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Best Value Procurement and Risk Management Scenter Dean T. Kashiwagi, PhD

NEVI

Director, Professor Performance Based Studies Research Group CIB W117 Coordinator SKEMA Business School Fulbright Scholar Pbsrg.com PBSRG GLOBAL


Natural Laws identify the future outcome

Initial conditions

Final conditions

Laws

Laws

Time

(control, impact, and influence) 2


Management, direction and control is ineffective in marriage, construction projects and other time related events

Initial conditions

Final conditions

Laws

Laws

Time

(control, impact, and influence) 3


Revelation to risk managers Use of management, direction and control to minimize risk increases risk

4


Early 2000s “Collusion Years� III. Negotiated-Bid

II. Value Based (vendor controlled)

Minimized competition Long term Relationship based Vendor selected based on performance

Buyer selects based on price and performance Vendor uses schedule, risk management, and quality control to track deviations Buyer practices quality assurance Expertise and professionalism

Performance

High

Low

IV. Unstable Market

I. Price Based (owner controlled) Wrong person talking Management, direction, and control No transparency Win-lose Low vendor profit

Perceived Competition

High


Industry Structure Lessons Learned • Owner controlled is source of problems • Vendor will determine scope and write contract • Vendor will have risk mitigation • Owner will use vendor documentation • Performance measurements on vendor and elements not under control • Detailed planning [basis of contract] • Deviations documented

6


Problem with Priced Based Systems Owners

Contractors

“The lowest possible quality that I want”

“The highest possible value that you will get”

High

High

Maximum Minimum Low

Low


Traditional Contractor Delivery Requirement Model

Level of Value/Performance which includes price

High

Low

Vendor 1

Vendor 2

Requirement Vendor 3

Vendor 4


Managing the experts is an unsustainable model Customers Outsourcing Owner Partnering Owner Price Based

Vendor X Highly Trained

Medium Trained

Minimal Experience


1935 (77) www.pbsrg.com


1992(19)

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1994 (17)

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Additions in 2012

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Technical Details

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Children's Future Children

Children’s Future Jobs

Children’s Future Families

Children

Myself and my Wife

Parents

Simplicity/Dominant Information

We Are Supply Chains 30K Foot Level


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Dog Whisperer

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Control and Change Vs. Cannot Control

• • • •

More likely to believe in chance More likely to think that they are being controlled by others More likely to attempt to controls others More likely to not adequately preplan due to perception of too many variations • More likely to blames others if something goes wrong

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External Influence vs. No External Influence Influence

No Influence

• • • • • • • •

Accountability Logic Controls SELF Preplanning Leadership Level Headed Minimizes decision making Efficiency

• • • • • • •

Chance Cam be controlled by others Attempts to control others Blames others Maximizes decision making Management Expectations


If we have to do this, we have already lost!!!!!!!!!

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There is something wrong with the traditional risk management model….. No one knows how bad the problem really is…..

Entire system is broken…. Requires more management…. Performance/value is decreasing….

Relationships are more important than results….


And no one quite knows what it is‌..


“Project Management Code” The movement of risk..... NO

YES

Is It Working?

Don’t Mess With It!

YES

Did You Mess With It?

YOU IDIOT! NO

Anyone Else Knows?

YES

You’re SCREWED!

NO NO

Hide It

Can You Blame Someone Else? Yes

NO PROBLEM!

YES

Will it Blow Up In Your Hands?

NO

Look The Other Way


Traditional Risk Model

V

C

B

Buyer Controls Vendor Through Contract


New Risk Model

V

C

B

Vendor Manages/Minimizes Risk With Contract


Who would have believed? • Dutch would go looking for the answer in America? • The Rijkswaterstaat would become visionary? • Government owners would adopt a process that is visionary in concept? • Procurement professionals would lead the charge to “release control” and allow the vendor to write the scope? 28


George Ang 2004 • George Ang, Rijksgebouwendienst (Dutch Government Building Agency), 2004 • Heard the Best Value PIPS message in Singapore and Tel Aviv in the previous three years


Early Visionary • Marc Gillissen, Heijmans, 2005


Dutch Visionaries • Rijkswaterstaat – Carlita Vis – Wiebe Witteveen

• Scenter/Delft University – Sicco Santema – Jeroen van de Rijt

© 2011, Arizona State University, PBSRG


Dutch Implementation

• • •

Over-management of vendors Procurement and execution takes too long [12 years] Infrastructure repair is critically needed [drivers spend 1-2 hours on road going and coming]

16 project, 6 awards, $1B test of best value PIPS Goal is to finish 10 projects in 3 years 32

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Results • Program results: 15 projects finished (expectation was 10) • Delivery time of projects accelerated by 25% • Transaction costs and time reduced by 50-60% for both vendors and client • 95% of deviations were caused by Rijkswaterstaat or external [not vendor caused] • NEVI , Dutch Professional Procurement Group [third largest in the world] adopts Best Value PIPS approach • Now being used on complex projects and organizational issues 33

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Alexander Arsath Ro'is and NEVI

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Nevi excites procurement managers and owners

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• NIMA: Norwegian Purchasing and Supply Association • Statkraft: largest renewable energy provider in Europe • Introduction of Best Value PIPS 24 Sept 2012

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2012 RICS COBRA Conference • • • • •

Australia Chile Japan Ireland Africa (Congo)

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University of Alberta – Best Value Effort • Started implementation in October 2010 • 3 year strategic plan

University of Alberta Best Value Implementation Best Value Procurements (Completed)

3 projects

$52M

6 projects

$157M

• 1 Service, 1 Construction, 1 Design Best Value Procurements (In Progress)

• 1 Information Technology (IT), 3 Design, 1 Service, 1 Construction Management Program

Total Effort to Date Total Savings Client PM Satisfaction

9 projects $12M 9.9 (out of 10)

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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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Expanding Best Value in Canada Best Value Seminar – Edmonton, AB • 80 Attendees from 4 Provinces • 41 Organizations  18 Owners  7 Designers  14 Contractors  2 Service Vendors 4 Potential New Research Partners Upcoming Efforts • W3 Conference in Vancouver – Sept 2012 • Modular & Off-Site Construction Summit in Edmonton – Nov 2012 • Best Value Seminar in Halifax, NS – Dec 2012

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Client Causes Most Project Deviations

that they do not control  PIPS forces client and buyer to be more

accountable

ISD 287

University of Minnesota

identify and mitigate risk

Hennepin County

 PIPS allows vendors to

Rochester Public Schools

transparency

City of Rochester

 PIPS creates

City of Roseville

Best Value PIPS records sources of all deviations

1 $2.2 100% N/A

6 $37.8 83% 1%

16 $12.2 44% 20%

2 $0.8 50% -8%

3 $29.5 33% 12%

318 $198.4 45% 6%

General Overview Total Number of Projects Total Awarded Cost ($M) Projects where BV lowest cost Percent Awarded Below Budget

Cost Increases Overall Change Order Rate

0.0%

0.5%

2.6%

0.0%

0.1%

15.6%

Client

0.0%

0.5%

2.1%

0.0%

0.0%

13.6%

Designer Contractor

0.0% 0.0%

0.1% -0.1%

0.4% 0.0%

0.0% 0.0%

0.1% 0.0%

0.4% 0.0%

Unforeseen

0.0%

0.0%

0.1%

0.0%

0.0%

0.8%

0.0% 0.0% 0.0% 0.0% 0.0%

23.2% 0.0% 0.0% 19.9% 3.4%

5.1% 1.8% 2.5% 0.0% 0.8%

2.5% 2.5% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0% 0.0%

53.6% 24.5% 4.8% 2.6% 4.6%

Schedule Increases Overall Delay Rate Client Designer Contractor Unforeseen


State of Oklahoma Best Value Projects Performance

Oklahoma Best Value Project Information # of Best-Value Procurements Estimated Value of Best-Value Procurements Protest Success Rate (# of protest won / # of protests) # of Different Services % Where Identified Best-Value was Lowest Cost Project Performance # of Completed Projects Average Customer Satisfaction Cost Savings % On-time % On-budget

20 $100M 3/3 13 71%

8 9.5 (out of 10) $29M 100% 100%


BV Research in Malaysia • Developing country – Experts – Motivates others to be experts – BV PIPS structure helps the inexperienced to see into the future without changing their human tendencies

• Changing from management, direction and control to using “expertise” • Best value is the “best available” 43


Using “Out of the Box” Concepts “Information Measurement Theory” see Kashiwagi on “youtube.com”

• Minimize management, direction and control • Minimize decision making • Minimize meetings and communication • Vendors should control projects • Contract scope written by vendors • “win-win” • No negotiations!!!!!!! • Buyer has intent, doesn’t need to know final product

• Experts can see into the future • Experts have no risk • Experts identify and mitigate risk that they do not control • Risk is in the mind of the individual • Risk cannot be transferred • Risk is caused by the inability to see into the future • Contract not used to control • Performance metrics on the risk that the vendor does not control 44

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Traditional Risk Model • • • • • • • • •

Using standards and requirements Using direction and control Increased communications Discussing sharing of risk Prequalification Decision making Client use of technical expertise in selection Leveling the playing field Transferring risk 45


Technical Details

Inspectors

Users

Vendors / Manufacturers

Contracting

Designer

Planning / Programming

Simplicity/Dominant Information

Construction Supply Chain 30K Foot Level


Solution Simple Obvious [dominant] Change Lead to win-win [higher profit and lower cost] • Accurate perception of reality • “Easy to do” • • • •

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Observation and Deductive Logic • Owner/buyer control lead to the degradation of industry expertise and quality • Contracts have little value in ensuring success • Management, direction and control used to minimize risk increases risk • Experts have no risk • Expert vendors should write their own scope of work • The buyer/client causes over 90% of project deviations and risk • Passing of information should be minimized

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Traditional Leadership Model: Abusive

Influence

• Focus on changing people • Followers are the constraint • Requires lots of resources • Relieves management from accountability • Win-lose; abuse; negative results

Reactive

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Efficient Leadership Model: No Control • Alignment • Requires Understanding

Proactive

• Leader is the constraint • Focus is on changing the system • Efficient 50


Paradigm Shift • Different thinking • Do not use “management, direction and control” • Minimize communication • Dominant information is “metrics” • Forces the improvement in vendor skills, planning increased profit

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Inexperienced vs. Experienced Us

Me & Them

Risks

Risks

Control

Don’t Control

Control

Don’t Control


PBSRG Best Value Research (Performance Based Studies Research Group)

“Win-win” , common sense, logical • 1992-present, $12M research (20 year research program, 1600+ tests) • Delivered $4.4 Billion Services • 100% increase in Vendor profit • Minimize up to 90% of client/buyer transactions • 98% Customer satisfaction and LT 1% vendor deviations • Testing: Finland, Netherlands, Canada, Malaysia, Africa and U.S. • ASU – investments of over $100M over 10 years due to “change in paradigm”


Lessons Learned • BV PIPS is a “business approach” based on efficiency, expertise and profit • Client use of BV PIPS reduces cost dramatically • Vendors can apply it on every project even if client does not fully understand • Constraint: education needed, not a one day turn around • Vendors need education as well as client • Need more certified trainers and BV experts!!!!!!!!!!!!!!! 54


Vendor and Owner Actions Identify most visionary people in organization Give them freedom Use a certified best value expert Use the BV system to plan and measure the success of the plan • Create transparency with the simple measurements • Don’t expect others to “believe” or “trust” you • • • •

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Performance Information Procurement System (details documented in manuals at pbsrg.com and ksm-inc.com) Vendor is an Expert

SELECTION

Dominant Simple Differential (non-technical performance measurements)

Vendor is an Expert

CLARIFICATION/ PRE-AWARD

MANAGEMENT BY RISK MINIMIZATION

BV proposal must be acceptable to user Clarification Technical review Detailed project schedule Resource & Man- power schedule

Risk Management Quality Control Quality Assurance

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Dominant Information: Measurements

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Project Capability Submittal Claim: best project manager in company, does only clean room projects, best in the Midwest area Verifiable performance metrics: 1.last 10 years 2.20 clean room projects 3.scope $50M 4.customer satisfaction 9.5 5.cost deviation .1% 6.time deviation 1%


Challenges • Humans and human nature • Planning and Measuring • Education • Paradigm shift [silo to supply chain]

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BV Certification Board

Sicco Santema

Jeroen van de Rijt

Guido Koreman

Carlita Vis

Anneke van Abeelen

Wiebe Witteveen

Jannie Koster


BV Approach Development • Risk Managers/Project Management under direction of CROW/RISNET take Risk Management into the next age

• Annual training for “Trainers” Jan 22-26, 2013 – Las Vegas – Visionaries

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It is time for the risk and project managers take best value and risk management into the next generation •Netherlands •Canada •Malaysia •United States •Africa •Finland

•Proven results •Dominant results •20 years, 1000+ tests •98% customer satisfaction •Win-win


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