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Value-Based Principles

Value-Based Principles. John Savicky Arizona State University. How Do We Transfer and Minimize Risk, Increase Accountability, and Increase Performance?.

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Value-Based Principles

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  1. Value-Based Principles John Savicky Arizona State University

  2. How Do We Transfer and Minimize Risk, Increase Accountability, and Increase Performance?

  3. Various fields (Automobile Manufacturing, Commercial Manufacturing, Self-Improvement, Martial Arts, Business, Management, Law, Government). • Leadership experts included: Edward Deming, John Maxwell, James Allen, Marcus Buckingham, Jim Collins, Noel Tichy, Jack Welch, James Kouzes, Lee Iacocca, Peter Drucker, Sun Tzu, Tom Peters, Abraham Lincoln, Bruce Lee, Niccolo Machiavelli, and Rudolph Giuliani, etc. • Topics: • Continuous Improvement • Theory of Constraints • Information Worker • Lean Manufacturing • Just in Time • Six Sigma • Supply Chain Management Best Business PracticesLeadership Experts & Leadership Philosophies

  4. Impact of Information Final Conditions Event Initial Conditions Time Time Time

  5. How Does This Relate To Procurement? Project Complete Delivery of the Project Selecting a Vendor Time Time Time

  6. Is Our Goal To Obtain 100% Information? Project Complete Delivery of the Project Selecting a Vendor Time Time Time

  7. Obtain the Least Amount of Information

  8. Objective of Minimum Standards High Low Contractor 1 High Contractor 2 Risk Performance Contractor 3 Performance Contractor 4 Low High Low Minimum 8

  9. Who Will Be Selected? High Low Contractor 1 Contractor 2 Risk Performance Contractor 3 Contractor 4 Low High High Low Risk Performance Contractor 1 Contractor 2 Contractor 3 Contractor 4 Low High 9

  10. Perception on Standards 10

  11. ASTM Standard Setting

  12. ASTM Standard Setting

  13. Cost: $2.00 /SF $4.00 /SF All Products Meet the Standard

  14. What Will Manufacturer ‘C’ Do?

  15. Specification Data Sheet 15

  16. 16

  17. Can We Create an RFP That is 100% Accurate?

  18. Detailed Instructions

  19. Hold On…The Warranty Will Protect Us!!!

  20. Warranty The only roof system you’ll need for the next 30 years. MANUFACTURER X Backed by the industry’s most resilient guarantee – an unsurpassed 30-year warranty against whatever the future brings.

  21. Warranty Exclusions / Fine Print • Warranty exclusions (fine print) are rules that protect the manufacturer if any problems arise. • Exclusions will limit the manufacturers liability.

  22. Roof Warranty Exclusions“Warranty is void if....” • “Failure to use reasonablecare…” • “Damage caused by ponding water or improperdrainage…” • “Damage by abnormal use of the roof…” • “Damage by unusual occurrences…” • “Failure to provide routine maintenance…” • “Deterioration due to ordinary weathering…” • “Damage caused by fallingobjects…” • “Unauthorizedmodification…” • “Other than occasional traffic on the roof…” • “Damage from by chemicals, animals, insects, or plant life” • “Change in building use or purpose…”

  23. OutsourcingGoing In For Brain Surgery… Would you? • Find the cheapest surgeon? • Ask that surgeon if they can lower their price? • Would you tell them that they should do it faster? • Would you tell them how to perform the surgery / what tools they can use? • Would you tell them that you have a better way of doing the surgery? • Would you tell them which nurses/doctors they can use? • Would you hire other individuals to tell/direct the surgeon how to do the surgery?

  24. It Is More Important For The Vendor To Know What To Do Than It Is For Client To Know What The Vendor Should Do

  25. Right Information At The Right Time!!

  26. Reexamine How We Analyze • Purchasing a new SUV • How many full-size people can fit? • The MPG or capacity of the gas tank? • The type of safety equipment? • The type of headlights we getting? • Darkness of the tint? • Purchasing Uniforms for Troops • Durability - How long the material will last? • Location of where material is made? • How many pockets the uniform has? • The ability of the uniform to be warm/cold? 26

  27. Dominant Information A B C 10 OZ $3.75 10 OZ $3.50 10 OZ $3.99 27

  28. Which would you buy?(If you need to buy Cocoa Puffs) A B C 10 OZ $3.50 12 OZ $1.25 14 OZ $2.99 28

  29. “Dominant Information” Scenario B Scenario A 29

  30. Industry Structure HIGH NEGOTIATED VALUE-BASED PERFORMANCE UNSTABLE PRICE-BASED LOW COMPETITION LOW HIGH

  31. Industry Structure HIGH NEGOTIATED VALUE-BASED • Value & Performance • Vendors Maximize Profit • Vendor Accountability • Minimized Management & Inspection • Minimal Technical Information • Dominant Performance Metrics PERFORMANCE UNSTABLE PRICE-BASED • Treat as a Commodity • Volume Based • No Accountability / Finger Pointing • Management & Inspection • Minimum Standards & Technical Data • No Performance Metrics LOW COMPETITION LOW HIGH

  32. Which Party Mitigates Risk? HIGH NEGOTIATED VALUE-BASED • Value & Performance • Vendors Maximize Profit • Vendor Accountability • Minimized Management & Inspection • Minimal Technical Information • Dominant Performance Metrics VENDOR PERFORMANCE UNSTABLE PRICE-BASED • Treat as a Commodity • Volume Based • No Accountability / Finger Pointing • Management & Inspection • Minimum Standards & Technical Data • No Performance Metrics OWNER LOW COMPETITION LOW HIGH

  33. Do you spend a lot of effort preparing technical requirements? Do your contractors require a high degree of management? Do your projects require a high degree of inspection? Do you transfer the risk of the project success to the contractors? Do you transfer all control of the project to the contractors? Are contractors coming back to propose on all your projects? Do you focus on getting the longest warranties? Do you focus on writing the best contracts? Are projects completed on-time? Are projects completed without change orders? Are contractors maximizing their profits? What is your level of performance? What is your level of competition? What Quadrant Are We In?

  34. Cost is the primary factor for award • Can be used in any Delivery Method: • Design-Bid-Build • Design-Build • Construction Manager at Risk • Can be referred to as: • Low-bid • Negotiated-bid • Qualifications-based • Best-value Price-Based Definition

  35. Do not use expertise to mitigate risk • Bid only what you see in the estimate • Be as low as possible to get job • If you find issues, don’t tell anyone until after award • Use change orders to mitigate risk • No dominant performance metrics (or provide very confusing metrics) • Drives away high performers Price-Based…

  36. Industry Structure HIGH NEGOTIATED VALUE-BASED How Do We Get Here? • Value & Performance • Vendors Maximize Profit • Vendor Accountability • Minimized Management & Inspection • Minimal Technical Information • Dominant Performance Metrics PERFORMANCE UNSTABLE PRICE-BASED • Treat as a Commodity • Volume Based • No Accountability / Finger Pointing • Management & Inspection • Minimum Standards & Technical Data • No Performance Metrics LOW COMPETITION LOW HIGH

  37. How Do We Transfer and Minimize Risk, Increase Accountability, and Increase Performance?

  38. Fair (state/follow rules) Open Impartial and Transparent (minimize evaluator bias / provide debriefing) Efficient (minimize efforts) Award based on value Factors For Success 38

  39. Increasing Accountability and Performance Need to be a “good” client Need to focus on “win-win” Need to create an environment that gives the advantage to high performers Hire the best people and let them do their job Need to minimize traditional functions Management Direction Control

  40. Your people are your greatest constraint. Your timeframe and goals must be tailored to the capabilities of your people (vendors are more capable of adapting) Just because you understand, does not mean your staff understand. Constraints

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