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Best Value Project ModelBest Value Project Model
www.pbsrg.com
Kenneth T. Sullivan Kenneth T. Sullivan PhD, MBAPhD, MBA
Performance Based Studies Research GroupPerformance Based Studies Research GroupSchool of Sustainable Engineering and the Built EnvironmentSchool of Sustainable Engineering and the Built Environment
Ira A. Fulton Schools of EngineeringIra A. Fulton Schools of EngineeringArizona State UniversityArizona State University
W W W . P B S R G . C O M
What are we trying to What are we trying to accomplish?accomplish?
Scenario 1 Scenario 2
Question:
If Purchasing wants to buy a “green circle”, in which scenario is hiring the right “green circle” easiest to justify?
W W W . P B S R G . C O M 3
Who we are: PBSRG OverviewWho we are: PBSRG Overview
Established in 1994 to assist clients in improving the quality of construction.
Research has grown into: Information Measurement Theory (IMT): measuring of current conditions to
predict future outcomes Clients implementation of Best-Value Performance Information Procurement
System (PIPS) Organizational Transformation Models New project management model (alignment/leadership instead of
management/influence) PIRMS New best value model New information environment (minimize access and flow of information) Testing of concepts outside of construction Risk management by using deductive logic, minimization of decision making
W W W . P B S R G . C O M
Worldwide as a leader in Best-Value Systems Conducting research since 1994 168 Publications 800+ Projects $4.6 Billion Services & Construction 5% Increase in Vendor profit 98% On-time, On-Budget, Customer satisfaction PMI, NIGP, IFMA, IPMA Tests in Netherlands, Botswana/Africa, Malaysia ASU – investments of over $100M due to BV
PBSRG’s Research Results(Performance Based Studies Research Group)
W W W . P B S R G . C O M 5
Research ClientsResearch Clients General Dynamics University of Minnesota General Services Administration (GSA) US Solar Heijmans, Netherlands Ministry of Transportation, Netherlands State of Alaska University of Alberta State of Oklahoma State of Idaho Idaho Transportation Department State of Oregon Arizona Parks and Recreation US Army Medical Command USAF Logistics Command University of New Mexico University of Idaho EVIT School District
Arizona State University US Corps of Engineers Arizona Public Service (APS) Salt River Project (SRP) Rochester Utility Boise State University Idaho State Lewis & Clark City of Phoenix, AZ City of Peoria, AZ City of Roseville, MN Olmstead County, MN Fann Environmental Brunsfield Fulbright Program /University of Botswana, Africa US Embassy, Bank of Botswana RMIT, Melbourne Australia Aramark, Canon, Qwest, ISP, HP, Chartwells, AP,
Pearson Various Contractors and Consultants
W W W . P B S R G . C O M 6
Working Commission 117 & JournalWorking Commission 117 & JournalInternational Efforts & PartnersInternational Efforts & Partners
5 years15 tests for infrastructureTwo major GCs
Fulbright ScholarUniversity of BotswanaPIPS tests RMIT
Teaching IMTPBSRG platform
Tongji University
BrunsfieldComplete Supply Chain
W W W . P B S R G . C O M 7
What makes our research message What makes our research message unusual…..unusual…..Simplistic
Uses logic
Efficiency: less decision making, less management, and better results (best value and high profits)
It is more important for the vendor who does the work to know what to do than it is for client’s representative to know what the vendor should do
Measurement
W W W . P B S R G . C O M 8
Industry StructureIndustry StructureHigh
High
I. Price-Based/Traditional
II. Value Based
IV. Unstable Market
III. Negotiated-Bid
Specifications, standards and qualification based
Management & Inspection
Reactive vendor
Best Value (Performance and price measurements)
Quality control
Competition
Pe
rfo
rman
ce
Low
Qualified vendors invited
Owner selects vendor
Negotiates with vendor
Vendor performs Vendor minimizes risk
Client minimizes risk
W W W . P B S R G . C O M 9
Vendor 1
Vendor 2
Vendor 3
Vendor 4
Perf
orm
an
ce
High
Low
Ris
k
High
Low
Perf
orm
an
ce
High
Low
Ris
k
High
Low
Impact of Minimum Standards Impact of Minimum Standards & Expectations& Expectations
Vendor 1Vendor 2Vendor 3Vendor 4
W W W . P B S R G . C O M
High
Low
Perf
orm
an
ce
Owners
“The lowest possible quality
that I want”
Vendors
“The highest possible value that you will get”
Minimum
Perception Problems with Perception Problems with Traditional SystemsTraditional Systems
High
Low
Perf
orm
an
ce
Maximum
W W W . P B S R G . C O M 11
BV ObjectivesBV Objectives Outsource to experts (not just transfer risk...but minimize risk)
Do not rely upon minimum requirements
Minimize risk of non-performance Complete to expectations Complete within cost Customer satisfaction / No complaints No Finger pointing
Minimize client management, direction, and decision making.
In return, the vendors can maximize profit by being more efficient
W W W . P B S R G . C O M 12
Best Value System: Best Value System: PIPS & PIRMSPIPS & PIRMS
Identification of PotentialBest-Value
Pre Planningand
Risk Management
Measurement ofDeviation from the
Expectation
PHASE 1PHASE 1 PHASE 2PHASE 2 PHASE 3PHASE 3
12
PIPS PIRMSPerformance Information
Procurement SystemPerformance Information Risk Management System
W W W . P B S R G . C O M 13
What is the model?What is the model?Identify the expert with as little effort as possible, using
measurement and differentialTransfer risk and control to the expert through preplanning
and risk minimization, focusing on risk that are not controlledHire the expertUse alignment, planning, & measurement in place of
management, control, and directionCreate a performance information environment to drive
accountability and changeProactive vs. Reactive Supply chain (us mentality)Logic vs. ExperiencePredictable vs. Chance
W W W . P B S R G . C O M 14
Filter 1Past
PerformanceInformation
Filter 2Current
Capability
Filter 4Prioritization
(Identify Best Value)
Filter 5Cost
Reasonableness
Filter 6Pre-
Planning & Risk Min
Time
Qua
lity
of V
endo
rs
Filter 3Interview
Key Personnel
Awar
d
High
Low
BV ProcessBV Process
Measurement of Risk & Performance During the Contract
W W W . P B S R G . C O M
Evaluation CriteriaEvaluation Criteria
Past Performance Information Firm Key Personnel
Scope Plan
Technical Risk Plan
Risk Assessment & Value Added Plan (RAVA)
Schedule
Cost
Interviews of Key Personnel
W W W . P B S R G . C O M 16
Survey FormSurvey Form
W W W . P B S R G . C O M 17
Calculating the Overall Calculating the Overall ScoreScore
W W W . P B S R G . C O M 18
Example of Solutions Example of Solutions Risk: Risk: Concrete EscalationConcrete EscalationType: Non-Technical (RAVA)Type: Non-Technical (RAVA)
Plan 1 The owner can be assured all risks associated with material escalations
will be eliminated because we offer the benefit of an experienced project team that includes the most detailed, prequalified and extensive list of subcontractors and suppliers, from around the world.
Plan 2 The cost of concrete has been rising drastically. Since this project
requires a substantial amount of concrete, cost is a risk. To minimize this risk, we have secured and signed a contract with a local concrete manufacturer to prevent any increase in cost during the duration of this project.
MARKETING INFORMATIONMARKETING INFORMATION
W W W . P B S R G . C O M 19
Example of Solutions Example of Solutions Risk: Risk: Loss of Radio Flagship in Major MarketLoss of Radio Flagship in Major MarketType: Non-Technical (RAVA) Type: Non-Technical (RAVA)
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.
Plan 2 We own and will maintain two radio contracts covering the Phoenix
area with were 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 ASU.
W W W . P B S R G . C O M 20
Plan 1 We will work with the user to minimize the impact of noise from
demolition.
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.
Example of SolutionsExample of SolutionsRisk: Risk: Noise from DemolitionNoise from Demolition
Type: Technical RiskType: Technical Risk
W W W . P B S R G . C O M 21
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.
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.
Example of Solutions Example of Solutions Risk: Risk: Safe Food Supply/Food Born IllnessSafe Food Supply/Food Born IllnessType: Non-Technical (RAVA)Type: Non-Technical (RAVA)
W W W . P B S R G . C O M 22
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. 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 Example of Solutions Risk: Risk: Getting water to the siteGetting water to the siteType: Technical RiskType: Technical Risk
W W W . P B S R G . C O M
Example of Value AddedExample of Value Added
W W W . P B S R G . C O M 24
Example: Value Added Example: Value Added ItemsItems
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 $20K and 3 weeks in schedule we can replace and repair all of these items.
W W W . P B S R G . C O M
VendorNo Summary Criteria Out of A B C1 RAVA Plan 10 5.91 7.09 6.312 Transition Milestone Schedule 10 5.17 6.96 6.333 Interview 25 15.77 16.78 13.534 Past Performance Information - Survey 10 9.80 9.99 9.825 Past Performance Information - #/Clients Raw # 5.67 3.00 4.426 Past Performance Information - Financial 10 7.02 8.67 6.907 Financial Rating 10 4.00 8.00 8.008 Financial Return - Commissions Raw $ 30,254,170$ 60,137,588$ 64,000,000$ 9 Capital Investment Plan Raw $ 14,750,000$ 20,525,000$ 12,340,000$
10 Equipment Replacement Reserve Raw $ 7,213,342$ 4,100,001$ 8,171,811$ Finanical Totals 52,217,512$ 84,762,589$ 84,511,811$
VendorNo Summary Criteria Weight/Out of A B C1 RAVA Plan 28 16.55 19.85 17.672 Transition Milestone Schedule 2 1.03 1.39 1.273 Interview 25 15.77 16.78 13.534 Past Performance Information - Survey 9 8.82 8.99 8.845 Past Performance Information - #/Clients 1 1.00 0.53 0.786 Past Performance Information - Financial 15 10.53 13.01 10.357 Financial Rating 5 2.00 4.00 4.008 Financial Return - Commissions 7 3.31 6.58 7.009 Capital Investment Plan 6 4.31 6.00 3.61
10 Equipment Replacement Reserve 2 1.77 1.00 2.00100 65.09 78.13 69.04
Assessment: based on actuals
W W W . P B S R G . C O M 26
Identifying the Potential Identifying the Potential Best-ValueBest-Value
Best-Value is the lowest priceBest-Value is within 10% of next highest ranked firm Best-Value can be justified based on other factors
Best-Value is within budget
YesNo
YesYes
Best ValuePrioritizationBest Value
Prioritization
YesNo
Go with AlternateProposal or Cancel
Proceed toPre-Award
YesYes
YesYes
YesYes YesNo
YesNo Proceed to highest ranked proposal within budget
W W W . P B S R G . C O M 27
Best Value SystemBest Value System
Identification of PotentialBest-Value
Pre Planningand
Risk Management
Measurement ofDeviation from the
Expectation
PHASE 1PHASE 1 PHASE 2PHASE 2 PHASE 3PHASE 3
W W W . P B S R G . C O M 28
Filter 1Past
PerformanceInformation
Filter 2Current
Capability
Filter 4Prioritization
(Identify Best Value)
Filter 5Cost
Reasonableness
Filter 6Pre-
Planning & Risk Min
Time
Qua
lity
of V
endo
rs
Filter 3Interview
Key Personnel
Awar
d
High
Low
BV ProcessBV Process
Measurement of Risk & Performance During the Contract
No
n-D
eta
iled
No
n-D
eta
iled
No
n-D
eta
iled
No
n-D
eta
iled
De
taile
d
No
n-D
eta
iled
W W W . P B S R G . C O M 2929
Pre Award PeriodPre Award PeriodWhat is it / Why is it importantWhat is it / Why is it important
Period of time allotted to potential best value vendor (aka the Expert) to:
Show that they have thought about and preplanned the project
Set a plan for its delivery / clarify that your proposal 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
W W W . P B S R G . C O M 3030
Pre Award PeriodPre Award PeriodWhat is it / Why is it importantWhat is it / Why is it important
Period of time allotted to potential best value vendor (aka the Expert) to:
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
W W W . P B S R G . C O M 31
Pre Award DocumentPre Award Document(Risk Management Plan)(Risk Management Plan)
1. Scope & Project/Effort Plan Clear and Detailed Project Scope (what is and what is not included) –
Set Baseline Expectation2. Cost or Financial Model3. Milestone schedule (linked to performance benchmarks)4. Risk Minimization Plan
Uncontrolled Risks List A list of Risks Proposer does not control with plans to minimize
Identified Risks List A list of all previously identified risks (by other bidders, user, and
client) with plans to minimize5. Client Action Item List6. Weekly Risk Report Set Up7. Performance Metrics8. Other: Agreed to Value Adding Options, Original RAVA Plan, Interview
Minutes, etc…
W W W . P B S R G . C O M 32
Filter 1Past
PerformanceInformation
Filter 2Current
Capability
Filter 4Prioritization
(Identify Best Value)
Filter 5Cost
Reasonableness
Filter 6Pre-
Planning & Risk Min
Time
Qua
lity
of V
endo
rs
Filter 3Interview
Key Personnel
Awar
d
High
Low
AwardAward
Measurement of Risk & Performance During the Contract
W W W . P B S R G . C O M 33
Filter 1Past
PerformanceInformation
Filter 2Current
Capability
Filter 4Prioritization
(Identify Best Value)
Filter 5Cost
Reasonableness
Filter 6Pre-
Planning & Risk Min
Time
Qua
lity
of V
endo
rs
Filter 3Interview
Key Personnel
Awar
d
High
Low
MeasurementMeasurement
Measurement of Risk & Performance During the Contract
W W W . P B S R G . C O M 34
Weekly Reporting SystemWeekly Reporting System Excel Spreadsheet that tracks only unforeseen risks on a project
Client will setup and send to vendor once Award/NTP issued
Vendor must submit the report every week (Friday).
The final project rating will be impacted by the accuracy and timely submittal of the WRS
W W W . P B S R G . C O M35
Unforeseen Risks
PERFORMANCE SUMMARY• Vendor Performance• Client Performance• Individual Performance• Project Performance
RISK MANAGEMENT PLAN• Risk• Risk Minimization• Schedule
WEEKLY REPORT• Risk• Unforeseen Risks
Management by Risk Management by Risk MinimizationMinimization
METRICS• Time linked• Financial• Operational/Client Satisfac.• Environmental
W W W . P B S R G . C O M
Tendencies of Successful Tendencies of Successful ProposersProposers
Identify best people in their company for the type of project
Those folks meet, think as if they were the client, look at the RFP requirements and information, and try to understand the client’s intent
Develop a optimal plan to deliver that solution or service within the client’s constraints
Think of their past experiences and look at the unique attributes of the current project, and think of what risks they see that could cause the plan to get of track
Prioritize those risks
Plan how they can minimize those risks
They think of ways to help better meet the clients intent or add value
Then they prepare their proposal documents
36
W W W . P B S R G . C O M
More information More information available at:available at:
www.pbsrg.com
37