Article sourced & supplied by 2heads
10 minute read
This is a phrase being used increasingly more within the industry – it sounds impressive but what is really and is it being applied properly? In its simplest form, Value Management is a detailed Process that identifies various high-value customer needs and expectations, assesses the cost of delivering them to the market, then through vigorous assessment selects the item(s) that offer the best long-term return on investment.
It’s Not Just About Saving Cost
Too often Development Managers, Architects and Quantity Surveyors focus their energy on the cost-saving benefits of such items without real knowledge of the value placed on the item by the market (consumer and customer). Specifically, decision makers tend to consider alternatives merely against each other, that is, in isolation of the broader (bigger picture), opting to choose the most cost-efficient item - typically the lowest price one. Rather than consider value (or the price) willing to be paid by the target market, decisions are usually made in a vacuum. If we delve deep into the decision making needs of buyers we often find that the cost of production has little resemblance to the value (the price) the market is prepared to pay for an item.
At fault here is the Development Manager. Among other tasks, the DM’s role is to pull apart and critically examine the interaction of cost and value, with the simple goal of achieving maximum profit at the lowest risk. Essentially, the process of Value Management can and should be applied to each and every major component of a project – not just focusing its physical inclusions and appointment but also (and most importantly) the development’s design characteristics; its product mix and, as well as, deliverables further afield such as building contract and sales procurement methods.
All too often the term Value Management is used in the context of saving money, typically reducing the level of finishes, amenity and services. For example, reducing the quality of floor finishes, the extent of inclusions, downgrading kitchen specification as well as appliances will no doubt save money, however to what extent against lost revenue and/or the sales rate.
Focusing on saving money by sourcing alternatives is merely cost-cutting. Conversely, simply specifying a well-known branded item (in this example) may not be necessarily increase the overall product’s appeal. In contrast, true Value Management sets out to explore the highest price the target audience will pay for a product, then exploring ways to deliver the same at a lowest cost. Applying this approach at a micro level (that is, across numerous high-value centric items) provides the potential for the best overall financial outcome.
A Process that tries to reduce Cost in isolation to a potential decrease in revenue is not productive.
The Process always Starts with Research – Understanding the Value
The Development Manager and the project Team should always invest time at the inception stage of a project - exploring what looks and feels good (through the eyes of the target customer), as well as to explore the various ways to cost-efficiently delivery that Value.
Proper Value Management commences at the earliest stages of the research process. Understanding what drives consumer decision making generally (both tangible and intangible benefits – physical and non-physical) is one of the key ingredients to successful property development.
Understanding why a consumer chooses one product over another is at the heart of a good Value Management process, exploring what alternatives can be substituted to save money is the icing on the cake.
Value Management Should be Fair Reaching
Practicing Value Management in each of the the key areas of a project will ensure the most far-reaching financial reward and personal satisfaction for the Team. There are four (4) key areas that should always be explored by the Development Manager:-
Land / Product Design & Mix:
• Land use / purpose - commercial or residential (units / townhouses / investors / owner occupiers)
• Product mix
• Yield (less is more?)
• Basement design – depth / no. of piers / boundary retention systems
• Podium design – slab / beam
• Span / slab thickness / columns
• Floor-to-floor ceiling heights
• Specification (inclusions & appointment)
• Contract procurement / delivery (allocating risk)
• Pre-sales – vs – Post-construction sales
• Local sales / channel partners
Overall, the process of Value Management starts with a detailed understanding of all high-value customer needs and only ends after exhaustive cost alternatives are explored.
About Author: Sebastian has 36 years in the property industry & an extensive range of experience in Property Development &
Building Construction having being in involved in all aspects of the procurement & delivery process for both small & large commercial retail,
residential, office & industrial projects across Australia.
Co-Founder of DevOp3