
– Mechanical contractor identified modifications to the design to improve
output and sustainability of the system with the following impacts
(mechanical system cost minimized by 15% - see VA#1)
– Mechanical system will be provided by one manufacturer, and will be
commissioned by the manufacturer, contractor, and general contractor,
who will take full responsibility of commissioning the system
Example of Solutions
Risk: Availability of Online Self-Service Portal for Online Housing Applications
Type: Project Capability
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Plan 1
– Vendor will evaluate existing Owner software platforms to ensure
integration and availability of the Online Self-Service Solution
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Plan 2
– Online Self-Service Solution Not Available – Web coding errors during
implementation or ongoing support and updates render online
student solution unusable.
– Vendor provides a Portal Framework for all online self-service
solutions. This Portal does not require any 3rd part web development
software or web development expertise by the Owner.
– This approach minimizes risk of error and downtime that would
normally occur if the Owner was required to use html templates,
dedicate a web developer, or have to modify html code directly.
– The Portal Framework has been used on three previous projects with
zero downtime events.
Example of Solutions
Risk: Noise from Demolition
Type: Project Capability
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Plan 1
– We will work with the user to minimize the impact of noise from
demolition.
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Plan 2
– We have planned to demolition during off hours and weekends. This
will have a slight impact on our cost (less than 1%), but the impact
to customer satisfaction justifies this.
– We will also install rubber sheets on the floors to diminish noise and
vibrations.
– Both solutions can be performed within your budget.
– Both solutions have been used on multiple previous projects w/ high
levels of customer satisfaction (9.4/10).
Example of Solutions
Risk: Loss of Radio Flagship in Major Market
Type: Risk Assessment
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Plan 1
– We will work very hard to maintain excellent affiliate relationships. If we
lose a radio station (e.g. it changes its format) we will move quickly to
replace the lost station. If we cannot quickly replace a flagship station, we
can be very creative and could even consider purchasing all local inventory
from a new flagship station.
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Plan 2
– In the past 10 yrs, on over 50 accounts, 7 radio stations format changes
have occurred. The following solution is optimal.
– We own and will maintain two radio contracts covering the area, where
signals can be switched if required. The flagship station will be the station
with the stronger signal and greater coverage.
– If a station is lost we will have a equal replacement within 2 months. If
within two months a replacement is not contracted we will purchase
inventory from another station or discount the cost of an inventory
purchase and add it to our payments to the client.
Example of Solutions
Risk: Getting water to the site
Type: Risk Assessment
• Plan 1
– Coordination with [water company] is critical. We will
coordinate and plan with [water company] as soon as the
award is made to make sure that we get water to the site to
irrigate the fields.
• Plan 2
– We will coordinate and schedule the water with [water
company]. However, based on past experience there is a high
risk they will not meet the schedule (the water company does
not meet schedule over 90% of the time).
– We will have temporary waterlines setup and ready to connect
to the nearby fire hydrant to irrigate until [water company] is
ready.
– We will also have water trucks on-site if there is problems with
connecting the lines.
Example of Solutions
Risk: Safe Food Supply/Food Born Illness
Type: Risk Assessment
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Plan 1
– Our internal food safety standards are recognized as being far more
stringent than government regulatory requirements. In the unlikely
event of a food-borne illness, our strong relationships with local, state,
and national health agencies will ensure and 24-hour response.
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Plan 2
– If a food safety issue arises, vendor will effectively minimize the client’s
risk of exposure by:
– 1) Vendor’s system will issue a safety alert and related directives to
10,000+ units and all ASU email accounts in less than 15 minutes.
– 2) The vendor will place a lock within in its foodservices purchasing
system on any food with risk so it cannot be purchased,
– 3) The vendor will remove all potentially harmful products within the
first hour of notice.
– 4) The vendor will identify as many purchasers as possible through
credit receipt names and the client system to notify them individually.
Warnings will be placed around campus within two hours of discovery.
Value Add Plan
1. Provide ways to keep project at or below budget
– Modifications to requirements to meet budget
– Specific cost ($) savings
– Supported by metrics (high performance)
2. Increase customer satisfaction
3. Increase performance
Scope is Above Budget
Owner’s Scope
(-$ value add)
Owner’s Budget ($$)
Intent Doesn’t Match Scope
Owner’s Budget ($$)
Owner’s Intent
(+$ value add)
Owner’s Scope
Example: Value Added Items
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Instead of purchasing “Named Licenses”, the Agency may
want to consider purchasing “Concurrent Licenses”. In a
“Named Licensing” model, the software designates a
license per user and only that particular named user can
use/access the license. If that named user is in meetings,
on vacation, or not using the system, the license is not
utilized. In a “Concurrent Licensing” model, the server
keeps track of the total number of licenses and loans the
licenses to users as they log in. If a user is inactive, the
server releases the license and allocates the license to the
next user. The advantage is that the Agency is not
required to purchase licenses that are not being used,
which can result in approximately 25% savings in cost.
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Example: Value Added Items
• Reroofing this building will not stop all water leaks. The majority of
the leaks are caused by cracks in the parapet walls, broken/missing
glass, and poor caulking. For an additional $10K and 3 weeks in
schedule we can replace and repair all of these items.
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Best Value Interviews:
Identifying Expertise
1.
Why were you selected for this project?
2.
How many similar projects have you worked on? Individually and as a Team?
3.
Describe a similar project you have developed/worked on to the current project.
4.
What is different about this project from other projects that you have worked for?
5.
Draw out the process for this project by major milestone activities.
1. Identify, prioritize, and how you will minimize the risks of this project.
2. What risks don’t you control? How will you minimize those risks?
3. What do you need from the client and when do you need it?
6.
How are you going to measure your performance during the project?
7.
What value do you bring to the project in terms of differences based on dollars,
quality, expertise, or time?
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Best Value Model
How to Clarify a Plan
What is it / Why is it important?
• Period of time allotted before work begins to the entity doing the work:
– Present their project/service plan
– Set a plan for its delivery / clarify that their plan is accurate
– Identify the risks and issues that could cause the plan to deviate
• Identify what you don’t know and when you will know it and
how the plan could change based upon what you discover
• Set plans to minimize those risks from occurring
• Address all the concerns and risks of the client
How to Clarify a Plan
What is it / Why is it important?
• Period of time allotted before work begins to the entity doing the work:
– Know how they are being successful and adding value (measurement)
• What metrics you will use and how you will report them
• What is the current baseline condition we are comparing against
– Identify what you need from the client and have a plan for getting it
– Have completely aligned expectations between all parties so everyone
knows what is going to transpire and what they are supposed to do
– Coordinate the schedule
End
Start
Clarification / Preplanning Period
Very High Level
High Level
Technical Level
Cost Verification
Project Work Plan
Performance Reports / Metrics
Included in Proposal
Client Risks/Concerns
Additional Documentation
Excluded from
Proposal
PA Schedule
Technical Details
Uncontrollable Risks
Project Schedule
Response to all risks
High level demos
Roles and
Responsibilities
PA Document
Major Assumptions
Major Client
Risks/Concerns
Value Added Ideas
Coordination
Review Functionality
Clarification / Preplanning Period
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Importance of Pre Planning
- University of Alberta
• Bad news is really good news if found out during PrePlanning (Pre-Award / Clarification period)
• Execute the project in advance of actually executing the project
• Ex: DB Balmoral Facility – Cyclotron
• Highly sensitive schedule & budget
• Formal pre-planning enabled the team to optimize the facility
and minimize surprises that could have driven other changes.
Importance of Pre-Award
Pre Award Impact – Major Risks Identified & Mitigated
• Actual Building dimensions
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Field review revealed significant square footage difference from bridging documents
DB proposed floor layouts to incorporate additional space & minimize cost impact
• Cyclotron Vault Design
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Wall thickness, foundations, piling, shielding
DB proposal minimized schedule impact
• Existing structure concerns
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Field review revealed cracking on perimeter concrete beams
DB proposed to address structural issues during roof deck replacement
Best Value Model
Measured Environment
• Must be simple and dominant
• Must be for the purposes of positive
accountability
• Transparency and openness
• Measuring against a plan (or expectation created
by the individual/team doing the work)
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Weekly Risk Report
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Excel Spreadsheet that tracks only unforeseen risks on a project
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Client will setup and send to vendor once Award/NTP issued
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The final project rating will be impacted by the accuracy and timely submittal
of the WRR
Measurement of Deviation from the Expectation
Management by Risk Minimization
Unforeseen Risks
RISK MANAGEMENT PLAN
• Risk
• Risk Minimization
• Schedule
METRICS
• Time linked
• Financial
• Operational/Client Satisfac.
• Environmental
WEEKLY REPORT
• Risk
• Unforeseen Risks
PERFORMANCE SUMMARY
• Vendor Performance
• Client Performance
• Individual Performance
• Project Performance
Post Project Rating
Filter 1
Filter 2
Past
Performance
Information
Current
Capability
Filter 3
Filter 4
Filter 5
Filter 6
Interview
Prioritization
Cost
PreKey Personnel
(Identify Reasonableness & Planning &
Best Value) Dominance Check Risk Min
Low
Award
Quality of Vendors
High
Measurement of Risk & Performance
During the Contract
Time
Update PPI
Project Management Model
Initial
conditions
C1
Final
conditions
M3
M2
Laws
Laws
Time
 C1: Client Expectations based decisions and various factors –
may or may not be “realistic”
 M1: Measured expert plan that more accurately describe the
M1
initial conditions replaces C1 – converts to a predictive
contract
 M2: RMP/WRR measures deviation & performance to plan
 M3: Final performance measurement
What is different
• Value focus, simple, transparent, risk-based, measured, expertisedriven
• Leverage experience of industry experts to minimize risks and
increase efficiency
• Select and give advantage to high performers in the procurement
process, consider value (cost & ability) (the capability of the key
PEOPLE you hire will correlate more to project success than any
other factor)
• Proper preplanning BEFORE contract is signed
• Risk-based, value-based contracting
• Consistent measurement of risk and performance with accountability
loops
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Best Value One and a
Half Day Seminar
December 5-6, 2012
What you will learn
Halifax, Nova Scotia
 How to minimize cost
 Increase Efficiency in your Organization
 Best Value process details
 Risk management, pre-planning & performance measurement
 Workshops, examples, etc.
 CEUs for all professions and designations
 Early bird & group rates available
Don’t Delay Register Today!
For more details visit www.pbsrg.com/seminars
us at:
Comments / Questions
WWW.PBSRG.COM
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