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How to Get Innovative in Tough Times
November 8, 2009
Performance Based Studies Research Group
www.pbsrg.com
PBSRGGLOBAL
Jacob Kashiwagi, Project Manager
What we think the problem is……
• Lack of resources
• Lack of skilled vendors
• Lack of experienced employees
• Lack of information
• Lack of authority and control
The Real Problem
The way we do business:
– People directing other people is not efficient.
– People making decisions without expertise or information is high risk.
– People trying to control other people also is high risk
– Vendors not making a profit cannot deliver a high quality service
Two Approaches
• Beat up the vendor and get concessions
• Use best value PIPS process and through efficiency get a “win-win-win”
– Vendor wins
– Government wins
– Constituent wins
Performance Information Procurement System (PIPS)
• Dominantly better
• Changes the environment
• Nothing like what you are doing
• You are not going to stumble across of the solution
• Bite the bullet, and learn how to do it!
“Best Value” Processes and StructuresPerformance Information Procurement System (PIPS)
• Win: Minimize up to 90% of project management/administration/busy work and minimize transaction costs by 20%.
• Win: Increase vendor profit up to 100%
• Win: Minimize risk to 2% of projects not on time, not on cost, and client not satisfied
• Win: Cost does not increase with higher value
• Conducting research since 1994
• 175 Publications
• 483 Presentations, 8,600 Attendees
• 683 Procurements
• $808 Million Construction services
• $1.7 Billion Non-construction services
• $1.3B Euro ($2B) construction test ongoing in the Netherlands
• Africa/Southeast Asia/Australia (7 universities)
• ASU procurement - $100M over ten years
• GSA implementation in 2009
• 50 Different clients (public & private)
• 98% Customer satisfaction, 90% of PM/RM transactions minimized
PBSRG(Performance Based Studies Research Group)
Industry Structure
High
I. Price Based
II. Value Based
IV. Unstable Market
III. Negotiated-Bid
Specifications, standards and qualification based
Management & Inspection
Best Value (Performance and price measurements)
Quality control
Competition
Pe
rfo
rma
nce
Low
High
Owner selects vendor
Negotiates with vendor
Vendor performs
Contractor minimizes risk
Client minimizes risk
High
Low
Owners
“The lowest possible quality
that I want”
Contractors
“The highest possible value
that you will get”
Minimum
Problem with Priced Based Systems
High
Low
Maximum
Inexperienced vs Experienced
Us
Risks Risks
ControlDon’t
ControlControl
Don’t Control
Me & Them
High
Low High
Low
Impact of Minimum Standards
Contractor 1Contractor 2Contractor 3Contractor 4
Contractor 1
Contractor 2
Contractor 3
Contractor 4
High
Low High
Low
Decision making: what is the minimum standard, and do all contractors meet the minimum standards
Industry performance and capability
Highly
Trained
Medium
Trained
Vendor XCustomers
Outsourcing
Owner
Partnering
Owner
Price
Based
Minimal
Experience
Initial
conditionsFinal
conditions
Event
Time
Laws Laws
Initial
conditionsFinal
conditions
Traditional Management
• D1: client makes decisions on budget, time, and expectations
• D2: designers make more decisions to make expectations true
• D3: contractors attempt to use the lowest possible price to minimize the risk caused by the decision making of cleint’s and designer’s
• M&C: the client attempts to force contractor to make expectations happen
Time
Laws Laws
D2
D1 M&C
D3
Initial
conditionsFinal
conditions
New PM and RM model that depends on efficiency
• M1: Measured design options that accurately describe the initial conditions replaces D1
• M2: The best value construction option that replaces the design M1 • M3: WRR/RMP measures deviation• M4: final performance measurement
Time
Laws
Laws
M1
D1 M3
M4
M2
Best Value SystemPerformance Information Procurement System (PIPS)PM model, Risk Management model
PHASE 3:
MANAGEMENT
BY RISK
MINIMIZATION
PHASE 1:
SELECTION
PHASE 2:
PRE-PLANNING
QUALITY
CONTROL
Best Value also known as “sealed competitive bid” in State of Texas
Self Regulating Loop(Six Sigma DMAIC Generated)
Actions
• Minimize data flow
• Minimize analysis
• Minimize control
Scope, Risk Assessment,
Value Added and Price
Preplanning,
Quality Control Plan
Measure again
50%
Identify value (PPI, scope,
RA, Interview, $$$$$)V
50%
Interview Key PersonnelPast Performance
InformationM
Requirements(DBB, DB, CMAR, DBO)
Efficient Construction
M R
MM
R
R
R
= Minimize Risk
= Self Measurement
= Identify Value
M
R
V
PM 2 PM 3 PM 4
Procurement Officer 1 Procurement Officer 2
Director
Contractor 5
Contractor 6
Contractor 7
Contractor 8
Contractor 9
Contractor 10
Contractor 11
Contractor 12
Contractor 13
Contractor 14
Contractor 15
Contractor 16
Facility Director
FM2 FM3 FM4
MEDCOM Commander
COE Procureemnt Office1
COE Procureemnt Office1
COE Procurement Office1
QA
QA
QA
QA
PM 1
Contractor 1
Contractor 2
Contractor 3
Contractor 4
FM1
Project IntegratorProject Integrator
Project Integrators
Hospital Users
Facility Director
MEDCOM Structure
PM 1 PM 2 PM 3 PM 4
Procurement Officer 1 Procurement Officer 2
Director
Contractor 1
Contractor 2
Contractor 3
Contractor 4
Contractor 5
Contractor 6
Contractor 7
Contractor 8
Contractor 9
Contractor 10
Contractor 11
Contractor 12
Contractor 13
Contractor 14
Contractor 15
Contractor 16
Case Study: US Army Medical Command26 major hospitals, 200 projects, $250M
Regional Director Regional Director
Hospital 1 Hospital 2 Hospital 3 Hospital 4
Director
On Going Projects: Division Overview
Modifications and Risks
Global Design & Construction Performance
23
RMP Comparison
Without RMP With RMP % Progress
38% 56% 48%
52% 70% 35%
Without RMP With RMP % Progress
5.4% 1.7% 68%
3.83% 1.13% 71%
0.21% 0.04% 79%
1.33% 0.53% 61%
30.6% 14.6% 52%
19.72% 11.41% 42%
4.64% 1.68% 64%
6.20% 1.47% 76%
1.98 1.29 35%
1.33 0.87 35%
9.10 9.34 3%
3.25 2.38 27%
PROJECT OVERVIEW
% projects on time
% projects on budget
% Days Delayed
AVERAGE PROJECT
% over Awarded Budget
% over budget due to owner
% over budget due to contractor
% over budget due to unforeseen
Owner rating
Risk number
% Delayed due to owner
% Delayed due to contractor
% Delayed due to unforeseen
# of risks
# owner generated risks
University of Minnesota Results(Updated 6/10/09)
NO CRITERIA OVERALL2008-
2009
2007-
2008
2006-
2007
2005-
2006
1 Number of Best-Value Procurements 111 39 37 26 9
2 Average Proposal Cost (Million) $31.4 $15.4 $6.4 $6.0 $3.7
3 Awarded Cost (Million) $29.5 $10.9 $7.6 $7.8 $3.2
4 Percent Awarded Below Average Cost -6.0% -29.0% -19.0% 31.0% -13.0%
5 Average Number of Proposals 4 4 3 4 4
6 Projects Where Best-Value was also Lowest Cost 60% 74% 54% 50% 56%
7 Number of Completed Projects 81 12 34 26 9
8 Overall Cost Increases: 6.2% 7.0% 8.4% 2.3% 8.1%
9 Cost Increases (Client): 5.1% 5.9% 7.0% 1.2% 7.3%
10 Cost Increases (CPPM) 0.6% 0.9% 0.3% 0.5% 0.4%
11 Cost Increases (Designer): 0.5% 0.1% 1.1% 0.6% 0.0%
12 Cost Increases (Contractor): 0.0% 0.0% 0.0% 0.0% 0.4%
13 Overall Schedule Increase: 41.3% 25.3% 48.2% 35.2% 107.3%
14 Schedule Increases (Client): 21.9% 14.9% 21.0% 16.0% 82.3%
15 Schedule Increases (CPPM): 10.7% 5.2% 15.2% 8.5% 24.2%
16 Schedule Increases (Designer): 3.8% 1.3% 6.7% 4.3% 0.0%
17 Schedule Increases (Contractor): 4.9% 4.0% 5.3% 6.4% 0.9%
Vendor
No Summary Criteria Out of Incumbent B C
1 RAVA Plan 10 5.91 7.09 6.31
2 Transition Milestone Schedule 10 5.17 6.96 6.33
3 Interview 25 15.77 16.78 13.53
4 Past Performance Information - Survey 10 9.80 9.99 9.82
5 Past Performance Information - #/Clients Raw # 5.67 3.00 4.42
6 Past Performance Information - Financial 10 7.02 8.67 6.90
7 Financial Rating 10 4.00 8.00 8.00
8 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$
Vendor
No Summary Criteria Weight/Out of Incumbent Best Value C
1 RAVA Plan 28 16.55 19.85 17.67
2 Transition Milestone Schedule 2 1.03 1.39 1.27
3 Interview 25 15.77 16.78 13.53
4 Past Performance Information - Survey 9 8.82 8.99 8.84
5 Past Performance Information - #/Clients 1 1.00 0.53 0.78
6 Past Performance Information - Financial 15 10.53 13.01 10.35
7 Financial Rating 5 2.00 4.00 4.00
8 Financial Return - Commissions 7 3.31 6.58 7.00
9 Capital Investment Plan 6 4.31 6.00 3.61
10 Equipment Replacement Reserve 2 1.77 1.00 2.00
100 65.09 78.13 69.04
Arizona State University Food Services Contract
$32M more over ten years
After 1 Year: Monitoring/Evaluation based on measurements
• Increase sale of food by 14%
• Increased cash to ASU by 23%
• Minimized management cost by 80%
• Increased customer satisfaction by 37%
• Increased capital investment by 100%
No Category
1 Total Revenue ($M) 27.02$ 30.83$ 3.81$ 14%
2 Total Return & Commissions ($M) 2.17$ 2.67$ 0.50$ 23%
3 Captial Investment Contract ($M) 14.75$ 30.83$ 18.08$ 109%
4 Captial Investment 2006 vs. 2007 ($M) 0.26$ 5.70$ 5.44$ 2092%
5 ASU Administration (# of People) 7 1.5 -5.5 -79%
6 Customer (Student) Satisfaction (1-10) 5.2 7.1 1.9 37%
7 Myster Shopper Satisfaction N/A 9.6 -- --
FY 06-07
Incumbent
FY 07-08 New
Vendor Difference % Difference
Based on Performance: The New Deal
• Added 3 more campuses – total of 4
• Most student growth is on other 3 campuses
• Original Contract does not adjust for ASU student shortfall penalties
Item Original Contract New Contract % Difference
Number of Years 10 16 60%
Number of Campuses 1 4 300%
Projected # of Students 60,000 100,000 67%
Revenue ($M) $677M $1,470M 117%
Capital Investment ($M) $31.1M $36.2M 16%
Min. Commissions ($M) $39.5M $88.2M 123%
Min. Commission / year ($M) $3.95M $5.51M 39%
Arizona State University Dining Service: FY08 vs. FY09
No Catergory FY08 FY09 Difference % Diff.
1 Total Revenue ($K) 29,977.8$ 33,135.6$ 3,157.8$ 10.5%
2 Commissions on Total Revenue ($K) 1,902.3$ 2,011.3$ 109.0$ 5.7%
3 Commission % 6.35% 6.07% -0.28% -4.35%
Per
Contract
YTD
Actual Difference % Diff.
4 Capital Investment ($K) 24,497.1$ 16,509.5$ (7,987.6)$ -32.6%
No Catergory FY08 FY09 Difference % Diff.
1 Number of Mandatory Meal Plans Sold 5,361 6,159 798 14.9%
2 Number of Voluntary Meal Plans Sold 2,128 2,882 755 35.5%
3 Student Satisfaction Survery (1 - 10) (2x/yr) 7.34 7.27 -0.1 -1.0%
Financial Performance Metrics
Performance Metrics
Arizona State University Dining Service: FY08 vs. FY09
No Catergory FY08 FY09 Difference % Diff.
1 Mandatory Meal Plan Sales ($K) 8,915.5$ 8,212.2$ (703.3)$ -7.9%
2 Voluntary Meal Plan Sales ($K) 294.2$ 404.1$ 109.9$ 37.4%
3 Retail Sales ($K) 15,408.1$ 17,320.4$ 1,912.3$ 12.4%
4 Catering Sales ($K) 2,329.1$ 2,526.5$ 197.4$ 8.5%
5 Camp/Conference Sales ($K) -$ 865.2$ 865.2$ --
6 All Other Sales (Subcontractors & Sushi) ($K) 3,030.9$ 3,807.2$ 776.2$ 25.6%
7 TOTAL REVENUE ($K) 29,977.8$ 33,135.6$ 3,157.8$ 10.5%
8 Commissions on Total Revenue ($K) 1,902.3$ 2,011.3$ 109.0$ 5.7%
9 Subsidy - DPC, West & Polytechnic ($K) 391.7$ 1,381.6$ 989.9$ 252.7%
10 Commissions Paid to ASU ($K) (Comm. less Subsidy) 1,723.3$ 629.7$ (1,093.6)$ -63.5%
11 Commission % 6.35% 6.07% -0.28% -4.35%
Per
Contract
YTD
Actual Difference % Diff.
12 Capital Investment ($K) 24,497.1$ 16,509.5$ (7,987.6)$ -32.6%
Financial Performance Metrics
No Catergory FY08 FY09 Difference % Diff.
1 Number of Mandatory Meal Plans Sold 5,361 6,159 798 14.9%
2 Number of Voluntary Meal Plans Sold 2,128 2,882 755 35.5%
3 Customer (Student) Satisfaction Survery (1 - 10) (2x/yr) 7.34 7.27 -0.1 -1.0%
Performance Metrics
University of New Mexico Dining Service: FY09
No CategoryIncumbent
FY08
Chartwells
FY09Difference % Diff.
1 Total Revenue ($K) 11,825.3$ 12,882.1$ 1,056.8$ 8.9%
2 Commissions Paid ($K) 951.5$ 1,492.3$ 540.8$ 56.8%
3 Commissions Paid - % of Total Revenue 8.0% 11.6% 3.5% 44.0%
Financial Performance Metrics
Per Contract YTD Actual Difference % Diff.
4 Capital Investment ($K) 1,997.0$ 2,375.2$ 378.2$ 19%
University of New Mexico Dining Service: FY09
No. CategoryIncumbent
FY08
Chartwells
FY09Difference % Diff.
1 Mandatory Meal Plan Sales ($K) 3,390.3$ 4,176.9$ 786.6$ 23.2%
2 # of Mandatory Meal Plans Sold 3615 4152 537 14.9%
3 Voluntary Meal Plan Sales ($K) -- -- -- --
4 Retail Sales (including sub-contractors) ($K) 4,824.0$ 4,612.6$ (211.5)$ -4.4%
5 Convenience Stores ($K) 1,677.2$ 1,791.2$ 114.0$ 6.8%
6 Catering Sales ($K) 1,481.2$ 1,809.9$ 328.7$ 22.2%
7 Conference/Campe Sales ($K) 383.8$ 297.1$ (86.7)$ -22.6%
8 All Other Sales ($K) 65.1$ 190.3$ 125.2$ 192.3%
9 TOTAL REVENUE ($K) 15,436.7$ 17,030.0$ 1,593.3$ 10.3%
10 Commissions Paid ($K) 951.5$ 1,492.3$ 540.8$ 56.8%
11 Commissions Paid - % of Total Revenue 6.2% 8.8% 2.6% 42.2%
YTD Actual Retail Sales includes $91,909.35 UNM sales @ Golf Course
Final ASU IT Networking Contract
• ASU IT Networking previously
performed in-house
• ASU IT Network Details
– 76,000 Students and Faculty
– 5 yr. Contract
– 4 Different Campuses
ASU MaintenanceAnnual Cost
Qwest MaintenanceAnnual Cost
Total Annual QwestSavings
Total Qwest AnnualValue Added and Savings
$13,981,934 $12,500,000 1,481,934 2,756,934
Vendor Created Information Environment
Old Operational Structure New Operational Structure
Complicated Management Structure Single Management Structure
“Seamless Organization”
No measurement Fully measured
No accountability Qwest responsible for entire operation
Requires more labor 26% less labor
Dominant Information
• Dominant Performance Indicators– Overall cost of network– Top of the line networking– Network Sustainability/Accessibility
– Customer Satisfaction
• Documentation of Deviations to financials
Dominant MeasurementsASU
Current
Qwest
Value Add
Overall Cost of Network
Annual IT Spend Ratio (new vs
maintenance) 17/83 48/52
Top-of-the-line Networking
% Converged 7% 100%
% Mobility 2% 100%
% Equipment not out-of-date 58% 95%
Network Sustainability/Accessibility
% Equipment not needing replacement
(Not at end-of-maintenance) 88% 100%
Customer Satisfaction
Speed/Quickness Available (Wired /
Wireless):
% 1Gb - Wired Connections 59% 98%
% of 300Mb - Wireless Connections 8% 32%
Dev. Cap, Exp. Maint. FOE Costs Total
Year 1 Exp. 4,100,000$ 1,652,000$ 6,818,000$ 12,570,000$
Ex. Risk X 100,000$ 100,000$ -$ -$ 100,000$
Ex. Risk X 100,000$ 100,000$ (25,000)$ -$ 75,000$
Ex. Risk X 50,000$ -$ 50,000$ -$ 50,000$
Ex. Risk X 25,000$ 25,000$ -$ -$ 25,000$
New Year 1 275,000$ 4,325,000$ 1,677,000$ 6,818,000$ 12,820,000$
University Benchmarking System
U2
U1 U3
U4
U7
U6U5
U = University
• Comparison Ranking– Sustainability/Advancement– Network Speed– Wireless Pervasiveness– Redundancy– Convergence and Mobility
• Proposed Universities
– Harvard– University of Colorado – UCLA– U of A– MIT– University of New Mexico
Dominant Performance Results
• BV PIPS process increased performance, creativity, accountability, professionalism, value to the owner: (4.71 to 8.75, 40% increase)
• BV PIPS process minimized transactions, bureaucratic constraints, decision making, risk, and wasted effort by 30% (5.33 to 8.29)
• Customer satisfaction by top management (5.33 to 9.75, 44% increase)
Achieved the following
• BV PIPS process performed the following:
– Moved decisions through the bureaucracy
– Minimized difficulty in getting contract approval
– Minimized the decisions made by the client
– Identified key information that minimized risk in the contract
• Top management knew of no other process that could have successfully outsourced the service, while minimizing all risk.
Statement by ASU IT Visionary
• “Am I dreaming? Am I missing something? When do all the problems begin?”
• “Am I missing something, or have we just made one of the biggest changes with no problems?”
• “This is a unqualified success of the best value PIPS process!”
Adrian Sannier, ASU UTO director
Arizona State University turning into a measured university
• ASU has embraced and implemented the research internally
– ASU Research Leaders
• Business Services (Ray Jensen)
• Procurement (John Riley)
• Major Tests
– Dining Services - $420M, 10 yr contract – largest in dining history
– Sports Marketing - $XXM, 10 yr contract
– Student Recreational Center Equipment - $840k, 5 yr contract – new outsourced model
– Student Recreational Center Services
– UTO IT Network – $50M in process – first of its kind
– Parking Structure - $50M in process – first CPMG test at ASU ($6M rebate due to process efficiency)
– Furniture – late 2008 – measured, value, meet expectations
– Document control/copy service
New PM/Risk Management Approach
• Minimize project/risk management functions by up to 90%
• Minimize risk to 2%
• Vendors make more profit due to expertise and efficiency
• Measurement/alignment replaces current management model
• Client gets better value and services/products due to efficiency
• The cost of bureaucracy, false expectations, inefficiency is huge!!!!!!!!!!!!!!!!!!!!!!
Running Best Value PIPS/PIRMS
• Do not recommend you run it without PBSRG
• Pay the consulting fee, it is well worth it
• Do not try to get the RFP documentation and copy it…it won’t work the same
• Learn IMT, be fair, cease dependence on the contract, do not try to force the vendor to perform
• Listen to the expert, minimize management of the expert, make them accountable
Things not to do…..
• Make decisions and direct the vendor to do non-economical actions
• Use a relationship with the vendor
• Encourage the vendor to do “crazy things”
• Get in the weeds of the vendor’s business
• Not be honest
• Stick your head in the sand
Sylvia Romeo
www.pbsrg.com
(480)965-4273
Feb 8 – 12, 2010 Annual Conference, Tempe, Az 85287
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