BRE440 Cost and value management

Week 1
Introduction and notion of value

Lecturer: Dr. Fan ZHANG

Email: fan-2.zhang@polyu.edu.hk
Office: ZN718

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Self-introduction
• Name: Fan ZHANG
• Department: BRE
• Position: Research assistant professor
• Office: ZN718
• Office hours: 9:00am – 18:00pm Mon-Fri
• Email: fan-2.zhang@polyu.edu.hk
• Phone number: 5224 9892 (WhatsApp)

üwalk-in during office hours

ümake an appointment or ask questions via email and WhatsApp.
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Self-introduction
• Research interest:
ØHealthy and smart building;
ØResilience of building health and safety;
ØBuilding evacuation engineering;
ØAge-friendly built environment;
ØPublic housing
Øetc

3
Lecture + Tutorials
• BRE 440
Lecturers:
Every Thursday, 2:40 pm – 4:30 pm, TU101
Workshop week, 1:40 pm – 4:30 pm, arrange and inform before workshop week
• A. Dr. Fan ZHANG (week 1-6) (fan-2.zhang@polyu.edu.hk)
• B. Sr. Douglas AU (week 7-13) (douglas.au.hk@gmail.com)

Tutors:
Ms. Han ZHOU (TUT001) (23038792R@connect.polyu.hk)
Tuesday 10:30 am – 11:30 am, Z407
Mr. Bowen ZHENG (TUT002) (23036699R@connect.polyu.hk)
Thursday 11:30 am – 12:30 pm, Z507 4
Subject objectives
• BRE 440
ØFocus on both theories and applications of value management in
different phases of a development,
ØDevelop an appreciation for what can be accomplished using the
techniques of VM and applied creativity, and
ØLearn the skills to organize and contribute to VM workshop;
ØIdentify management and technical issues that can be solved or
addressed using the techniques of VM and critical thinking.

5
Assignment & examination
Final score:
• Group assignment presentation 25%
• Workshop performance & report 25%
• Examination 50%

6
Assignment & examination
• Group assignment presentation 25%
Need
(10% oral presentation + 15% final presentation files) balance

7 QUESTIONS
4-5 students in one group
TUT001 TUT002
(19 students) (30 students)

• Release on the tutorial

of week 3
Form 4-5 groups within • Answer question Form 6-7 groups within
TUT001 • present your answer in TUT002
tutorial class
• Revise your answer
• Submit final PPT file
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Assignment & examination
• Workshop performance & report 25%

VM workshop in week 10
(3 hours)

Form 4-5 groups within Form 6-7 groups within

TUT001 TUT002
• Combine one group from TUT001
with one from TUT002
• Form larger groups for workshop
• Attend workshop
• Leader of each group presents on
the workshop
• Submit final VM workshop report 8
 Tentative Course Schedule (Being Subject to Change)
Week Lecture Topics Note

1(18/01/24) Introduction & Notion of Value No tutorial

2(25/01/24) Historical development of VM No tutorial

3(01/02/24) Value management process (i) Job plan Assignment introduction & group formation

Draw for group presentation & group formation

4(08/02/24) Value management process (ii) Function analysis, Creativity
DDL
5(22/02/24) Value management process (iii) Evaluation, presentation FAST practice & Group presentation preparation
6(29/02/24) VM practices Group presentation 1
7(07/03/24) Teamwork and facilitation skills Group presentation 2
8(14/03/24) Life cycle costing / whole life costing Group presentation 3
9(21/03/24) Project selection + VM integration Group presentation 4
10(28/03/24) VM workshop (3-hour) Move tutorial time to the lecture
11(04/04/24) (holiday) Group presentation 5
12(11/04/24) VM application and limitation Group presentation 6
Group presentation 7 (if any)
13(18/04/24) VM case study Submission of group presentation file &
workshop report (end of week 13)
Ground rules
• PPT will be uploaded the day before the lecture. If any changes, the final PPT
will be updated after the lecture.
• On time

• No eating, no chatting
• Do not disturb others
• Mute mobile phone
• No compulsory attendance record (except workshop week), but your
performance in the lecture will be recorded.

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Lecture 1
• Definition(s) of value
• Notion of value
• Types of value
• Value for construction projects
• Meaning of value management

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Value
• Cost and value management

• What is the cost?

• What is the value?

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Question for Participation
• What is your definition of the term “value”?
Please use your phones to search on the Internet / Dictionaries

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Value
• What is your definition of the term “value”?
Please use your phones to search on the Internet / Dictionaries

value noun (MONEY)

the amount of money that can be received for something

value noun (IMPORTANCE)

the importance or worth of something for someone
how useful or important something is 14
Value
• What is your definition of the term “value”?
Please use your phones to search on the Internet / Dictionaries

Economic value is not the same as market price, nor is economic value the same thing
as market value.
If a consumer is willing to buy a good, it implies that the customer places a higher value on the
good than the market price.
The difference between the value to the consumer and the market price is called "consumer
surplus".
It is easy to see situations where the actual value is considerably larger than the market price:
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purchase of drinking water is one example.
Value
Water price of domestic supplies, in
supermarket, in Disneyland, or in desert.
Usage: for drinking

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Value
The changes in water price reflect:
The importance, the willingness to buy,
and further the value of water.

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Value
Distinguish the concepts related
to value:
Usage/function [desire]
Cost [Material water are similar]
Worth, has a special meaning in VE/VM. It means the lowest cost of
achieving the same function using alternative means. If the worth is
less than the cost of the present means, the present means has poor
value.
[e.g. for drinking, water price in Disneyland is hkd 25; while softdrink
only hkd 23.]
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Notion of value
• If
a design has not been changed in 18 years, the product
is either excellent or management has failed to improve it.
Larry Zimmerman
• Value
• very subjective concept
• has different meanings for different people/stakeholders

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Value to different stakeholders (持份者)
• A consumer will regard it as the "best buy”
• A contractor will consider it the "lowest cost“
• A designer will view it as the "highest functionality”
• A quantitysurveyor/cost engineer will regard it as
“value for money”

• Value does not stand alone: "In other words, value is a concept of
time, people, subject, and circumstances, not just the subject
alone"
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Example

Gold Steel Aluminum

Which one is the most expensive, second and third?

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In terms of Cost (成本):

Gold Steel Aluminum

USD/kg ~$43,000 USD/tonne ~$300 USD/tonne ~$2,100

(steel billet)
to $800 (steel wire)

1 tonne = 1,000kg, so 1 tonne of gold = US$43,000,000

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In terms of Value (價值):

Gold Steel Aluminum

The cost is clear, but

Which one has the highest value????
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Answer:

Gold Steel Aluminum

It depends!!!!!!

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Value
• "Value
is a combination of dream and concern.
Dream is the idea one has of a product; concern is
when you get the product and wonder if you've had
your money's worth.”
• Since Lawrence Miles' time, value has evolved from a simple
quality/cost** ratio to a more customer-oriented notion.
• Value increases when the satisfaction of the Customer's need
augments (增加) and the expenditure of resources diminishes.

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Value
• "Value is a combination of dream and concern.

• People: visitors of disneyland

• Dream: drink in Disneyland
• Concern: it is worth buying a bottle of water (hkd 25)?
• No, Softdrink (hkd 23) is more worthy

RealizeYour Dream With Less Money/Cost

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Value
• "Value is a combination of dream and concern.

• People: people in the desert

• Dream: drink water for survival
• Concern: it is worth buying a bottle of water ($ 1000)?
• Yes, it can help you survive in the desert. No choice.

RealizeYour Dream With Less Money/Cost

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Value
• Often,
when setting up a project, there is a mismatch between the
customer's intent and his capability.
• Customer‘s intent (dream): buy a big new flat in good location
• His capability (concern): limited budget
• Poor advice: Second-hand flat (very big, old, bad location)
Central flat (small, old, very good location)

Realize more intents with certain budget/cost

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Value
• Often,
when setting up a project, there is a mismatch between the
customer's intent and his capability, e.g. nano flats.
• Customer‘s intent (dream): buy a big new flat in good location
• His capability (concern): limited budget
• Advice: Nano flat (small, new, good location)
Second-hand flat (big, old, good location)
Suburban flat (big, new, bad location)
Realize more intents with certain budget/cost
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Value
• Often,
when setting up a project, there is a mismatch
between the customer's intent and his capability.
• The value system's objective will be to find or recreate
the balance between these two elements in order for the
project to be a success.
• Everystep of the way; the project team must aim for that
balance between what is expected, what is needed, and
what resources are available to produce it.
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What is Good Value?
• Thegoal in value management is not merely to reduce costs but to
balance performance with cost.
• "Good value" is achieved when balance is obtained between
quality and resources.
• Although value is a subjective concept, it can be measured.
• If something cannot be measured, it cannot be improved!!!

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What is Good Value?
Inadequacies in defining value often result in
• ambiguous objectives (dream/intent),
• unclear sufficient funds (concern),
• misleading information,
• hasty decisions based on false assumptions,
• resistance to change,
• etc.

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Types of Values
• There are many types of value, and all of them must be considered in a value
study. Depending on the client's objectives, they will vary in importance, and
more energy should be spent on optimizing those considered most
important, while the less important ones might not be considered at all.

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Types of Values
• Use Value - The amount of current resources expended to
realize a finished product that performs as it was intended.
• “Use Value” is the measure of properties, qualities and
features which make the product accomplish a use, work or
service. Use value, therefore, is the price paid by the buyer
or the cost incurred by the manufacturer in order to ensure
that the product performs its intended function efficiently.
• Use value in the fundamental form of economic value. An
item without use value can have neither exchange value nor
esteem value.

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 Types of Values
• Use Value - The amount of current resources expended to
realize a finished product that performs as it was intended.

For walking and convenience For walking and business

35 dress
For walking
Types of Values
Cost Value - The amount of current resources expended to
achieve a function measured in dollars.
“Cost Value” is the measure of sum of all costs incurred in
producing the product. The ‘cost value’, therefore is the sum
of raw-material cost, labour cost, tool cost and overheads
expended to produce the product.

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 Types of Values
Cost Value - The amount of current resources expended to
achieve a function measured in dollars.

Leather Luxury leather Diamond

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Types of Values
• Esteem Value - The amount of current resources a user is
willing to expend for functions attributable to pleasing rather
than performing, e.g., prestige, appearance, and so on.
• “Esteem Value” is the measure of properties, features,
attractiveness graphic packaging and the like which
increases sales appeal or which attracts customers and
create in them a strong desire to own the product.
• “Esteemvalue” is the price paid by the buyer or the cost
incurred by the manufacturer beyond the use value. It is the
perception value.
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Types of Values
• Esteem Value - The amount of current resources a user is
willing to expend for functions attributable to pleasing
rather than performing, e.g., prestige, appearance, and so
on.

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Types of Values
• Exchange Value - The amount of current resources for
which a product can be traded.
• “Exchange Value” is the measure of all the properties,
qualities and features of the product which make the
product possible of being traded for another product or for
money.
• Ina conventional sense, ‘exchange value’ refers to the
price that a purchaser will offer for the product, the price
being dependent upon the satisfaction value which derives
from the product.
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Types of Values
• Exchange Value - The amount of current resources for
which a product can be traded.

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Examples
1-5 stars *****
Share your opinions!
No standard answers!

Different Values Water Diamond

Use value *****

Cost value
Esteem value
Exchange value
Total value
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Examples

Different Values Water Diamond

Use value CCCC C
Cost value C CCCC
Esteem value C CCCC
Exchange value C CCCC
Total value It depends It depends
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If you are in a desert, dying of thirst …

Different Values Water Diamond

Use value CCCC C
Cost value CCCC C
Esteem value C C
Exchange value CCCC C
Total value CCCC C
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 Types of Values of construction projects
• Use Value - The amount of current resources expended to
realize a finished product that performs as it was intended.

Housing for living ICC, office building for working and

commercial activities Hotel, for business
45 and
tourism
Types of Values of construction projects
Cost Value - The amount of current resources expended to
achieve a function measured in dollars.

Public housing, cheaper cost Novo land, Private housing, higher cost Central park tower, maybe the
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highest cost
Types of Values of construction projects
• Esteem Value - The amount of current resources a user is
willing to expend for functions attributable to pleasing rather
than performing, e.g., prestige, appearance, and so on.
Office buildings for
big company

The Henderson for

Henderson Land
Development
Company

Bank of China
Tower for Bank of
China (Hong Kong) Forbidden City (the former Chinese imperial
Designed by Zaha Hadid Designed by Ieoh 47 households
palace) for Chinese emperors and their
Architects Ming Peim (貝聿銘)
Types of Values of construction projects
• Exchange Value - The amount of current resources for
which a product can be traded.

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Alternate Value Equations
•Bryant: V = Wants + Needs / Resources
•Harris: V = Worth / Effort
•Kaufman: V = Function / Cost
•Wasserman: V = Utility / Cost =
Performance / Cost
•Fallon: V = Objectives / Cost
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 VALUE MANAGEMENT - an overview
Alternate Value Equations
FUNCTION
VALUE =
•Bryant: V = Wants + Needs / Resources COST

•Harris: V = Worth / Effort

Good Value Options

•Kaufman: V = Function / Cost Function > Cost =

Good value
Caution
•Wasserman: V = Utility / Cost =
Performance / Cost
V =Value
•Fallon: Poor Objectives
Options / Cost Cost > Function =
Poor value
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J. J. K aufman Associ ates, Inc.

Meaning of Value Management
• Creating value that clients require
ØCreating value for clients/customers is critical in the competitive markets.
ØIt requires companies to clarify value requirements before production.
ØHowever, it is quite difficult to create value-oriented products for clients,
especially in the AEC industry.
ØConstruction projects usually have high investment, complex processes, tight
project schedules, uniqueness, and other features.

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Meaning of Value Management
• The basis to
ensure the value
of the project
ØComplex
stakeholders
ØDifferent
stakeholders have
different objectives
and requirements on
value.
52

Smith, L. W. (2000) ‘Stakeholder analysis a pivotal practice of successful projects’, in Project ManagementInstitute Annual Seminars & Symposium..
Meaning of Value Management
• The basis to ensure the value of the project
Client: needs a swing on
the tree, for leisure and
entertainment.

Architect: design the

swing in the style of
Figure 1 Perspective of clients Figure 2 Perspective of architect symmetry, for balance
and aesthetics.

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 Meaning of Value Management
• The basis to ensure the value of the project
Structural engineer: use
more supporting and
reinforced structure, for
reliable structure.

Cost engineer: consider

Figure 3 Perspective of structural engineer Figure 4 Perspective of cost engineer one rope is enough for
swinging, for cutting
down the cost.
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Meaning of Value Management
• The basis to ensure the value of the project
Planner: thinks the
swing should be put on
the ground, for reducing
the impact on the
landscape.

Fire control: no swing,

Figure 5 Perspective of planner Figure 6 Perspective of fire control
even no tree, for
reducing the fire risk.
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Meaning of Value Management
• The basis to ensure the value of the project
Quality inspector: thinks
the swing should be
reinforced, for ensuring
the quality and safety.

Environment protection:
no harm to the tree, so
Figure 7 Perspective of Quality Inspector Figure 8 Perspective of environment
protection the swing is not
suggested to be built.
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 Meaning of Value Management
• The basis to ensure the value of the project
Material suppliers: use
more materials, for more
profits.

Sub-contractor: hope
the swing can be more
Figure 9 Perspective of material suppliers Figure 10 Perspective of sub-contractors complex, larger project,
they can get more profits.

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Meaning of Value Management
• The basis to ensure the value of the project
ØTo facilitate the communication among different stakeholders;
ØTo coordinate the different requirements on the value of project;
ØTo avoid the project deviating from the clients’ requirement.

ØValue management is a tool for better communication, a platform

where the opinions of stakeholders can be integrated.

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Meaning of Value Management
• The basis to guarantee the success of projects
ØHuge investment
ØComplex procedures
ØMany stakeholders
ØDifferent project delivery
DB, PPP, BOT, IPD…

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Alsem, I. D., & Willems, P. H. (2014). The management of information over the life-cycle of a construction project using open-standard BIM.
Meaning of Value Management
• The basis to guarantee the success of projects
ØCost, quality, time control

ØHigh requirement on close cooperation

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Meaning of Value Management
• The basis to guarantee the success of projects
Through value analysis, VM can
üClarify and unify the objective for all stakeholders
üProvidecommunication opportunities for different teams by standard
procedures
üOvercome communication barriers between different fields by function
analysis
üFinally, guarantee the success of projects

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Meaning of Value Management
• Improvingthe process of
construction projects
Ø5% design fee decides 85% investment
Øimproving quality of planning and design
ØTradition process: few opportunities for
experts of subsequent stages to be
involved in earlier stages
ØVM process: improve linear process,
involve experts of subsequent stages in
earlier decision-making.
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Meaning of Value Management
• Case study
The stadium was forced to be built on time,
safely, within the budget and to a high quality.
In terms of budget, the stadium faced a similar
problem as other construction projects – that is,
spending the money over the preset budgets.
Design plan was sudden change in the middle of
phase, the roof was removed which had
sequence impact to other plan.
After the stadium roof design was taken off for
safety reasons and to save costs, the budget
was expected to be reduced from 3.8 billion to
3.13 billion.
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Different definitions
• Maybe you are confused about:
• VA
• VE

• VM
• etc.

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