VRM Handbook

D31VR Value and Risk Management Course Handbook
This course guide should be used by students on all modes of study- campus-
based and Independent Distance Learning.
Approach to study
This is a 12 week semester long course comprising 7 separate units of study detailed below.
Read each unit in this note before consulting the core reading references at the end to
develop your knowledge of the topic. Then use the self-reflection questions to gauge your
understanding. Move on to the next unit once you are satisfied you can answer the
questions. For convenience, all the core-reading resources are available by ebook or weblink
and are accessible both on and off-campus.
The past exam papers in Appendix 1 are relevant only to off-campus students (Distance
Learning and ALP) and can be used for revision purposes.
Unit Topic
1 An overview of the Value and Risk Management course and the concept of cost and
value
2 Value Management & Value Engineering of construction projects
3 Value, Function and Cost – Function Analysis
4 Project value systems and the Project Life Cycle
5 An introduction to Risk Management – A discussion of Risk and uncertainty
6 Risk and the Client
7 Risk and the nature of the construction industry and its projects
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D31VR Value and Risk Management Reading List
All the core reading resources are available by ebook or weblink as indicated and can be
accessed on and off-campus
Core reading
The units in this course note make reference to the following reading sources. See end of each
unit for details
Kelly J, Male S and Graham D, Value Management of Construction Projects 2nd edition,
Blackwell 2015
(available as ebook through University Library)
Dallas Michael F, Value and Risk Management: A Guide to Best Practice, Blackwell 2006
(available as ebook through University Library)
RIBA Plan of Work 2013, Royal Institution of British Architects (2013)

available at http://www.ribaplanofwork.com/
RICS The Management of Risk, RICS Project Management faculty (2004)

available at http://www.akc.ie/documents/PMRiskFINAL.pdf
Baccarini, D and Archer, R (2001) “The Risk Ranking of Projects: A Methodology”.

International journal of Project Management V19, 139-145
(available through University Library)
Supplementary reading
There are many texts and publications relating to value and risk management of construction
projects. These supplementary resources complement the core reading and are recommended to
further enhance your knowledge and understanding of the subject area.
CABE, The value handbook: getting the most from your buildings and spaces, CABE 2006
http://www.designcouncil.org.uk/sites/default/files/asset/document/the-value-
handbook.pdf
Office of Government Commerce Guide 04 Risk and Value Management

http://webarchive.nationalarchives.gov.uk/20110601212617/http:/www.ogc.gov.uk/pp
m_documents_construction.asp
Office of Government Commerce Guide 03 Project Procurement Lifecycle: The

integrated process
http://webarchive.nationalarchives.gov.uk/20110601212617/http:/www.ogc.gov.uk/pp
m_documents_construction.asp
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Supplementary reading (continued)
Ellis, Robert C T; Wood, Gerard D and Keel, David A, Value Management Practices of
Leading UK Cost Consultants, Construction Management and Economics, V23, Issue 5,
pp483-493
Ann T.W. Yu, Qiping Shen, John Kelly, Kirsty Hunter, (2005) "Application of value
management in project briefing", Facilities, Vol. 23 Iss: 7/8, pp.330 – 342
Fewings P (2005), Construction Project Management: An Integrated Approach, Taylor &

Francis
(Chapter 8- Managing Risk and Value, available as an EBook)
Kelly, J (2007) “Making client values explicit in value management workshops”

Construction Management and Economics, V25, issue 4, pp435-442
CIRIA (1996) control of risk: a guide to the systematic management of risk from
construction
https://cstn.files.wordpress.com/2009/11/control-of-risk-a-guide-to-the-systematic-
management-of-risk-from-construction1.pdf
RICS (2003) Surveyors construction handbook extract- Section 3: the management of

risk
http://www.isurv.com/site/scripts/download.aspx?type=downloads&fileID=213
Flanagan, R and Norman (1993), G Risk Management and Construction Blackwell Science
Norton B R and McElligott W C (1995), Value Management in Construction: a practical

guide, MacMillan
Raftery (1994), J Risk Analysis in Project Management E and FN Spon 1994
Loosemore M, Raftery J, Reilly C and Higgon D (2006), Risk Management in Projects,

Taylor and Francis 2006
Smith, N J (1999) Managing Risk in Construction Projects Blackwell Science
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Value & Risk Management: Table of Contents
Unit 1: An overview of the Value and Risk Management course and the concept of cost and
value 1
1.1 Aim of the VRM course 1
1.1.1 Construction value management 2
1.1.2 Construction risk management 3
1.2 Clients 6
1.2.1 Client types 7
1.2.2 Identification of client needs 9
1.3 Reading and self-assessment questions for Unit 1 12
Unit 2: Value Management and Value Engineering of construction projects 13
2.1 Introduction 13
2.2 Terminology- VM, VE and the Project Life Cycle 14
2.2.1 Project Life Cycle 14
2.3 Construction orientated value management theory 16
2.4 Value study process - The job plan 18
2.5 Building function – 4 levels of application 20
Unit 3 –Value, Function and cost- Function Analysis 25
3.1 Introduction 25
3.2 Types of project value 25
3.2.1 Types of value - Commission for Architecture and the Built Environment (CABE) 26
3.2.2 Value Drivers - National Audit Office (NAO) 27
3.3 Element function analysis and diagramming 28
3.3.1 Function Analysis (FA) 28
3.3.2 Function Logic Diagram 28
3.4 Element function analysis 35
3.5 Elemental cost planning 35
3.5.1 Implementing element function analysis 37
Unit 4 – Project Value Systems and the Project Life Cycle 43
4.1 Introduction 43
4.2 The clients approach to briefing 45
4.2.1 Typical problems encountered in briefing 47
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4.3 Client Project Value systems 48
4.3.1 The Time, Cost, Quality triangle 48
4.3.2 Client’s Project Value System – The Dimensions of Value 49
4.3.3 Deriving Client Value System – strategic level exercise 51
4.4 VM application points and the project life cycle 52
4.4.1 Strategic briefing study: benchmarked value opportunity point 1 52
4.4.2 Project briefing study: benchmarked value opportunity point 2 53
4.4.3 Concept design study: benchmarked value opportunity point 3 54
4.4.4 The Charete: benchmarked value opportunity point C 54
4.4.5 Final sketch design/scheme design study: benchmarked value opportunity point 4 55
Unit 5 Introduction to Risk and Risk Management in Construction 58
5.1 Introduction 58
5.2 Risk Management in Perspective 58
5.2.1 What is Risk? 60
5.2.2 Risk – Something to be avoided? 60
5.2.3 The View of the Professional Bodies 61
5.2.4 Risk – Upside or Downside 63
5.2.5 Risk, Uncertainty and Events 64
5.2.6 Risk – An Event or a Condition? 65
5.2.7 Scope of Uncertainty Relating to the Construction Project 66
5.3 Background to Risk Management (RM) 68
5.3.1 Defining Risk Management 68
UNIT 6 Risk and the Client 71
6.1 Introduction 71
6.2 Risk and the client 71
6.2.1 Risk and the client’s investment in a capital building project 71
6.3 A Client Approach to Evaluating Project Risk – the 3 aspects of risk 72
6.3.1 Aspect 1: Establishing T, C and Q objectives 73
6.3.2 Aspect 2: Consequence of failure to meet T, C and Q objectives 73
6.3.3 Aspect 3: Risk Profile of a project 75
6.4 Summary of risk aspects 77
UNIT 7 Risk and the Nature of the Construction Project 79
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7.1 Introduction 79
7.2 Project Heterogeneity v Homogeneity 80
7.2.1 Project heterogeneity 80
7.2.2 Project homogeneity 81
7.3 Risk and the Project Environment 84
7.3.1 External Environment 85
7.3.2 Internal Environment 86
7.3.3 Controllable or Uncontrollable? 86
7.4 Risk and the project life cycle 87
7.4.1 Risk and strategic project development 88
7.4.2 Risk and technical design development 89
7.4.3 Risk and construction 90
7.5 A Checklist of Risks 91
7.5.1 Risk and the ‘source-event-effect’ chain 92
7.6 The Risk Management Process 93
7.6.1 Risk management planning 93
7.6.2 Risk identification 94
7.6.3 Risk Analysis 94
7.6.4 Risk Response 95
7.6.5 Risk monitoring and control 97
7.7 Tools and Techniques of Risk Management 98
7.7.1 Techniques for the Risk identification stage 98
7.7.2 Techniques for the Risk analysis stage 99
7.8 Quantitative or qualitative risk analysis? 102
APPENDIX 1 PAST EXAM PAPERS 104
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Unit 1: An overview of the Value and Risk Management
course and the concept of cost and value
1.1 Aim of the VRM course

In summary, the aim of Value and Risk Management is to introduce the concepts of value
& risk management as applied to construction projects, and develop an understanding of
their tools and techniques.
The objectives are
• To develop a practical understanding of the value and risk management of the

strategic and tactical development of a construction project.
• To analyse the strategic and tactical development of the project including a practical
appreciation of value & risk management techniques used at this stage.
• To understand the nature of risk and uncertainty associated with the procurement of
projects
• To contrast the practice of value management with the UK practice of cost
management.
Value Management (VM) and Risk Management (RM) have been combined in this
course to demonstrate the power of using an informed team under the direction of a
skilled facilitator to recognise and either solve (value management), or account for (risk
management), problems occurring on construction projects in their various stages. VM
and RM are complimentary “disciplines” which have been described as being 2 sides of
the same coin. They are complimentary in their objectives, in that improving value in a
project can only be achieved if the risk associated with it is balanced and manageable.
They are also complimentary in methodology, or process, terms. The implementation
of value management and risk management, in a practical sense, is very similar for each.
Both systems require:

T
The clear identification of a reference point and the client focused definition of
the relationship between time, cost and quality. C Q/p
The discovery of relevant information either through research or the
structured questioning of those who have the information.
A team approach to the processing and qualitative and quantitative

assessment of strategic and tactical issues.
An outcome in terms of an implementation strategy (value management) or a

dynamic risk register (risk management)
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Key point for reflection
This quote below sums up why it makes sense to have Value and Risk Management as part of
the same course. Defining value in the design solution and then managing risks in its delivery
go hand in hand.
1.1.1 Construction value management
In construction, value management is typically a proactive, creative, problem solving

service deployed through workshop interventions in a project environment. Value
management workshops are used to develop the project brief, and value engineering
workshops are used to optimise project solutions. Value management involves using a
structured, multi-disciplinary team-orientated approach to confirm the customer’s needs
and their priorities (their value system) using functional analysis to expose the
relationship between time, cost and quality. Strategic and tactical decisions taken by the
client and the design team are audited against the client’s value system at targeted stages
through the development of a project and/or the life of a facility from the earliest
planning stages to post project review.
Value is a measure of customer satisfaction relative to the level of effort to achieve

satisfaction. Value for money is the common expression although value per se includes
assessment of wider dimensions – the look and feel of a product; utility and reliability;
environmental characteristics and sustainability in relation to price; level of effort; energy
required to name but a few.
2
Value Management is a style of management particularly dedicated to motivating people,
developing skills and promoting synergies and innovation, with the aim of maximizing the
overall performance of an organization (BS EN 1325:2014). Value Management can be
deployed as a framework for an improvement programme or as discrete intervention(s)
within a project environment.
1.1.2 Construction risk management
In construction, risk management is typically about the identification, measurement and

control of the risks that threaten life, property and the profitability of an organisation.
Risk Management also seeks to identify opportunities and benefits from uncertainty and
exploit upside risk. Every stage of the construction process, from initial investment
appraisal through to construction and use of the facility is subject to risk for all the parties
involved. A structured risk management system comprises identification, analysis, and
response strategy to all significant project risks with the aim of reducing the opportunities
for loss, and increasing the opportunities for gain.
Construction risk management is a subject that has been attracting growing attention in
the industry over the last decade. The increasing complexity and cost of projects, ever
more demanding and sophisticated clients and increasing competitiveness have all
contributed to the recognition of risk, the need to do something about it and awareness
of the financial cost if ignored. Whilst it is true to say that risk in construction, as in any
venture, has always existed and that good project management practice must deal with
it, the emphasis on formalised and systematic risk management is more recent. The
course gives consideration to the nature of the construction industry and features of
construction projects from a risk perspective.
Risk is “uncertainty inherent in plans and the possibility of something happening that can
affect the prospects of achieving business or project goals” BS 6079-3:2000. Uncertainty
may be positive or negative. In common language risk is therefore a possible hazard or
opportunity that if it occurred or was captured would threaten or benefit business
outcomes.
Risk Management is the systematic application of policies, procedures methods and

practices to the tasks of identifying, analysing, evaluating, treating and monitoring risk.
Organisations need to establish and manage their strategic and operational risks. Some
risks must be taken to be successful and survive. Other risks if realised can put an
organisation in jeopardy and these risks should be mitigated.
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Strategic
.-
and Tactical development of projects
This course is concerned with both the strategic and tactical development of projects.
Strategic project development

Strategic issues are concerned with the “front end” of the construction process
and to this end the course examines how a project fits in with a client
organisation’s overall objectives, questions its scope and audits the developing
brief. At the outset the project can be conceived of as primarily a business problem
in most cases. The “front end” is typified by the early steps of any procurement
model, usually concept and briefing stages. It is contended that too little attention
is often paid to these stages with a consequent rush to technical solution to fulfil
a perceived need. Furthermore, the best chance to achieve project VFM will be
realised through a deeper understanding of how a project fits into the
organisations corporate objectives. Value management applied at this stage aims
to define the client value system and express the project in functional terms using
a variety of tools and techniques. Strategic level VM does not presuppose a built
solution as the best way of meeting clients’ objectives.
Tactical project development
Tactical project development is concerned with built solution form, structure and
asset procurement issues. As such it deals with the “harder” end of the
construction process, at which stages the business problem or opportunity has
evolved into a construction project, and does not question the motivation to build
or surrounding strategic issues. In this context VM studies use Function Analysis
(FA) and other problem solving tools and a multidisciplinary design team to
suggest alternative elements, materials and components, as well as making small
revisions to the project concept to improve VFM. RM is a means of improving
project performance by reducing exposure to the many possible risks, threats and
hazards that threaten good project performance. Good project performance is
achieved if the building or other facility is delivered on time, within budget and to
the stipulated quality standards necessary for a happy client and construction
team.
4
A key theme for the VRM course will be to think not so much about what buildings are but
more about what they do and why they are needed. Buildings and infrastructure represent a
substantial investment for clients and it is important they generate value by fulfilling a defined
purpose i.e. be performance-led. This is not as straightforward as it would appear.
5
1.2 Clients
We make reference to clients frequently throughout the course. The client is the
customer and ultimately it is they who derive value from their investment as a result of
all the activities throughout the design and construction processes by all parties involved
in delivering the finished product. These parties involve both the demand side (client
representatives) and supply chain. Who or what is “the client”? The client can be one
individual in the most simple of projects, but is more likely to be an organisation
representing a range of interests and can be complex, multi-faceted and involve
competing interests. This section provides some background information about the
construction client, their characteristic structures and their approach to construction
projects.
Identification of the client body on projects of any reasonable size can, therefore, be
extremely difficult. Even assuming that all of the interest groups can be identified, the
problem then is deciding if and how they should be represented in the business case
team.
For owner occupiers, the usual way of doing this in all but the smallest of organisations
is to appoint representatives for each of the user groups (e.g. departments affected by
the building project) and form a committee to draft the brief. There is little information
available on how clients select these representatives, but there is some evidence to
suggest that many client organisations, in underestimating the importance of the briefing
process, appoint representatives of relatively low status. Consequently, their ability to
access information quickly and to make decisions is limited, and this can slow down the
briefing process. It can also be frustrating for the design team, because they are
effectively denied access to the business case team. These representatives do however
have the power to influence the briefing process by their interpretation of information
between the client interest groups and the design team, and between the design team
and the other more powerful members of the business case team. If this interpretation
is not faithful, the brief can become distorted in relation to the real client needs and
decisions.
6
The quote below concisely expresses the main purpose of Value Management. The problem with
traditional design practice is that it often focuses on the development of the technical design
solution without having a full understanding of what the purpose of the project is. This is not an
easy task as clients can be complex, multi-faceted, confused, unclear and have a range of
competing interests in a project. Hence, they struggle to articulate value in a way that leads to a
balanced design solution.
1.2.1 Client types

The complexity of client organisations forbids modelling of client types on anything other
than a simplistic overview. However, the following do address the most common
characteristics.
Large clients
Large clients frequently proceed to develop a brief prior to approaching the industry.
They perceive the architect (and the rest of the design team) as technicians who will
translate their stated requirements into a built solution. Most large and regular clients of
the building industry now employ in-house project managers (although the precise
meaning of this term varies from client to client). Alternatively they may call upon the
services of outside consultants to act as project managers to provide the interface
between them and the design team. It should be recognised that the appointment of a
project manager results in a gatekeeper situation arising in that those wishing to
7
influence the client must pass there information first to the project manager. The
converse is also true for client representatives wishing to influence the design team.
Therefore, the influence that the actual design team has on the brief under these
circumstances is limited.
Highly sophisticated clients often retain their own design consultants who participate in
the briefing process and so provide some design advice at the early stages. They may also
take the advice of letting agents about the design of commercial buildings so that their
'purpose built' properties are not designed so specifically to their particular requirements
as to compromise their asset value and be difficult to dispose of should this be necessary
at some future time. Such clients will often have developed model briefs for certain
generic types of building such as an office, a school or a leisure centre. The brief for a
project is developed by an in-house project manager who consults with a facilities
manager and representatives of the user groups, with advice on the design and cost
implications of decisions coming from in-house design consultants. The extremely rigid
brief is then passed to the design team who will work on the project. The project design
team must then liaise exclusively with the project manager. They never meet the users
of the building, and if they wish to deviate from the brief they must present an extremely
good case for doing so.
Large/private/owner occupier
In larger, private organisations building for owner occupation, the problems of identifying
and dealing with the client body is that much greater, and in addition to this so is the
problem of identifying the stakeholders and the decision making unit. It is extremely rare
to find one individual who will have total authority over all decisions during the briefing
stage. Instead, decisions are usually taken jointly by a number of individuals representing
the interest groups and then this information is channelled into the briefing process by a
smaller number of persons designated as client representatives.
It is quite common for some of those interest groups which can be defined to be part of
the client body to have no representation in the decision making unit, and it is also quite
common for the power within the decision making unit to be unequally shared. The
function of the project sponsor is to overcome these deficiencies by representing the
views of those not represented. The client project manager is often a feature of large
commercial organisations that regularly procure from the construction industry. In this
situation it is less common to have a project sponsor.
Small clients
The approach taken by smaller clients reflects the limited expertise available to them in-
house. They tend to rely more heavily on the design advice of a consultant architect at
the briefing stage. The way in which these clients present their requirements to the
architect can vary
Small/private/owner occupier
8
The simplest case in these terms is the small private organisation that wishes to build for
owner occupation (e.g. a small office, factory or an extension to an existing facility). Here,
the client body is composed of the management and workforce who will, to some degree,
be affected by the new facility. These two comprise the stakeholders. Even in such a
simple case, there will almost inevitably be some disagreement on priorities between the
interest groups that is between management and workforce and indeed among the
management and the workforce. Resolution of these conflicts and final decisions are,
however, likely to be the responsibility of the business case team who may be one very
senior person who is directly involved in the briefing process. Hence although the client
body may be defined to include several interest groups, the decision making unit is
relatively easy to identify and probably autocratic in style.
Large/small private developer

The stakeholders here comprise the developer, the funding organisation, and the
ultimate occupiers of the building. The occupiers seldom have representation in the
decision making unit, and yet it may be argued that they are the ones who are most
affected by the design of the facility.
Large/small public owner occupier

The public sector presents yet greater difficulties in some respects. Here, the
stakeholders can be defined to include the public sector authority, the people who will
operate the facility and the public whom the facility is designed to serve. This is an
enormously wide definition of the client body with attendant difficulties in representing
all of the interest groups fairly.
1.2.2 Identification of client needs
Even assuming that there is fair representation of the various client interest groups,
identification of the true needs of these groups can be problematical. There is a
tendency to assume that in approaching the building industry, the client has at least
correctly identified that a building project of some kind is the correct solution to the
problem which gave rise to the needs in the first place. Larger and more sophisticated
clients are generally assumed to have investigated the need to build quite thoroughly,
however there is a consensus among writers in this field that the same cannot be said
of smaller, less sophisticated clients.
The statement of a need will tend to be influenced by the envisaged nature of the
solution, and so brief writers can find themselves attempting to solve the wrong
problem. Understanding the priorities of the user groups such that high priority needs
are not sacrificed for lower priority wants.
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Some useful terminology
Business case team A team of people with an understanding of the

objectives of the client organisation, who may
be from within the organisation or outside or a
mixture of the two. In small projects one person
can fulfil the role. This team becomes the
decision-making unit. (see investment decision
maker below).
Client The customer for construction.
Client adviser The independent adviser, with a knowledge of

construction, and able to understand the client's
business needs and objectives, including any
special needs of the users. Engaged very early in
the project to give impartial guidance on the best
way to proceed.
Client project manager The individual or organisation supplying the

technical expertise to assess, procure, monitor
and control the resources needed to complete the
project. The client project manager should act in
the client’s interests and report directly to the
project sponsor.
Client representatives Individuals, often heads of department, who

make up a project committee. The project sponsor
or client project manager may chair this
committee
Investment decision maker A term used in Office of Government Commerce

documents to describe the business case team.
The investment decision-maker may be one
person or a committee.
Project owner A term used in Office of Government Commerce

documents to describe the named
individual who is accountable to the
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investment decision maker for the
project and the budget.
Project sponsor A senior executive from the client organisation

who is responsible for developing and
delivering the project to meet the
client’s needs. The project sponsor
manages the client’s input into the
project, co-ordinate the client’s
functional and administrative needs,
works with stakeholders and users,
resolves conflict on the client side and
acts as the formal point of contact for
the project team.
Stakeholders The key interested parties, such as investors and

end users, whose views must be taken
into account during the development
of a project.

The term Value term is widely used in modern procurement- but what does it mean? value for
whom? and how is it measured? You will gain an understanding of these as you progress through
the course.
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1.3 Reading and self-assessment questions for Unit 1
Once you have read and understood the above you should consult the
following core reading and then attempt the self-assessment questions.
Dallas Chapter 1
Kelly, Male and Graham Chapter 1.3
RIBA Plan of Work 2013
1. Why is it logical to integrate value management and risk management into a

single course of study?
2. What is the difference between the strategic and tactical phase of a project?
3. What is it about the nature of clients that makes it difficult to articulate value
on a project?
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Unit 2: Value Management and Value Engineering of
construction projects
2.1 Introduction
The aim of this unit is to review the background to value management and value
engineering and outline its application to the construction industry.
Simplistically, value management is the name given to an enterprise concerned with

providing the product or service demanded by a customer at the required quality and
at the optimum cost. The philosophy is based on work undertaken in the manufacturing
industry of the USA in the 1940s and defined initially as value analysis:
Value analysis is an organised approach to providing the

necessary functions at the lowest cost.
From the beginning, value analysis was seen to be a cost validation exercise which did
not affect the quality of the product. The straight omission of an enhancement or finish
would not be considered value analysis. This led to the second definition:
Value analysis is an organised approach to the identification and

elimination of unnecessary cost.
Unnecessary cost is:
Cost which provides neither use, nor life, nor quality, nor
appearance, nor customer features.
In 1954 the US Department of Defence’s Bureau of Ships became the first US

government organisation to implement a formal programme of value analysis. It was at
this time that the term value engineering came into being for the administrative reason
that engineers were considered the personnel most appropriate for this programme.
The formation of the Society of American Value Engineers in 1959 established the
technique and the name.
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2.2 Terminology- VM, VE and the Project Life Cycle
The terms most commonly used are value management and value engineering. In a
construction context, value management is generally considered to relate to the
business activity of the client and spans individual projects. Value engineering relates to
studies undertaken on specific projects between the completion of the sketch design
and the completion of construction work on site. These studies tend to be technical in
nature dealing with elements, components and construction process. This section
introduces the context within which VM and VE is applied, and the issues to be resolved
at the various stages throughout the Project Life Cycle are reviewed in more detail in
Unit 4
2.2.1 Project Life Cycle
The Project Life Cycle (PLC) is defined by BS6079 Part 1 as the “sequential phases
through which a project passes to reach its objectives”. There are numerous
interpretations on what these phases comprise of from the various professional bodies,
both in a general project management as well as construction specific perspective.
Within construction the Royal Institute of British Architects (RIBA) Plan of Work (PoW)
is one of the most widely recognised project life cycle frameworks in the UK, and will be
used throughout this course as the main framework of reference. It was first published
in the 1960s and has gone through a number of iterations. The most recent significant
update was 2013 when it was revised to recognise sustainability and Building
Information Modelling activities.
A comparison of the various project life cycle frameworks shows that the timing and
responsibilities for the various design and construction activities involved may vary, the
way the various participants are brought together may differ, and the number of steps
detailed and terminology used varies. However, fundamentally they all exhibit a number
of common features which see the project go through a strategic definition phase
followed by tactical delivery phase. This distinction is important to VM, VE and RM as
will become apparent.
14
Some Sample Project Life Cycle Frameworks
APM BoK RIBA PoW BS6079 OGC CIRIA

Pre-feasibility Strategic definition Conception Strategic Feasibility
assessment
Feasibility Preparation and Feasibility Business Briefing
brief justification
Design Concept design Implementation Procurement Scheme design

strategy
Contract Developed design Operation Investment Production

decision information
Implementation Technical design termination Outline design Tendering
Commissioning Construction Detailed design Construction
Handover Handover Readiness for Operation

& closeout service
Operation In use Benefits
evaluation
VALUE MANAGEMENT OPPORTUNITIES
VALUE ENGINEERING OPPORTUNITIES
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2.3 Construction orientated value management theory
Value analysis/value engineering was initially a service for manufacturing industries

where the aim is to produce a large number of identical products at the highest quality
for the least cost. This high production run is not a characteristic of construction.
However, construction clients also require the highest quality for the least cost and
often within a given time. In the quest for a single building project a large number of
problems will be addressed and a large number of decisions will be taken. A workable
definition for this situation is therefore:
Value management is a service that maximises the functional

value of a project by managing its development from concept
to occupancy through the audit (examination) of all decisions
against a value system determined by the client.
This service is achieved through the application of the job plan described below. At the
core of a value management service is the identification of a function which is defined
as:
An activity for which a thing is specifically designed, used, or
for which something exists.
And value which is defined as:
A measure expressed in money, effort, exchange or on a

comparative scale which reflects the desire to obtain or retain
an item, service or ideal.
Function and its associated value can only be determined by reference to the client’s
value system, a concept discussed later.
16
Key reflection point
There are numerous definitions of Value Management in the construction literature and,
although they may be expressed differently, the essence of the meaning is consistent.
17
2.4 Value study process - The job plan
All value management studies, in manufacturing and construction, follow the job plan.
The job plan is simply a structured method for the logical, sequential, analysis of value.
Value studies can be carried out at various stages of the project life cycle for specific
purposes and these are explored in Unit 4. The job plan comprises the following 6 steps.
Phase 1 - information
In this phase all of the available information relating to the project and relevant to the
stage under review is gathered together. The objective of the information gathering is
to identify the functions of the whole or parts of the project, as seen by the client
organisation, in clear unambiguous terms. The information should not be based upon
assumption but be obtained from the best possible source and corroborated if possible,
with tangible evidence. The reasoning behind this is that the quality of decision making
cannot rise above the quality of the information upon which the decision is to be made.
However, care should be taken not to spend unjustifiable time and effort in information
seeking. There is a dilemma between the dangerous consequences of acting upon
inadequate information and the possible missed opportunity when waiting for reliable
information to arrive. This dilemma is a critical part of a risk analysis. The types of
information being sought are:
Client needs, which are the fundamental requirements that the project
must possess to serve the client’s basic intentions. Needs should not be
seen solely in terms of utility as the client may have a need for a
flamboyant statement or a need for a facility or a part of a facility which
heightens the client’s esteem.
Client wants are the embellishments which it would be nice to have but
do not satisfy need.
Project constraints are those factors that will impose a discipline upon
the design, for example, the shape of the site, planning requirements,
regulations, etc.
Budgetary limits expressed as the total amount that may be committed

to the project in initial capital and life cycle costing terms.
Time for design and construction as well as the anticipated period for
which the client will have an interest in the building.
Information is the lifeblood of a value management exercise that is obtained under the
direction of a value management facilitator using tools and techniques specifically
designed to extract information appropriate to the stage of the project. Diagram 1
illustrates the characteristic nature of information at various stages in the project. At
the earliest stage, at the point at which the client perceives a problem to which a
building is only one solution the information tends to be unstructured. This
unstructured information may exist as supply and demand statistics within the client
organisation, or information relating to a problem identified but not made explicit by
18
client’s employees or consultants, or the strategy of the client executive for which there
is no technical solution. Users of a facility, who are not a part of the client organisation,
may also hold information. For example, public buildings such as law courts, libraries,
museums and offices offering consultation services are situations where the users do
not belong to the client organisation and yet possess valuable information.
Concept information is largely produced by the client organisation in terms of a brief

and by the design team in terms of initial sketches. Once the outline proposal stage is
complete (final sketch design) the design exercise becomes a technical task of
answering the client’s brief. At this point the client’s value system is locked in.
Technical information is the designers’ solution to the problem described in the brief in
performance specification terms.
Phase 2 - creativity
In the creative phase the value management team put forward suggestions to answer
the functions which have been selected for study. Brainstorming is the most popular
technique used by value management facilitators to generate ideas in the creativity
phase. The technique requires a group to consider a function and contribute any
suggestion that will answer that function. Every suggestion, no matter how apparently
stupid, is recorded. So, for example, suggestions for a butchers’ cold store for the
function “maintain internal temperature” could be; ice, cold air curtain, insulation, vary
pressure, in fact, any idea that comes to mind.
There are various rules which apply to the management of a brainstorming session of
which the two most important are: firstly, no criticism of any suggestion by word, tone
of voice, shrug of shoulders or any other method of indicating rejection is allowed.
Secondly, the exercise is one of generating as many suggestions as possible. The good
suggestions will be randomly scattered amongst all suggestions. Research has indicated
that in any sample, the number of good suggestions remains fairly constant as
proportion of wild suggestions, so the more suggestions that there are, the more good
suggestions will be obtained. All suggestions are recorded and none are rejected on the
grounds of apparent irrelevance.
Research has also shown that original suggestions are as likely to come from those
inexpert in a subject as from those who are expert. For example, the interior design
consultant may come up with a good original suggestion for the solution to a structural
function. One reason put forward for this is that the consultant will not be constrained
by professionally determined technical rules or education.
Phase 3 - evaluation
The value management team evaluates the ideas generated in the creativity phase using
one of a number of techniques, many of which depend upon some form of weighted
vote. This stage forms a crude filter for reducing the ideas generated to a manageable
number for further study.
Phase 4 - development
19
The accepted ideas, selected during phase 3, are investigated in considerable detail for
their technical feasibility and economic viability. If appropriate for the stage of the
study, outline specifications or designs will be worked out and budget costs realised.
There is wide scope for the use of cost models and computer aided calculations at this
stage.
At the end of the development stage the team will again consider the worked up ideas
and all those which either cost more than the original or are found to reduce quality are
rejected.
Phase 5 - presentation
The refined ideas are presented by the value management team to the body that
commissioned the value engineering exercise, supported by specifications, drawings,
calculations and costs.
Phase 6 - feedback
It is important that the value management facilitator receives some detail of those ideas
that have been put into practice and be given the opportunity of testing the design and
cost predictions of the team.
2.5 Building function – 4 levels of application
The function of a building is to provide an environmentally controlled space suitable for

the activity to be carried out within that space. The design of the building is a technical
solution to the functional requirements of the space. Herein lies one major difference
between the manufacturing industry and the building industry, manufacturing
providing products and building providing environmentally controlled space. A building
has a number of characteristics:
It is comprised of manufactured components and assemblies.
The components and assemblies are constructed to form elements of a building.
The configuration of the elements of a building form spaces which are conducive to the
activity to be performed within the building.
The building represents a stage in the corporate strategy of the client organisation and
contributes to the capital value of that organisation.
Each of the above represents a level at which a particular value management technique
is appropriate. The levels are incremental but, as listed above, are in the reverse order
of their chronological development. The levels and the points on the RIBA Plan of Work
when they are generally considered is discussed below.
20
Solving
.
an
organisation ←
perceives problem .
Realisation through
a Study of efficiency ,
safety markets
, and
profitability ,
etc .
Strategy - level 1
Level 1 represents the first stage wherein the client organisation perceives a problem.
This problem may be realised through a study of efficiency, safety, markets,
profitability, etc. Currently, if a client sees a building as a solution to this problem, a
contact with the construction industry is most likely to be made. The construction
industry representative is most likely to assume that the client has correctly identified
that a building is the solution to the problem and will advise the client on how best to
proceed. The client at this point steps onto the building procurement moving walkway
and is virtually prevented from stepping off until the keys to his new building are
handed over.
As an alternative to this traditional method it is suggested that the first approach be to

a value manager, who, with representatives of the client organisation will undertake a
functional, structured definition of the project and its objectives. A project is defined
here as “the investment of resources for a return” where the return may be social or
financial.
Concept and Spaces - level 2

Having determined that a building is the most promising solution to the project the
value management process moves to level 2 involving the value manager in an exercise
with the client representatives and a design team. Normally the design team would be
that which was to take over the design of the building, but in situations where the client
wished to reserve the choice of an alternative procurement route e.g. design/build, the
design team would be commissioned for this exercise only.
The exercise would address the definition of the various functional spaces required by
the client and performance specification of the spaces in terms of area and height,
21
adjacency, IT and other technical requirements, quality and the heating, ventilation,
lighting and sound environment to be maintained.
Elements - level 3
An element is described by the building cost information service as “that part of
construction that always performs the same function irrespective of the components
from which it is made”. An element is unusual in that it has a function but rarely
performs or contributes to a process. Also, by definition, the functional analysis of an
element need only be carried out once. Once all of the functions of an element, e.g.
external wall, have been realised they can be translated into the specific application
envisaged by the project.
Components - level 4
Components used in building have been subjected to a process prior to their arrival on
site. All or parts of this process may be analysed to determine function. Having an
understanding of the manufacturing process and the functional requirements of the
component may lead to alternative design decisions particularly when dealing with
components which are project specific, for example, curtain walling, precast concrete
components, windows and doors. For example, a precast concrete cladding panel is
subjected to a process of manufacture, transport, lifting and fixing in position, each of
which may be viewed as a functional operation.
22
This value ratio is an expression of the different ways to manage and improve value on a
project. Is it possible to (1) cut costs without sacrificing functionality (requires identification of
unnecessary cost), (2) Improve functionality without increasing costs (through smarter targeting
of resources), (3) Substantially improving functionality with acceptable increase in cost (pay a
little more for increase in value) and (4) Achieve improved functionality at lower cost (the ideal
outcome! Requires innovation and creativity in developing solutions),
Note – NAO is the National Audit Office. The UK statutory body charged with carrying out Value
For Money audits of public sector expenditure on goods and services.
23
Reading
Dallas Chapter 1
Kelly, Male and Graham Chapter 2.1 - 2.5
Self-Assessment questions
1. What are the different ways in which value can be improved in a product or
process?
2. What are the 4 distinct levels that building function can be explored through
application of VM and VE?
3. At what stages in a construction project would Value Engineering be applied?
4. At what stages in a construction project would Value Management be

applied?
5. What is the main purpose of each stage of the job plan?
24
Unit 3 –Value, Function and cost- Function Analysis
3.1 Introduction
The unit begins with reference to generic definitions of value in buildings. Techniques
are then introduced that may be used in the briefing process to describe the customer
or client’s specific value requirements of buildings. The concept of Function Analysis
(FA) is introduced and its essential principles are described. These principles are
developed with the Function Logic diagram and examples are presented to illustrate its
application in practice. The unit develops by considering technical orientated FA and its
application at the level of a building’s elements. The relationship with traditional
elemental cost planning as practised by the quantity surveyor is then discussed.
3.2 Types of project value

Previous units have introduced the principle of value and how this can be secured on
projects through a VM approach. Before going on to consider the VM technique of
function analysis as an important component of identifying value, it is worthwhile
considering some widely acknowledged concepts of how buildings generate value for
clients and end users. Whilst the broad categories are universal, the value profile differs
from project to project and the purpose of VM is to identify what this is. Function
analysis provides a structured means of exploring this and can be applied at various
levels of the project life cycle. The CABE and NAO offered their perspectives on value
as follows.
CABE’s Value handbook defines 6 categories of value that buildings can generate (see
below). These range from the quantifiable measures of price as financial value to the
developer and owner, through to the more subjective and perceived categories of value
including image and cultural value. By their nature these are not easy to quantify,
though may be extremely important and should be reflected as such in the client
project value system. Note the types of value and suggested performance measures of
each.
25
3.2.1 Types of value - Commission for Architecture and the Built
Environment (CABE)
CABE (2006) The value handbook: getting the most from your buildings and spaces
Contrast the above with the National Audit Office definition of 6 categories of value;
expressed as ‘Value Drivers’. There is much overlap and consistency between the two
(e.g Use value and maximising business effectiveness) with one key difference to note.
Two of the value drivers in the NAO definition- Ensure effective project management
and delivery and Comply with 3rd party requirements- are concerned with the process
of delivering the project, whereas the CABE categorisation is entirely about outcomes
and benefits to be realised by the project.
26
3.2.2 Value Drivers - National Audit Office (NAO)
NAO (2004) Getting Value for Money from Construction Projects through Design
27
3.3 Element function analysis and diagramming
Having looked at generic categories of value from buildings, this section explains how
Function Analysis and function diagramming can be used to explore value specific to a
project. FA can be performed at a high level early in the PLC to interrogate project
concept and reveal value drivers, or performed at a technical level to identify product
functions in a value engineering study.
Two examples are used to illustrate how function analysis can be performed at these
different levels of the project life cycle. These can be found in the Kelly, Male and
Graham core text (pp110-119)
The procedure for establishing the necessary functions is outlined below.
3.3.1 Function Analysis (FA)
Verb/noun definition
Most texts recommend that the function of an item or a system be
expressed as a concise phrase, ideally one comprising just an active
verb followed by a noun.
Primary and Secondary functions

Primary functions are defined as those without which the project
would fail or the task would not be accomplished. Secondary
functions, on the other hand, are those that are a characteristic of
the technical solution chosen.
When conducting a FA exercise it is useful for the VM team to first question what the
project, process, activity, element or components – i.e. whatever the object under
study is- will do. Following this a list of verb/noun functions can be generated for
the object under study. Further consideration should see the team distinguish between
needs and wants functions. Client needs are those functions the project must possess
to serve its basic intentions. Client wants are those embellishments to the project which
are nice to have, but not critical to the survival or basic integrity of the project. From
the finalised and agreed list of functions, a function logic - also known as FAST (Function
Analysis System Technique) - diagram can then be constructed.
3.3.2 Function Logic Diagram
As an aid to information gathering and synthesis it is recommended that the workshop

team should construct a function logic diagram. This will act as a knowledge leveller
and is useful to establish consensus before progressing further. The function logic
diagram is used to determine the project task and its justification for existing. It is a
very good deepening and focussing technique that describes a project concisely in a
visual form. It brings together the value criteria of a project, highlighting the strategic
issues that represent the client’s value system.
28
The usual process for preparing a function logic diagram in a workshop is for the team
to brainstorm functions, then group and structure them into a hierarchy. Once the
hierarchy has been established it is useful to pose the question, “What if we go one
level higher?” and then establish the resulting function or objective. This will force the
participants to step back from the project and place it in a wider context i.e. linking it
into corporate and business strategies. The examples below are used to illustrate the
principles of the function logic diagram.
Example 1
Consider the construction of function logic diagrams for the following
simple project. The project came into being when a local authority decided
to extend an existing country park to incorporate land on the far side of a
river. The project involved the investment of resources to transport
pedestrians, including disabled and children in prams/buggies, safely
across the river.
Generation of functions
The functions were generated by the team in a random fashion on post-it
notes and placed on a large sheet of paper (figure 3.1 below)
29
Maintain
Facility Position
Meet People
Minimise Demand
Wear
Reduce
Establish
Downtime
Rules (of
(due to
Non slip passage)
flooding)
Surface
Minimise
Labour
Support Protect Cater for
Peopler People children
Control
People
Cater for Facilitate

disabled Passage
Educate
people
Direct Prevent
Routes Focal
Falling (into
point
river) Span
River
Figure 3.1 Generation of Functions
Sorting of functions
Following the generation of functions, undertaken as a brainstorming process, the
team are invited to order the functions by putting the highest order need at the top
left hand corner of the paper and the lowest order want at the bottom right. This is
illustrated in Figure 3.2 below.
30
Facilitate Span
Passage River
Prevent
Support Protect Focal Falling (into
Peopler People point river)
Educate Cater for Cater for

people children disabled
Establish
Meet Control Rules (of Position
Demand People passage) People
Reduce
Downtime
(due to Direct Maintain
flooding) Routes Facility
Minimise Non slip

Wear Surface
Minimise
Labour
Figure 3.2 Initial sorting prior to diagramming
Diagramming
A diagram is constructed from the ordered post-it notes. The type of diagram will
depend upon the focus of the study being undertaken. To gain a technical appreciation
of the problem a function diagram with a technical bias will be constructed. If the focus
of the study is of a strategic nature, such as a strategic briefing, a client orientated
function diagram will be constructed. The figures below illustrate the two types of
diagramming technique for the problems outlined above.
31
Design Objectives
Desired Objectives Meet
Demand
Downtime
Maintain
disabled Facility
Educate Minimise
Labour
Facilitate
Establish
Passage
Support Position Protect
passage)
Peopler People People
Span
River
Routes
Figure 3.3 - Technical FAST
It should be noted from the above diagram that the prime objective is a technical
objective and the brainstorming of ideas following the construction of the diagram will
therefore lead to the exploration of technical solutions. The brainstormed solutions, for
example, a suspension bridge, a simply supported span bridge, stepping stones, etc, will
be audited back against the diagram to determine the extent to which the ideas meet
the functions.
The diagram is structured such that the prime objective of the project is situated on the
left-hand side of the scope line. The prime objective "support people" is situated
immediately to the right of the project objective. Parallel objectives are below the prime
objective in this case "span river". Secondary objectives appear to the right of the prime
objective and design objectives are situated immediately above. Desired objectives are
located on the top right of the diagram above the secondary objectives.
32
It is the structuring of the diagram that prepares the team for brainstorming. For a client
or customer orientated situation the same post- it notes will be ordered in a slightly
different manner. The diagram overleaf illustrates a client-orientated diagram that takes
the form of a tree laid horizontal. In a very general sense the logic of the diagram answers
the question "how?" when working from left to right and "why?" when working from
right to left. Highest order needs are placed at the top of the diagram and the lowest
order wants at the bottom of the diagram. A scope line divides the primary function of
the project from the functions that may form the basis of brainstorming. It should be
noted that there is a high correlation in terms of the post-it notes used but the emphasis,
as judged by the team, has been altered somewhat. In the case of this particular project
the final solution might not a bridge but an old fashioned cable stayed ferrying boat which
used the power of the river acting on the rudder to move the ferry across the river. A full-
time ferryman working between two covered shelters one of which might be an
exhibition centre could operate the ferry.
33
HOW WHY
Support
NEEDS
Span
River
Protect
People
Establish
passage)
Control
People
Position
Routes
Demand
Downtime
Minimise
WANTS
Maintain
Minimise
Figure 3.4 Client or Customer orientated FAST
Value and Tactical Project Development
34
3.4 Element function analysis
This section will outline the principles of cost planning using cost data organised in the
form of elemental cost analyses. This will be followed by a debate on element function
and put forward the idea that elements may be defined by a list of characteristic
functions which are not project specific. A method of element function analysis is
described.
3.5 Elemental cost planning
The Building Cost Information Service (BCIS) of the Royal Institution of Chartered
Surveyors defines an element as follows:
An element for cost analysis purposes is defined as a

component that fulfils a specific function or functions
irrespective of its design, specification or construction.
The introduction to the BCIS document, The Standard Form of Cost Analysis goes on to
state that the list of elements, however, is a compromise between this definition and
what is considered practical. However, apart from the elements within the subsection
building services the definition works well. This is fortuitous for all those involved in
value management exercises that have a cost plan in elemental format as, by definition,
the building costs are distributed according to element function.
Elemental cost planning is one of a family of techniques based upon parametric

modelling. The technique relies upon an extensive database of building costs broken-
down into elemental costs. In the UK it is normal practice for lump sum fixed price
contracts to be tendered based upon detailed bills of quantities. The bills of quantities
are normally arranged in elemental format such that following the selection of the
lowest tender, an elemental cost analysis of the project is prepared. The elemental cost
analyses are submitted by quantity surveyors to the building cost information service.
In this way, quantity surveyors share tender data for a wide range of construction
projects.
The cost planning methodology is comprised of:
A frame of reference.
A means of checking.
A method for remedial action.
The frame of reference comprises an elemental cost plan for the project under review.
For example, assume that a quantity surveyor is required to compile a cost plan for an
office building of 2000 square metres floor area. The surveyor will select from the
database of cost analyses an analysis that bears the closest resemblance to the project.
For example, the surveyor may find a cost analyses for a 2500 square metre office
building with similar characteristics to the proposed project.
The cost analysis is presented as a list of element costs expressed as element costs per
square metre of gross floor area. The surveyor multiplies the element costs per square
35
metre of the analysis by 2000 square metres to arrive that the first elemental cost plan
for the proposed building. Obviously, the surveyor will need to make a large number of
adjustments, for example:
Inflation in prices between the date of tender of the analysis and the
date of tender of the proposed project.
Difference in prices between the location of the project represented
by the analysis and the proposed project.
Any major differences between the likely specification of the proposed
project and the analysis, for example, the type and extent of air-
conditioning, inclusion of car parking and access roads, etc.
Differences in the market prices due to demand for construction work.
Differences in risk costs brought about by choice of a particular
procurement method.
After these and a large number of other adjustments are made the surveyor will have
an elemental costs plan which displays a high degree of cost certainty. This is the point
when the cost plan becomes the frame of reference. The cost plan figure is given to the
client for the building and therefore, generally, may not be exceeded. It should be
noted that the cost plan compiled in this way could precede sketch design but rarely
does.
With the sketch design the surveyor will measure the elements and revise the costs
plan figures based upon priced measurement. In the event, and it should be
emphasised that generally only in the event of an increase in costs the surveyor will ask
for a design team meeting to address the overspend. This highlights the use of the
frame of reference, and the method of checking.
The overspend is generally rectified by examining each element in turn to determine

whether a less expensive solution is available for one or more elements based upon a
change in specification. This can result in a lowering of quality. This is the remedial
action.
The method of elemental costs planning and cost control described above is
appropriate to design where a high level of certainty has been established, i.e., at the
completion of the final sketch design. The advantage of a value management exercise
prior to the final sketch design is that it ensures that sketch design fulfils the
performance specification of the brief and in accordance with the clients value system.
The important point to note here is that while value management will address the
functions of all elements, cost planning only triggers action in the event of an
overspend.
36
3.5.1 Implementing element function analysis
While the concept of elemental analysis was derived for the cost planning function
described above two ingredients are essential to the undertaking of elemental function
analysis. These ingredients are:
A database of costs which may be used for benchmarking projects.

A common understanding of the costs which are contained within a
particular element. For example, the BCIS definitions will include the
costs of forming the opening for a window in with the cost of the
window element.
Element function analysis comprises the stages listed below:
Stage 1 - List all the functions of the element

As elements are defined as being components of construction that
fulfil a specific function or functions irrespective of its design,
specification or construction it is logical to deduce that a definitive
list of functions can be derived for each element in the BCIS list.
For example, an internal wall will have one or more of the following
functions irrespective of the project context.
Support load.
Divide space.
Separate environments.
Dampen noise.
Transmit light.
Secure space.
Support fittings.
Facilitate finishing.
Restrict fire-spread.
Demonstrate hierarchy.
Minimise distraction
The above is not intended to be a definitive list, but one that indicates the functions a
team may brainstorm as being functions of an internal wall. There is an argument that
the list of element functions need only be generated once. However, there is a more
convincing counter-argument that the list is better generated as a team event during a
workshop. Although this is time-consuming it results in a list of functions owned by the
team. Some facilitators keep a definitive list in order to prompt the team.
37
Stage 2 - Select functions for project context
In this next stage of element function analysis the list is reviewed and
functions deleted which are not relevant to the project situation.
An internal partition is a particular case of an element that may have a

number of different functions within the same building. Therefore it would
be necessary for the team to undertake a study of internal partition type
before proceeding further. For example, such a study of a university
department building may reveal the following partition types:
Division between lecture rooms.

Division between laboratories.
Division between storerooms.
Division between a lecture rooms and a corridor.
Division between offices.
Surround to lift shaft.
Division surrounding the computer room.
The above illustrates a number of partitions which display differing

functional characteristics. For example, a division between two lecture
rooms is required to “dampen noise” transmission to an absolute
minimum. A division between stores needs only to “divide space” and
perhaps “support fittings”. In many situations designers will choose a
single technical solution to meet all partition situation which, as shown
above may be inadequate and/or wasteful.
To take the functions of a partition between lecture rooms as an example

of function selection, the process would be to first delete those functions
that do not apply in this situation.
Support load Framed building

Divide space Required function
Separate environments Heat, vent etc – same requirement either
side
Dampen noise A primary requirement
Transmit light Not required
Secure space Lecture room contains IT equipment
Support fittings Boards, screen, display panels etc
Facilitate finishing Hard surface finish, easy to clean
Restrict fire-spread Required function
Demonstrate hierarchy Not required
Minimise distraction No visual or other sensory transmission is
permitted between lecture rooms
On completion of the above it may, in some circumstances, be necessary to undertake

a weighting and scoring exercise to heighten the team’s awareness of those aspects
38
which are of primary importance.
Stage 3 - Brainstorming solutions
The brainstorming exercise will be undertaken following the analysis complete
analysis of the elements. The reason for undertaking brainstorming as single exercise
on the 34 elements lies in the dynamics of the brainstorming process. Once the
brainstorming has commenced it is relatively easy with the 34 element functions
defined to undertaken a satisfactory and fulfilling session.
The rules relating to brainstorming are described earlier.
Stage 4 - Evaluation and development
The evaluation and development stage will be undertaken in exactly the same way as
described earlier. Element function analysis is normally undertaken by a team that is
capable of completing the majority of the development exercise during the workshop.
This has an advantage in terms of simplifying the implementation stage.

This diagram illustrates how a project has two main phases- the initial strategic phase where the
project is essentially a business problem, and the tactical phase, which involves the technical
design and delivery of the built asset. Value Management applied at the strategic phase will
contribute to clear definition and scoping of the project. Value Engineering applied at the tactical
phase will contribute to cost efficient delivery of the project. The former is about effectiveness
and the latter is about efficiency.
39
Conclusion
The understanding of the functionality of projects, whether at concept, physical

spaces, construction elements or components level, in a value management context,
is critical to the strategic and tactical stages of a project’s evolution. The unit has
considered FA and function logic (or FAST) diagrams at the strategic and tactical
project levels. At this point in time relatively little academic work has been undertaken
in the development of procedures, tools and processes to properly understand and
evaluate elements and components. In manufacturing considerable resources are
expended on the accurate functional definition of components. The prime
manufacturer then feeds these definitions evolved from benchmarking and market
research activities to the suppliers. The suppliers are requested not to supply a given
piece of kit at the lowest price but to innovate ways of satisfying the primary function
which adds value to the product as a whole. This is rarely done in construction.
Further analysis is required in relating element functions to the primary functions of

the building. For example:
The frame, floors and substructure exist to support and transfer load.
Lifts and escalators exist to minimise walking.
Heating and air conditioning exist to maintain comfort.
The external walls, roof, windows and external doors protect the
space and express aesthetic.
40
Only the internal walls, internal doors, floor wall and ceiling finishes, and fittings and
furnishings overtly serve the client function. In traditional cost planning it is likely that
these elements will be targeted for cost reduction. In other words the very elements
that the client requires service from in order to achieve the strategic objective are
often those that, from a value perspective, are mismanaged.
41
Reading
Dallas Chapter 2
Kelly, Male and Graham Chapter 4.1 – 4.6
1. What categories of value as defined by CABE/ NAO are objective and which are
subjective?
2. Functions can be described as what things do rather than what things are.
What is the difference?
3. Why is concise, precise definition of function important in the analysis of

products and projects?
4. What would a comprehensive list of all possible functions for the internal
partitions element of a building be?
5. Review the BCIS definition of a building element and conclude why an

elemental cost plan lends itself to a value engineering study.
42
Unit 4 – Project Value Systems and the Project Life Cycle
4.1 Introduction
This unit introduces the main phases of the project life cycle, as represented by the
RIBA Plan of Work 2013, and explores the opportunities for applying VM and VE at
various points in the cycle, outlining the problems that value studies can resolve. The
strategic project phase and use of VM in making explicit the client project value
system in particular is focussed on since this is fundamental to achieving VFM. Parts
of sections 4.3 and 4.4 have been adapted from Kelly, Male and Graham 1st edition
(2004) updated for RIBA Plan of Work.
The RIBA Plan of Work 2013 shows the process of briefing, designing, constructing,
maintaining, operating and using buildings. This process characterises the life cycle of
any building or infrastructure project. Whilst the sequencing and responsibilities for
these various activities will differ from project to project depending on the
procurement process, the main phases are universal. There are other frameworks to
represent the life cycle process of buildings and products, and although the
terminology used may differ, the essential steps are generic.
The project value system is formed in the initial strategic phase in the life cycle of the
project. Early intervention VM has the purpose of making explicit the client’s project
value system that informs the development of the brief. A sound brief is key to project
success and to ensuring that the design team can respond to it in the design of the
technical solution. Read Stage 0 and Stage 1 of the RIBA plan of work and consider
how VM can be applied to help ensure the objectives of these stages are achieved.
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The ‘lever of value’ is a simple but useful concept to illustrate that effort applied at the earlier
stages in the project process yield the greatest potential increase in value. For example, a value
study carried out at the briefing stage of a project will generally be much more effective than a
value study carried out the sketch design stage. This is because there is greater scope for
changing the project direction and making a bigger impact when the brief and concept of the
project are still being developed. Conversely a value study carried out at the later technical
design stages will make a relatively small impact. Note that VM becomes VE when the project
reaches the technical design stage of the process. The client value system has been formed
when all the strategic decisions that inform the brief have been taken.
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4.2 The clients approach to briefing
For owner occupation, the decision to build follows the identification of a need. In
large projects, this need is usually revealed as a result of long term studies and forms
an integral part of the client's long term strategic plans, however small projects are
frequently a response to unanticipated changes in the client organisation or in the
environment which rendered existing facilities inadequate. Public sector clients
reported that their long term building strategy was closely linked to the means of
securing finance, however private sector clients did not report the same concern over
funding, and there appears to be an assumption that money could be found if it were
needed. For developers, on the other hand, the decision to build is opportunistic and
based on the availability of desirable sites.
Following the identification of the need or the opportunity, the way in which the client
proceeds depends upon the size of the client.
45
This statement by the National Audit Office illustrates that Value For Money is only achieved when
the building becomes operational (Stage 7 of RIBA Plan of Work)- the point at which the client
and end users are deriving value and service from investment in the asset. Identifying all the
relevant stakeholders, end users and their requirements needs to happen at the outset of the
project. A sound briefing process with a Value Management approach can ensure these
requirements are clearly identified, prioritised and agreed upon. This is a necessary precursor to
a balanced design solution in response to the client need.
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4.2.1 Typical problems encountered in briefing
Traditionally not enough attention is given to the “front end” of projects in developing
the strategic and briefing aspects before proceeding to the technical design stages.
Poor and underdeveloped briefs store up problems as, no matter how efficient the
solution is, if the problem is ill-defined then full VFM cannot be achieved. It is
something of a project management cliché to say that “projects fail at the start, not
the end”, but it does underline the principle that early intervention VM to fully
understand and articulate client values is important to a sound brief and project
success. The latest iteration of the RIBA Plan of Work (2013) recognises this with the
introduction of an additional step in the process and more emphasis on the early
development of the project.
Some problems in briefing can be summed up as:
Client experience with the construction industry.
Representation of client interest groups.
Identification of client needs.
Fixation on solution rather than the problem.
Buildability.
Provision of sufficient time for briefing.
Incomplete briefs.
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4.3 Client Project Value systems
4.3.1 The Time, Cost, Quality triangle
The time, cost and quality triangle is widely used in VM workshops as a tool to elicit
from the client their value criteria. Identifying and agreeing on what these priorities
are at an early stage is important for a successful project outcome. The T C Q triangle
can be considered a basic client value system as it represents in a basic way what is
important to the client for the project. Whilst time and cost are easy to quantify, the
quality dimension is more complex as this is perceived differently by the various
stakeholders of the project. It is this aspect that will be further developed when we
examine the client value system.
The value manager commonly asks for team consensus on the position of the dot. This
indicates the team’s relative value criteria in terms of the three variables time, cost
and quality. The discussion commences with the client stating that all are important
and therefore the dot should be in the centre. It is only after protracted discussion
that the position of the dot tends to move. The time, cost and quality triangle is a
useful catalyst to discussion within a team but is inexact and often leads to lengthy
debate particularly regarding the components and scaling of quality. Time, cost and
quality expounded
To understand value in more depth is fundamental if value is to be managed. At the

information stage of a value management workshop it is necessary to reach
consensus on the value system used by the corporate client body, and this value
system has to be sufficiently overt for its meaning to be understood by the design
team.
Time
Basic
Client
value
system
Cost Quality performance
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The time/cost/quality triangle is a well-known project management tool. It demonstrates that
each of the three main goals of a project are generally in tension. Which is most important to
your client for project success?
In a traditionally procured construction project the client value system becomes

established through a process of trial and error on the part of the designers. It evolves
slowly over time as the design team present and re-present schemes that reflect their
current understanding of the client’s value system. With each iteration the designers
take one step closer to full understanding. However, the newer procurement systems
are not sympathetic to this slow iterative process. It is proposed here that the client’s
value system is made overt initially in a single operation, for later validation through
a process of discovery using the value management techniques described below. In
order to undertake this only client representatives are permitted to speak, with other
participants as listeners.
4.3.2 Client’s Project Value System – The Dimensions of Value
For the client’s values system to be meaningful the variables of time, cost and quality
must be capable of description and measurement. The key to making the client’s value
system overt, and therefore auditable, lies in understanding the description of quality.
To derive a measurable statement of quality it needs to be uncovered and made
explicit. A synthesis of the previous quality and value debate denotes that project
quality can be represented by environment, exchange, politics/popularity, flexibility,
esteem and comfort each of which have their own continuum. The components of
the full client value system therefore become:
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Time, from the present until the completion of the project, the point when the project
ends and is absorbed back into the core client business. Time can be assessed on a
continuum from where time is ‘of the essence’ to where time is ‘at large’. The former
means that were the project to be delivered even one day late it would be of no value,
for example a contract for the supply of a satellite which is delivered late and misses
a shuttle launch.
Capital cost (CAPEX) are all costs associated with the capital costs of the project,
measured on a continuum between the budget being considered tight and not able
to be exceeded to there being flexibility in budgeting. In some situations the capital
investment is subsumed within the operating cost and therefore the capital cost
variable is omitted. This can occur, for example, where the cost of a building is
rentalised within a total lease package, such as within a Private Finance Initiative/
Public Private Partnership project.
Operating cost (OPEX) refers to all costs associated with the operations and
maintenance implications of the completed project as it moves to an operational
product within the client’s core business. In the context of a building this includes
facilities management which may be limited to maintenance, repairs, utilities,
cleaning, insurance, caretaker and security but may be expanded to include the full
operational backup such as catering, IT provision, photocopying, mail handling and
other office services. The continuum is between OPEX having to be at a controlled
absolute minimum to there being some flexibility in operating cost.
Environment refers to the extent to which the project results in a sympathetic

approach to the environment, measured by its local and global impact, its embodied
energy, the energy consumed through use and other ‘green’ issues. The continuum is
between maximum observance of Kyoto and Agenda 21 issues to indiscriminate
sourcing policies and solving every problem by adding more power.
Exchange or resale is the monetary value of the project. This may be viewed as assets
on the balance sheet, the increase in share value, capitalised rental or how much the
project would realise were it to be sold. The continuum is between requiring
maximum return and return being of no consequence. If the physical asset is never to
be sold, as in the case of the visitors centre example above, this item would be scored
as zero in the value system equation.
Flexibility represents the extent to which project parameters have to reflect a

continually changing environment in the design. This value criterion is generally
associated with changing technology or organisational processes or both. For
example, medical practice is changing so rapidly that spaces in a hospital may need to
accommodate a number of differing functions during the life of the building. The
continuum is between being highly flexible and able to accommodate changing
functions to being unlikely to change to any extent. If the project does not have to
accommodate any flexibility this variable is scored as zero.
Esteem is the extent to which the client wishes to commit resources for an aesthetic
statement or portray the esteem of the organisation, internally and externally. The
continuum is between needing to attract the admiration of the world to esteem being
of no significance. & Comfort is the physical and psychological comfort of the building
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as a place for working and living and how this will impact human performance.
Comfort is measured on a continuum from the support of the business in purely

utilitarian terms to a high degree of opulence.
Politics is an external dimension that refers to the extent to which community,

-
popularity and good neighbour issues are important to the client. The continuum
ranges from requiring to be popular with the local community or electorate to having
no concerns towards neighbours.
4.3.3 Deriving Client Value System – strategic level exercise
To derive a client’s value system a pairs comparison exercise is undertaken using the
matrix. Only the client representatives may speak during this process; the design
team, contractors’ representatives and any other stakeholder not a part of the client
body must keep silent and listen, for this is the client’s value system. Each box
represents a question phrased ‘which is more important to you . . . ?’ or ‘would you
be prepared to sacrifice . . . ?’. Either way the letter inserted in the box represents
whichever factor is the more important. For example, the question may be posed:
‘are you prepared to spend more now to offset costs in the future?’. If the answer is:
‘yes, I am prepared to spend more now to offset future costs’ then obviously future
costs are more important to you than capital costs and therefore the letter B is
entered in the box. Conversely if the answer is: ‘no, I must stay with the present
budget even if it costs me more later’, then future costs are less important to you than
capital costs and therefore the letter A is entered in the box. The number of times
that A appears is entered in the total box and likewise for all of the other headings.
The individual units of the value system can therefore be ranked to represents the
overall client’s value system. This may then be checked back with the client. The
paired comparison method is useful when working with a number of client
representatives as it allows discussion to occur at two levels when discussing two
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variables only and, on completion, discussion can confirm the final result of the
exercise. Workshops have found the paired comparison approach a satisfactory
method of deriving a client’s value system judged by the fact that clients generally
agree with the summary when it is read back to them.
4.4 VM application points and the project life cycle
The possible application points for Value studies (VM and VE) within the design
process represented by RIBA Plan of Work 2013. This identifies 6 distinct application
points throughout the strategic and technical phases of the project. The value system
for the project is formed in the strategic phase of the project. Note the Charette study
which considers both strategic and tactical project issues at the stage in the life cycle
when the project is moving from the former to the latter. See Kelly, Male and Graham
for explanation of these value study points.
4.4.1 Strategic briefing study: benchmarked value opportunity point 1
The strategic briefing study is concerned with identifying the broad scope and purpose
of the project and its important parameters. The focus is on articulating strategic
needs and wants, the role and purpose of the ‘business project’ for the client
organisation clearly expressing the reason for an investment. Hence the intent of the
study style is to answer the questions why invest, why invest now and for what
purpose? A strategic briefing study describes clearly and objectively the ‘mission of
the business project’ and its strategic fit with the corporate aims of the client
organisation. These corporate aims are explicit in terms of commercial objectives and
usually implicit in terms of cultural values. The commercial objectives and cultural
values combined form the value system of the client organisation, the client’s value
system. This value system along with the client’s methodology for total quality
52
management should be overtly expressed as a part of the strategic brief. The structure
and operational methods for determining the client’s value system is described later
in this book but is the value criterion against which all business project decisions are
judged. An important deliverable is the output specification explaining clearly what is
expected of the ‘business project’. This will include establishing the outline budget
and programme. The strategic briefing study explores a range of options for delivering
the ‘business project’, one of which could be the creation, refurbishment or renewal
of a physical asset or assets as a corporate resource. ‘Optioning’ could involve
developing and investigating non-physical asset alternatives. The strategic briefing
study will structure information in a clear and unambiguous way to permit the
‘decision to build’ to be taken in the full knowledge of all the relevant facts. On
completion of the strategic briefing study, the decision to build can proceed with
confidence, given that all relevant issues and options have been addressed and
explored, and alternatives examined. One powerful technique useful when nearing
completion of this study style was highlighted during the authors’ research into
architectural programming in North America. An eminent architectural programmer
in Canada used the analogy of pressing a ‘go button’. The question he would ask of
senior managers in client organisations would be:
‘Are you sure you are ready to push the Button and unleash the full resources of the
construction industry, the destinies of hundreds if not thousands of people and affect the
fortunes of numerous firms and organisations, including your own?’
Interestingly, asking a simple question such as this returned many of his clients to the analysis
stage of the strategic briefing study.
Strategic briefing study would typically take between four and seven days to
complete, with the workshop phase taking half to one day of that time scale, although
this can vary depending on the size and complexity of the project. Participants are
likely all to be at senior levels within the client organisation and it is not uncommon
for teams to be in the size range of 10 to 20 people or more, involving ‘big team’
facilitation skills during the workshop phase. To summarise, the primary purpose of
this study is to develop a strategic brief which describes in business language the
reason for an investment in a physical asset, its purpose for the organisation and its
important parameters. Anybody reading the strategic brief should be able to
understand why an organisation has decided to invest in a physical asset or assets and
pursue no other strategic options that might compete for the same investment
resource at that time.
4.4.2 Project briefing study: benchmarked value opportunity point 2
The project briefing study focuses on delivering the ‘technical project’; that is, the
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construction industry’s response to client requirements expressed in the strategic
brief. The project brief translates the strategic brief into construction terms,
specifying performance requirements for each of the elements of the project. If it is a
building project this will also include spatial relationships. An outline budget will also
be confirmed if a strategic briefing study has been undertaken, and developed if not.
The primary purpose of this study is to develop the project brief, which describes in
technical terms the technical project to be delivered by the construction industry that
will respond to and/or deliver the strategic brief. The former provides the basis on
which design can proceed. The workshop report is an audit document describing the
reasons for decisions made at this point.
4.4.3 Concept design study: benchmarked value opportunity point 3
The concept design study is a value review of the initial plans, elevations, sections,
outline specifications and cost plan of the proposed built asset. The study will focus
on validating the concept design or assisting the further development of design
options and improvements. The assumption is that the client has agreed the project
brief, although this would be tested as part of the study process. A good starting point
for considering a concept design study is that, for most projects, the design has
reached the point of seeking detailed planning permission.
On completion of the concept design study the design team may develop further
options identified during the study or continue with normal design development in
the full knowledge that the team has explored fully the design development to date
and confirmed its acceptability to the client.
4.4.4 The Charete: benchmarked value opportunity point C
The charete is a hybrid study undertaken as an alternative to briefing and concept

design studies. It is an audit of the project brief and is often undertaken once the
concept design is complete. It audits the concept design against the strategic brief and
project brief. The benchmarking study highlighted that in North America this study is
often referred to as being undertaken at 10% design. The charette is commonly the
first study undertaken on a project. It implies that the client has reached the decision
to build, completed the project brief, appointed a design team and then undertakes
a value management study. The study is wide ranging, incorporating the previous
three studies discussed above. The study focuses on validating the project brief, and
frequently the concept design, to ensure that both conform with and fulfil the client’s
54
value system. A primary purpose of the charette is to ensure that the client value
system is overtly described and understood.
On completion of the charrette study the client value system would have been made
explicit, the project brief would have been validated and any outline designs audited
against the client value system, strategic brief and project brief. The design team
would develop further options identified during the study or continue with normal
design development in the full knowledge that the team has fully explored the
strategic and project briefs and confirmed their acceptability to the client.
4.4.5 Final sketch design/scheme design study: benchmarked value opportunity

point 4
Once the client project manager has ‘signed off’ the concept design, the project team should
begin the development of the final sketch design and specification of the performance
requirements for elements of the facility. The final sketch design should freeze as much of the
design as possible, defining and detailing every component of the construction work. It should
identify further risks associated with the project and outline proposed action if they arise, assess
the quality requirements and define how success will be measured. The focus of the study moves
from the strategic and client organisation to the technical solution of the concept design and
involves value engineering the element function and whole life performance relationships
The benchmark study indicated that the study would typically take between four and nine days
to complete, with the workshop phase taking two to five days of that time scale, again depending
on the complexity and size of the project. Participants are likely to be senior representatives from
within the client organisations, and design and project management team representatives.
Teams will be in the size range of 10 to 15 people during the workshop phase.
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VM and VE studies can be applied throughout the project process. This diagram illustrates the
main strategic and tactical value consideration with reference to the RIBA Plan of Work.
Identifying the need for a project and developing the project value system are strategic in
nature (defining value). The technical design solution that is developed in response to the need
is tactical in nature and should be aligned to the value system to ensure a balanced design
(assess value proposition).
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The relationship between Value Management and Risk Management is reinforced in the quotes
below. Note that VM and RM is an ongoing process throughout the project life cycle.
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Unit 5 Introduction to Risk and Risk Management in
Construction
5.1 Introduction
This unit introduces the concepts of risk and risk management. A number of definitions
and perspectives on risk are examined, both generally and relating specifically to project
management. Risk within the context of the construction project is developed. The
distinction between risk and uncertainty is explained, highlighting that risk on a
construction project is not so much about the possibility of certain events occurring, but
more fundamental is about the very circumstances that surround typical construction
projects throughout their lifecycle- from inception to completion.
Learning outcomes
The learning outcomes for the unit are to:
Understand what is meant by risk and uncertainty

Develop awareness of a project management view of risk
Become familiar with the basic components of risk management
Appreciate the distinction between risk events and circumstances.
5.2 Risk Management in Perspective
This section of the unit discusses and defines risk and risk management, both in a general
sense and specific to construction project management. This will provide a firm base of
understanding for the following sections which look at various aspects of applying risk
management to construction projects.
Although RM has become firmly institutionalised across industry sectors, it is only
comparatively recently that this has extended to include the construction industry.
The growth in the practice of risk management has been accompanied by a proliferation
of standards and guidance information. There are British Standards, guidance from
professional bodies, public sector guidance, research published in academic journals and
text books dedicated to the subject matter of RM. A review of some of the more
pertinent of these will help develop our appreciation of the applications and importance
of RM in the context of construction project management. It is useful to identify common
themes emerge from all this material to help our understanding of the subject area.
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5.2.1 What is Risk?
Risk means different things and has a variety of implications for different people and
organisations in the construction industry. Although this course makes reference in
places to client and contractor specific perspectives, the overarching perspective is that
of the project itself. If risk is successfully managed and a project is delivered on time,
within budget and to required quality standards, then that should be good for all
participants in the process. In the modern era of ‘integrated project teams’ all parties
should contribute to the success of, and share in the benefits of, good project
performance. There is no long term benefit from certain parties to the project gaining at
the expense of others.
As a starting point it is worthwhile to begin by firstly defining and being clear on what we
understand risk to mean, both in an everyday sense and also that specific to the
construction professional. It is interesting to see how views of risk and its management
have developed over time.
5.2.2 Risk – Something to be avoided? Range
f-
of sources be and
my raid
can
implications
far less clear .
Direct impact for such
risk
occurring ; likely to be commercial
associated insurance
The Concise Oxford Dictionary defines risk as: Claims
from
disruption to the and

,
programme
consequential effects .
“A hazard, chance of bad consequence, loss, exposure to chance of injury

or loss”
Although general, we can clearly relate this to the construction project. There are
obviously many hazards associated with the construction site itself which can result in
injury or loss to the site operatives from engaging in ‘risky’ site activities. Indeed,
compared to other industries, the UK construction industry has a particularly poor record
in this regard with an unacceptably high number of site accidents, injuries and fatalities
occurring each year. Whilst the consequences can be clear (damage to the works, injury
or death), the range of sources can be myriad and far less clear. As well as such direct
impact from such risks occurring, there are likely to be commercial implications from
associated insurance claims, disruption to the programme and consequential effects on
other trades and packages.
Risk, in this sense, is entirely negative and, in a construction project, may affect one or
more parties and will almost certainly involve financial loss. Indeed, no matter what type
of risk we are considering, some financial impact is almost certain. Such a scenario
concurs with Ward and Chapman’s (see supplementary reading) observation that risk is
commonly associated with adversity, implying that risks are potential adverse effects on
the project performance and that sources of risk are “things that might go wrong” or
threats to the project.
The BSI Guide 73 (2002) “RM Vocabulary – Guidelines for use in Standards”
defines risk as:
“The combination of the possibility of an event and its consequence”

60
obviously mean late completion, cost over-runs, or not meeting the required level of
quality, either individually or more seriously in combination.
The APM defines risk as
“an uncertain event or set of circumstances that should it occur,

will have an effect on the achievement of the projects
objectives”
This view is very similar to that above, although in addition to risk being associated with
a specific cause (event) or condition- a ‘set of circumstances’ can pose a risk to project
outcomes. This is appropriate to construction projects, particularly large and complex
ones, where there may be many interdependent parties and activities contributing to the
project. In such cases the precise cause (or event) of a cost or schedule overrun can be
far from clear and responsibilities not easily apportioned. Rather, it has to be untangled
from the ‘set of circumstances’ surrounding the project.
So, although the project management literature recognises, implicitly or explicitly, that
risk stems from uncertainty which can lead to better outcomes than expected, the more
conventional view is that risk is something to be avoided or minimised where possible,
certainly when discussed in the context of construction projects. This is particularly so at
the site operations stages of the project life cycle where it seems so many things can (and
do) go wrong for projects deemed to be ‘risky.’
Discussion and debate on how risk should be perceived has also been ongoing by
practitioners and academics in the field of project management. Hillson (see
supplementary reading) states that risk can have a range of effects on the achievement
of project objectives, from the total disaster to the unexpected welcome surprise, but is
in no doubt that common usage of the word “risk” sees only the downside. The negative
connotations are reflected in traditional definitions of the word, both in standard
dictionaries and more technical definitions, but some professional bodies and standards
organisations have gradually developed their definitions of ‘risk’ to include both upside
and downside. Some definitions have the nature of the effect as undefined and could
therefore implicitly encompass both positive and negative effects. Others are explicit in
naming both opportunities and threats within its definition of risk.
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This BSI guide aims to develop a common understanding across different types of
organisation internationally on the terms used in general field of RM. Contrast this with
the dictionary definition above, it is undoubtedly more precise but also rather abstract.
This BSI view is purely concerned with the possibility of a cause (the event) and related
effect (consequence). Notably though, there is no reference to loss, damage or any other
notion of a negative outcome of risk.
BS6079 -1 (2000) Guide to Project Management, though not containing a definition,

characterises risk from the perspective of a project manager as:
“Project risk is primarily the likelihood of negative occurrences adversely

affecting the project so that its objectives become more difficult or even
impossible to achieve”
The BS6079 definition is more in line with the common view of risk as being
overwhelmingly negative and something to be avoided. It is perhaps unsurprising that
this is one which many project managers may subscribe to the most, given the many
examples of construction projects, both high profile and every day, that are delivered
late and/or over budget for which one or more parties has suffered. However, the
qualifier ‘primarily’ hints that there are consequences and effects of risk other than
negative ones which is consistent with the strictly correct definitions of risk.
5.2.3 The View of the Professional Bodies
Two of the main international professional bodies governing project management have
developed their own view of risk. The Project Management Institute (PMI) is a USA based
advocate for the project management profession which exists to promote professional
standards and practices. They identify project management as having nine knowledge
areas, one being Risk Management. The Association for Project Management (APM) is
the largest independent professional body of its kind in Europe with members
throughout the UK and abroad. The APM’s key objectives are to develop and promote
project management across all sectors of industry and beyond.
The PMI’s Project Management Book of Knowledge (2000) defines risk as
“an uncertain event or condition that, if it occurs, has a positive

or negative effect on a projects objectives”
This view is more explicit about the possibilities of positive, or welcome, effects of risk
i.e. situations or events turning out better than planned or expected. Since this definition
relates to a project, the effects of risk relate to the effects on the projects time, cost and
quality objectives, either for the project as a whole (the global sense) or some sub-part
of the project, a particular work package or trade operation etc. a negative impact will
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The “Latham report” (1994) was a seminal publication which described the adversarial
approaches endemic in construction as the cause of many problems and poor value for the
client. The lack of adequate identification and allocation of risk amongst the parties to a project
frequently led to blame, claims and counter-claims when risks materialised. The purpose of a
formalised risk management approach is to avoid such situations arising.
5.2.4 Risk .– Upside or Downside
To summarise the foregoing, both “upside” and “downside” risk is associated with any
uncertain situation. Where there is a possibility that things may turn out better as well
as worse than planned, risk is usually referred to with negative connotations i.e.
downside risk events which are associated with the concept of loss only. The purpose of
risk management is to minimise loss by reducing the probability of risk events occurring
i.e. making them less likely, or minimising consequences should they occur, or a
combination of both.
Pure risk: normally arises from the possibility of accident or technical

failure.
Speculative risk: possibility of loss or gain, which may be financial,

technical, or physical.
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Reading
Dallas Chapter’s 4, 8
Kelly, Male and Graham Chapter 3.7 - 3.12,
Kelly, Male and Graham pp397-400
Project value systems and the Project Life Cycle
1. Explain why a Value Engineering study is not relevant at the briefing stage of a
project?
2. What are the main benefits to the project of undertaking a value study at an
early stage (Stage 0 – Strategic Definition) of a project?
3. Who would you expect to be represented at an early stage project value study
and how would this differ from the team mix at a later stage? e.g detail design
stage.
4. Why is the Charete style of Value study referred to as a hybrid study.
5. If VM is about effectiveness of the project investment and VE is about

efficiency, explain what this means in terms of a construction project.
6. At what point in the project life cycle would we expect the client value system
to be formed and complete?
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5.2.5 Risk, Uncertainty and Events
Construction projects are all about forecasts of future events. Estimators, project
managers and quantity surveyors all have to make cost and time related forecasts in what
can be a volatile and unpredictable market. The time span for these forecasts may be
months or even years in advance. However, most future events are uncertain to a degree
since perfect information about the future does not exist. With the application of RM,
consideration is given to the types of ‘events’ that this uncertainty might throw up. i.e
specific ‘things’ or occurrences that might affect the project. With a little thought, the
likelihood of occurrence, and magnitude of possible loss or gain from these events can
be assessed. In so doing, uncertain events can be said to become risk events since some
expression is being made on their probability, whether this be formally (explicit
quantification) or informally (intuitive assessment). It is obviously more desirable to
make decisions under risk than decisions under uncertainty since more knowledge is
gained about a possible event after it has been considered.
The terms risk and uncertainty are often used together and sometimes considered to be
interchangeable and synonymous. The concepts are very close and, for the purposes of
construction risk management, some writers tend not to differentiate between them.
However there is a distinction to be made as explained above, and recent research on
project risk management has highlighted a clear difference between discrete risk events
and a more amorphous uncertainty.
Risk, uncertainty and events
Uncertainty Risk Certainty
Spectrum of Risk
Unknown Known Known
Unknowns Unknowns Knowns
No information Partial information Complete information
Figure 5.1: The Spectrum of Risk
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Traditionally, the distinction between risk and uncertainty has been woolly or non-
existent. Increasingly though, there is a view that a clearer focus would benefit RM
practice. If it is accepted that the term ‘risk’ encourages a threat perspective, then it
follows that risk management focuses on the downside and is preoccupied with
minimising perceived threats. Also, risk, having quantifiable attributes (probability and
event) encourages a focus on specified, identifiable events. However, experience shows
that in complex projects which have performed poorly, it is often difficult to relate the
problems to specific events. There are many interdependent factors that can contribute.
5.2.6 Risk – An Event or a Condition?
A definition of risk at its most fundamental level is the possibility that the actual outcome
for a particular event or activity will deviate from the forecast outcome. In this sense, an
“event” is some tangible, discrete happening. At a global level the “event” may be, for
example, the completion of the building which will have forecast outcomes for cost and
time at completion. The risk to all parties concerned is that actual outcomes will deviate
from those forecast i.e. the building is completed late and over budget. At a more
detailed level, constructing a building comprises many hundreds or thousands of
interrelated events (each design and construction activity being an event). These events
are exposed to varying degrees of risk that they will not turn out as planned for example,
prolonged bad weather delaying a concrete pour, failure of a supplier to deliver materials
when agreed or the injury of a workman on site from undertaking a “risky” activity.
These specific risk events emanate from more general conditions of uncertainty, and
there is, of course, a great deal of uncertainty surrounding the design and construction
of a building.
Ward and Chapman (see supplementary reading) describe uncertainty on a project as

including one or more of the following
Lack of clear specification of what is required

Novelty, lack of experience of a particular project or activity
Complexity in terms of the number of influencing factors and
inter-dependencies between these factors
Limited analysis of the processes involved in the activity
Possible occurrence of particular events or conditions which
could have some (uncertain) effect on the activity
Note that only the last item really relates to specific events or conditions as referred to
in the earlier definitions of a “risk”. The other sources of uncertainty arise from a lack of
understanding of what is involved and are less obviously described as threats or
opportunities.
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Although the conventional interpretation of risk is one of threat and loss, most
definitions of risk reflect the possibility of upside and gain i.e. a risk is about uncertainty
of outcome, which may be better or worse than expected.
5.2.7 Scope of Uncertainty Relating to the Construction Project
It is recognised, then, that risk is not just the consequence of a particular identifiable
event, but also a result of the ‘condition’ or ‘set of circumstances’ that exists in the
construction project environment. What then are these conditions/circumstances
surrounding the project that create risk? Ward and Chapman identify four categories
where uncertainty exists in the project.
Uncertainty about the basis of estimates
An important area of uncertainty relates to the basis of estimates produced by members

of the project team. Both client and contractor make numerous estimates and forecasts
in a project relating to budgets, tendering, scheduling and programming. Some will be
‘objective’ and based on hard information and historical data, others ‘subjective’ and
based on gut feel and intuition, judgement and assumptions. More likely these forecasts
will be a mix of the two. The level of uncertainty will depend on the estimators ability,
experience and available resources. Estimating may be both ‘art and science’
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Uncertainty about design and logistics
At the earlier concept and briefing stages of the project life cycle, the technical design
and related construction process for the building or facility are fundamental
uncertainties (yet one of the clients earliest questions will be when will it be ready and
how much will it cost?). Over time the amount of uncertainty in this category will reduce
as the design progresses and these issues are resolved
Uncertainty about objectives and priorities

At the root of good project performance is clarity about project objectives and their
relative priorities, which should be well understood and agreed throughout the project
team. Attempting PM or RM when this clarity is lacking is like attempting to build a tower
on wet sand. Ward and Chapman recognise the rise of VM in addressing this. As well as
being clear, the project objectives should reflect and reconcile the requirements of all
the project stakeholders.
Uncertainty about the project organisation
This relates to the multiplicity of people, business units and organisations involved in a
project and the fundamental relationships that exist between these parties (the
construction project as a temporary multi-organisation is discussed elsewhere). These
relationships are often complex and may or may not involve formal contracts.
Conditions` of uncertainty arise from ambiguity in respect of:
Specification of responsibilities
Perception of roles and responsibilities
Communication between parties
Contractual conditions
Mechanisms for coordination and control.
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5.3 Background to Risk Management (RM)
Now that we have defined and investigated various interpretations of risk, we can extend
this to look at the background to RM. Full consideration of a RM approach is contained
later in the course pack. RM as a recognised service practiced in a structured way,
whether as fee-earning consultancy or inclusive part of project management services,
has been becoming increasingly popular as the serious consequences of risk become
more evident. Clients are becoming more demanding and buildings more complex, both
in a technical and managerial sense. Of the more recent influential industry reports, it is
Latham who perhaps most effectively communicated to the industry the need for RM.
In the UK, the public sector has been particularly progressive in advocating RM and VM,
and also incorporating it into their project management systems. The Office of
Government Commerce (OGC) Project Procurement Lifecycle states that, for effective
construction project management there must always be detailed knowledge and
understanding of the risks relating to a specific project and reliable plans for risk
allocation and proactive management. This framework for construction procurement
identifies required risk management activity at key stages throughout the process, from
the business case stage through its design, construction and operation.
5.3.1 Defining Risk Management
Just as there are numerous definitions of risk, there are numerous definitions of RM
offered by the various professional institutions and standards bodies. There is perhaps,
though, greater consistency as to what constitutes risk management. The differences in
definition are largely a matter of semantics and terminology. The key features of a RM
framework are extracted and discussed below.
According to BSI Guide 73 (2002) “RM Vocabulary – Guidelines for use in Standards”,
risk management is
“Coordinated activities to direct and control an organisation with regards to

risk…and generally includes risk assessment, risk treatment, risk acceptance
and risk communication”
The PMI’s Project Management Book of Knowledge (2000) describes RM as:
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“The systematic process of identifying, analysing and responding to
project risk. It includes maximising the probability and consequences of
positive events, and minimising the probability and consequences of
events adverse to project objectives. It includes processes of RM
planning, risk identification, qualitative risk analysis, quantitative risk
analysis, risk response planning and risk monitoring and control.”
BS6079 -1 (2000) Guide to Project Management, does not offer an explicit definition of
RM as such, but states that:
“The project manager should take positive steps to identify, assess

and ultimately manage all risk inherent in the project, as an integral
part of the project management process.”
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Reading
Dallas Chapter 3
1. What is the main distinction between risk and uncertainty?
2. Should businesses, including those involved in the construction industry,

attempt to avoid risk?
3. Distinguish between speculative risk and pure risk. Give some examples of
each in relation to a construction project e.g. a new-build prestige hotel
development.
4. What are the 4 areas of uncertainty in projects that can lead to unacceptable
levels of risk?
5. Do you believe project teams are faced with many unknown unknown
situations in the procurement of construction projects?
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UNIT 6 Risk and the Client
6.1 Introduction
This unit considers project risk from the perspective of the client. There are 3 main
aspects of risk that should be assessed from the outset, and a systematic approach to
doing this is described. These risk aspects centre around strategic concerns about how
the project relates to the client’s operations, as well as the risks inherent in the project
deliverable itself which are commercial, technical and managerial in nature. This unit is
based on the paper Baccarini, D and Archer, R (2001) “The Risk Ranking of Projects: A
Methodology”. International journal of Project Management V19, 139-145.
Learning outcomes
Understand how risk to the clients business from a project can

be assessed.
Understand how the approaches to establishing a project’s
objectives contribute to the amount of risk in achieving
them.
Become familiar with the technical, commercial and
managerial risk factors of a project
6.2 Risk and the client
The less information there is about a given situation or future event, the greater the
associated uncertainty- and consequently the greater the amount of risk involved.
Uncertainty on any project will be greatest at the outset when there is little hard
information about project requirements or the nature of the deliverable. If we consider
the client’s risk exposure at the outset, some key questions that have to be considered
are;
Is there a clearly defined demand for the project?

Will a building meet that demand?
Can it be built within the cost limit, to the required quality, and
within the time constraints required to meet the demand?
6.2.1 Risk and the client’s investment in a capital building project
“The client” is an all embracing term in construction and can include anything from a
multinational organisation, government department, speculative developer or private
individual. One thing they all have in common, though, is that they commission, pay for
and in most circumstances use the buildings for a specific commercial purpose. Most
buildings are investment goods- that is to say they are only a means to an end- used as
part of the production process but not contributing directly to the generation of profit
for an organisation. Even public sector investment in building projects must have a sound
71
business case. For commercial clients the purpose may include furthering the production
of goods and services, through the provision of factories, offices or some industrial
process. Investing in new/adapted buildings or facilities to house some process or
activities will add value to the organisation.
Since risk is inherent in all investment decisions an early question is whether constructing
a new building represents the best use of funds out of all the investment opportunities
open to the client. In commissioning a building a client is committing a substantial
amount of capital that could be invested in some non-construction venture that may
provide a higher or lower return. Therefore, the risk that is present at this strategic stage
is the possibility that there may be a more attractive investment offering better returns.
The various investment opportunities will be characterised by varying degrees of risk and
associated return. The greater the risk involved, the greater return expected. For
example treasury bonds are a long term, low risk financial instrument with predictable
rates of return. On the downside the returns are low. The stock market provides
potentially much higher rates of return through ordinary shares, but as various financial
crashes have shown the value of shares can go down as well as up.
Property as an investment is exposing the client to risk since it does not provide a
guaranteed return unlike some other forms of investment. Property is also not “liquid”
in that transactions take a long time to complete. It is a risky proposition because of the
unpredictability of returns. During boom periods the capital growth is very attractive, but
when the market is in recession property prices can drop quite dramatically in value.
The pre-decision to build stage will include some investment and development appraisal.
At this stage the client is striving to determine whether the project provides a satisfactory
rate of return commensurate with the level of risk associated with the project.
6.3 A Client Approach to Evaluating Project Risk – the 3 aspects

of risk
From the perspective of any reasonably sized client organisation in construction, there
are 3 main risk aspects at the strategic project level that should be thoroughly reviewed
when the project commences. This section of the unit discusses these 3 main aspects
with reference to research carried out by Australian public sector agency (see
supplementary reading) and published in International Journal of Project Management.
The work is of wide reaching interest though as the principles are largely applicable to
any reasonably large client organisation. It will also deepens understanding of the risk
‘anatomy’ of construction projects and their strategic importance to the client business.
The 3 risk aspects to be reviewed relate to
1. How the T, C and Q objectives are established at the outset and the degree of
confidence in them
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2. What the impact to the client organisation is in failing to meet these
objectives
3. The ‘riskiness’ of the project itself- the risk profile of the building.
6.3.1 Aspect 1: Establishing T, C and Q objectives
As discussed in previous units; fundamental issues to be resolved early in the project are
its scope and definition, a timescale for its delivery and the budget. (i.e. T, C and Q
objectives). It is against these objectives that the success, or otherwise, of the project
will largely be judged. If the basis for establishing these objectives is not sound or
realistic, then conditions of risk and uncertainty are present from the outset. Remember
that a definition of risk is the possibility that actual outcomes deviate from those
predicted. If the predicted outcomes are not sensible or achievable, then it follows that
actual outcomes are likely to deviate from predicted.
The table below shows how risky a project is according to how these objectives are
established. As the means of establishing T. C and Q objectives become increasingly
unsound and unclear, the ‘risk rating’ for the project increases. Notice how, for all
criteria, it is the level of information available which determines the level of risk involved.
Projects which have inbuilt contingencies (a form of RM) are the least risky, and those
with a higher risk rating indicate more “unknown unknowns”
Establishing T, C and Q objectives
Objective
Risk Time Cost Quality
Rating “Known knowns”
1 Benchmarks were used to Benchmarks were used to Quality requirements have
establish schedule and establish budget and adequate been agreed
Good PM & cost
adequate contingencies exist contingencies exist and
control
documented More info across
criteria
2 Benchmarks were used to Benchmarks were used to Quality requirements have Explicit
establish schedule establish budget been agreed and are being contingencies
documented Less uncertainty
The basis for the schedule is The basis for the budget is Quality requirements have “Known unknowns”
3
clear, but indications are that clear, but indications are that been agreed but not yet - Absence of good PM
overruns are possible overruns are possible documented - Less
information
- Increasing uncertainty
4 The basis for the schedule is The basis for the current Some initial discussions
unclear or the budget is likely budget is unclear or the budget with the client on quality
to be inadequate is likely to be inadequate requirements “Unknown unknowns”
5 There is no clear schedule or There is no clear budget or the Quality requirements are
the schedule is clearly budget is clearly insufficient not known
insufficient
6.3.2 Aspect 2: Consequence of failure to meet T, C and Q objectives
The second main aspect to be assessed is the risk to the client from not meeting the
project objectives. i.e. what are the consequences to the clients business or operations
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should the project be delivered late and/or over budget. The T, C and Q objectives for
any project are always in tension as they are competing for finite resources, and have to
be prioritised according to their importance to the client. An early purpose of VM is to
help determine these high level objectives and their level of priority. Some objectives,
and the consequences of not meeting them, will be more critical than others. As you
would expect, as the project value increases, the risk rating of the project increases since
the project will represent a larger proportion of the clients overall business.
Again, it can be seen from the table that the ‘risk rating’ of the project for this aspect
increases as the consequences of failure to meet the objectives become more critical.
These range from nuisance value at the lowest level (risk rating of 1), through to
complete failure of the business at the highest level (risk rating of 5).
Meeting T, C and Q objectives
Objective
Risk Time Cost Quality
Rating
1 Completion date not important Additional funds available No noticeable effect on
(project period <6 months) (project cost <£25000) client’s business
2 Alternative Some scope for additional funds Tolerable effect on client’s

arrangement (project cost £25000 - £250000) business
s available
(project period 6 – 12 months)
3 Delays undesirable but could be Request for additional funds would client’s
managed be difficult busines
(project period 12 – 18 months) (project cost £25000 - £1M) s moderately affected
4 Severe disruption to clients No additional funds available and client’s business severely
business scope reduced disrupted
(project period 18-24 months) (project cost £1M - £2M)
5 Clients business ceases altogether No additional funds available and client’s business ceases
(project period >24 months) project will not proceed altogether
(project cost >£2M)
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6.3.3 Aspect 3: Risk Profile of a project
The first 2 aspects of risk described above consider project risk at a global, or strategic
level, i.e. considers the project and how it relates to the clients business or operations
in overall terms. The 3rd aspect of risk is concerned with the detail of the deliverable
itself i.e. assessing the risk characteristics of the project. Understanding all the
elements of the risk anatomy of a project helps to heighten awareness of and sensitise
the team to risk. Again, although this table relates in particular to a public sector client,
it will be recognised that nearly all of the factors described are relevant to any client
organisation. Such a checklist of factors can be used to assess the overall riskiness of a
construction project.
The table below shows a range of technical, commercial and managerial factors against
which risks can be assessed. Riskier projects will obviously have a greater number of
drivers assessed at a higher risk rating. Notice how there are a mixture of strategic
(project definition), tactical (project delivery) and organisation & relationship issues.
75
Risk profile of a project
High Risk Rating Low
Factor 5 4 3 2 1
Uniqueness of Prototype Unusual project Conventional Modifications to an One of a series of
project incorporating project existing design repetitions
new techniques
Complexity of Outcome based Coordination of Design and construct Supply and Supply only
deliverable contract (e.g. PFI) services (e.g FM) installation
Financing Private sector Capital works not yet Capital works in Capital works Recurrent funds in
funding or joint approved or forward estimates already allocated current year
venture requested
Adequacy of Very likely to be Likely to be adequate Tight budget, Adequate with some Adequate with
funds inadequate achievable with contingency generous
control contingency
Project location Remote, Remote, Regional but distant Regional Metropolitan

inaccessible accessible
Project Activities in Staging within Additions to Well clear of Greenfield site

surroundings occupied areas occupied areas occupied areas occupied areas
Hazardous Working with Possibly involves Hazardous materials Unlikely to No known

materials hazardous hazardous materials exist, but not part of encounter hazardous
materials works hazardous materials materials
Definition of No project Brief project Generic project brief Feasibility study Detailed project
project information description available completed brief available
available
Site availability Site not identified Several sites identified Site identified but New site Existing site
not yet purchased purchased
Project Need has not Justificatio is Needs justified but Need justified Need fully justified
justification been justified questionable may change through Based on through
project historical recognized
information process
Project Unidentified Potential approval Required approvals Few approvals No approval
approvals approvals delays have been are known and required or most required or
required identified documentd obtained already obtained
Clients Inexperienced Mixed experience Inexperienced Experienced Experienced

experience multiple clients amongst clients single client multiple clients single client
Client Multiple Mixed relationship Reluctant client or Good working Good working
relationships reluctant clients with clients relationship not relationship relationship
or established (multiple clients)
relationship not
established
Assessment of Unknown Limited number of Limited number of Adequate number of Abundance of

contractors contractors unproven contractors competent competent competent
contractors contractors contractors
Procurement No tendering and Negotiated Tendered outside Public open tender Selected
method involving tender agency tenderers
sponsorship
Consultant Selection without Design Full EOI and RFP Period panel Consultant
selection approved competition consultant selected using
processes approved process
Stakeholder High level of High profile client or Stakeholder Project may attract Project unlikely to
interest political, project groups involved stakeholder or attract
community or media interest Stakeholder or
media sensitivity media interest
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These factors can be grouped according to whether they are strategic or tactical-
concepts which should now be familiar from discussion in earlier units
Grouping of Risk Factors

7 funds/financing
8 definition of project
9 project justification (Strategic level)
10 stakeholder interest
11 site availability
Project
related
12 project location
13 project surroundings
14 hazardous materials (Tactical level)
15 availability of contractors
16 uniqueness of product
17 clients experience
Project 18 client relationships
Management 19 consultant selection
related
6.4 Summary of risk aspects

Taking these 3 main risk factors together- the means of establishing T, C and Q objectives
and the confidence we have in them, the consequences of not meeting them, and the
risk characteristics of the project itself- we can build up a complete picture to rate the
overall riskiness of a project.
At one extreme scenario of low risk we would have a technically simple project of modest
cost, where sound information underpins the estimates and forecasts, and with an
impact to the clients business which is minimal anyway should they not be met. At the
other extreme of high risk we would have a difficult and novel project, where forecasts
are based on poor/incomplete information, and it forms a critical part of the clients
business. Of course these scenarios are an oversimplification and, realistically, any
project will have a mixture of risk ratings across all three of the aspects as described.
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Reading
Baccarini, D and Archer, R (2001) “The Risk Ranking of Projects: A Methodology”. International
journal of Project Management V19, 139-145
1. What can the client do to ensure forecasts for project outcomes are realistic
and accurate?
2. What strategic risks does a project present to the client and when are these
considered in the project life cycle?
3. Why do many clients choose to retain risks associated with the projects they
procure, rather than transfer them to another party?
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UNIT 7 Risk and the Nature of the Construction Project
7.1 Introduction
It has been said that the construction industry is exposed to more risk and uncertainty
than perhaps any other industry. This unit examines the features of the process and
product of the construction industry that might justify this status. It will also be shown
that the amount of risk and uncertainty is largely related to the amount of ‘uniqueness’
inherent in each project. Risks are either controllable or uncontrollable depending on
where in the project environment they stem from and elements of the environment are
explained. A ‘checklist’ of typical sources of risk to be found in many construction
projects is presented.
Learning outcomes
Understand the concepts of project heterogeneity and
homogeneity and how they influence the amount of risk in a
project.
Understand the various elements of the project environment.
Know the difference in the nature of controllable
and uncontrollable risks.
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7.2 Project Heterogeneity v Homogeneity
Why is it that construction is so exposed to risk and what is it about the industry that
makes it so different from any other? The first part of this unit discusses the
characteristics of the construction industry and its projects to give a greater
understanding of the extent of risk and uncertainty that prevails. Some recent
initiatives that have been proposed for the industry to offset some of the risk and
uncertainty are then discussed.
Raftery (1994) described construction projects as having both homogenous and

heterogeneous characteristics; a concept which still holds good more than twenty years
on. That is to say they exhibit both similarities and differences from project to project.
It is the degree of “uniqueness” inherent in any given project that strongly influences
the amount of associated risk and uncertainty.
7.2.1 Project heterogeneity
There is likely to be truly different situations and circumstances that arise from project
to project, no matter how similar the buildings are that are being compared. In this
respect no two projects are the same (even comparing, say, two identical house types).
Where such heterogeneity exists in the design, construction and management of
projects there will be, by definition, more uncertainty about the outcome of the events
or situations. Members of the project team are working in conditions of greater
uncertainty because of a lack of directly relevant past experience, information,
knowledge and understanding. Correspondingly there is a higher degree of risk. It is
more difficult to accurately forecast outcomes relating to the time, cost and quality
targets. A simple analogy is that if you are asked to do a task which you have never
carried out before, you will be less confident in predicting the time and effort it takes
to do this, compared with a task you have carried out many times before. Undoubtedly,
any construction projects will have heterogeneous aspects relating to its technical,
managerial and commercial aspects.
Site and site conditions

An obvious difference- and one which sets construction apart from other
industries- is that every project, no matter how similar is built on a different site
(or plot of land within a site) and will be affected by surrounding conditions and
circumstances. In a technical sense; ground conditions such as soil bearing
capacity, existing services, soft spots, old mine workings etc. are never fully
known until actual work on site begins- a considerable risk. Site investigation
and bore-hole testing will be carried out beforehand to reduce uncertainty and
inform the design of foundations. In a management and site organisation sense,
issues such as access restrictions, complications from adjacent properties and
owners, availability of site storage space will depend on site location. Contrast
two hypothetical buildings which are identical in every way except location- one
to be built on an out-of-town greenfield site, the other in a compact city centre
location with parking, delivery, loading/unloading and storage problems.
Although identical, they present completely different construction challenges.
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Element specifications
Although buildings can be analysed in terms of a standard set of elements as
discussed above, the actual specification and design for each element is wide
and varied.
Management structure and style

This feature can legitimately appear in both the similarities and differences
categories. As argued above there are of course standard forms of contract.
However they are many in number and in practice are often adapted with
variations and amended clauses as to make the notion of ‘standard’ almost
unrecognisable.
A construction project is referred to as a ‘temporary multi-organisation.’ Any

reasonably sized project will involve many people, businesses and agencies that
come together to contribute their resources to the ultimate end of delivering
the project. However, the large and often complex organisation only exists for
the duration of a single project, and the individual objectives of all the players
are not always well aligned. There is almost an in-built capacity for problems
and disputes. The temporary nature means that all the experience gained by
the team from working together over the course of a project is lost at the end
of it. As such, construction is said to be ‘fragmented’
Sources of labour, plant and material

Another distinct feature of the construction industry is the fragmented nature
of labour and materials supply. In fact it has been said that there is no
‘construction industry’ as such. Rather, there are a series of local construction
industries and markets throughout the country, with varying regional features
relating to supply and demand. This discontinuous supply chain makes
forecasting and planning difficult. In particular, a reliable, consistent and trained
workforce is a real problem in construction. The extent of centralisation and
supply chain and logistics management that is evident in other industries is not
achieved in construction.
7.2.2 Project homogeneity
Contrast the construction project with the product of a high volume manufacturing
process. In the latter case there is little variability to affect the outcome. Quality control
and productivity are much more predictable, tightly defined and the process can be
made to be very efficient. There are no unknowns and there is little risk involved in the
production process (whether there is a market for the product is another matter- this
would be an example of an external commercial risk). Construction, however, is not a
manufacturing process and cannot achieve the same degree of certainty and
productivity associated with such a scenario.
From the foregoing we can see that the more homogeneity involved in the process
(design and construction activities) and the product (the technical solution represented
by the building or facility and its constituent parts), the less uncertainty there is about
the situation and therefore less risk involved. Following this line it would be desirable
for projects to be homogenous since there would be less risk to manage and greater
confidence that project objectives could be achieved. (less internal risk i.e. those
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situations that the project team have influence and control over).
Elements of the building

Every building can be analysed in terms of the standard definition of elements
that are universal across project types. For example, all buildings no matter how
varied will have foundations, internal finishes, services, walls and partitions and
so on. The Standard Form of Cost Analysis published by the Building Cost
Information Service provides a standard framework of 28 elements into which
any building can be analysed and compared with other buildings, allowing
comparisons to be made between the cost of achieving various building
functions in one project with the equivalent functions in other projects. This is
primarily intended for cost managers and quantity surveyors to allow direct and
meaningful comparison between similar past projects in the cost database, to
that which is being proposed for the purpose of cost forecasting. It makes use
of standard features of projects to reduce risk in cost prediction and control.
Construction Materials
Many of the materials that buildings are constructed from are practically
universal and in some cases have been used for thousands of years. For
example, we know a great deal about the performance and properties of
materials such as concrete, slate, timber, stone and steel.
Construction Components
As well as many materials being used consistently throughout the industry,
standard designs and components have emerged more recently. This reduces
uncertainty by reducing design variables and simplifying site and labour
processes. The more standardisation that is practiced in construction, the more
the industry takes on the characteristics of a manufacturing process.
Site Operations
Many site operations and activities of the construction process are also the
same from project to project, using specific types and capacities of plant and
labour operations. Site engineers and project managers use this knowledge and
experience in planning and co-ordinating the works.
Management structure and style

There are a number of standard forms of procurement and contract conditions
which define the roles, responsibilities and communication links for all parties
involved. Such standardisation reduces uncertainty and should mean more
predictable and efficient management.
In summary, Raftery observed that despite largely common activities and processes,
each construction project is assembled and constructed on its own site with its own
physical characteristics, subject to weather conditions depending on the season, with
different material specifications and technical solutions to the problem of enclosing
space. While a number of materials and components will be identical, many will not.
Each project usually has a different labour force of operatives and managers. Hence,
there will be differences in the management and interpersonal behaviour on each
project simply because people are different. We can see therefore, that any
construction project has a mixture of heterogeneous and homogenous characteristics.
82
The balance will depend on the type of project and client and contracting organisations
involved.
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7.3 Risk and the Project Environment
A construction project can be described as an “open adaptive” system with an internal
environment and an external environment. The project is “open-adaptive” system in the
sense that it affects, and is affected by, its external environment. Because the internal and
external environment interacts, the boundaries between the project and the “outside
world” are said to be porous. The internal and external environments are populated by
stakeholders who will be affected by the project in some way, either directly or indirectly.
This can be either positive or negative i.e. they will gain or lose something from the existence
of the project. The various categories of stakeholder in the “project world” are a source of
risk which will warrant examination in any RM exercise.
All risk can be categorised according to whether it emanates from the internal or external
environment.
Commercial
opportunity/ social
need
Project affects & is affected by its external environment

“world at large”
Environment markets
interacts with people people
interacts with surroundings communities
construction &operation agencies
External Environment
controllable
Internal Environment
Project constitution/
organisation
uncontrollable
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7.3.1 External Environment
No project exists in a vacuum. It is affected by externalities in the way that the demand
for the functions that the building is providing is borne out of some perceived need by
the client. In the case of private sector clients this is usually some commercial
opportunity identified by a business for which expansion or modification of facilities is
required. (This should be familiar from the discussion in the previous unit on the
strategic issues of a project’s development). In the case of public sector clients it is
usually to fulfil some social need or obligation. Whatever the case, the project is a
vehicle for achieving the organisations objectives and there is considerable speculative
commercial risk attached to the investment.
Risks in the political, social and economic environment stem from government policy
and world economy events that can affect the construction industry e.g. changing
interest, inflation and taxation rates. This form of environment risk affects the whole
of the construction industry. A common example of an industry specific risk is that of a
national strike by certain trades.
In the physical external environment the weather is an obvious example which poses
risks that can significantly upset planned construction processes. Prolonged rain,
extreme temperatures and high winds are natural phenomena that can delay certain
activities and upset construction programmes.
The project also affects its external environment in the way it changes the environment
and also affects people not directly involved in the project. The very process of
construction itself is a visible, often intrusive process. Many individuals and groups can
be affected in some way, positively or negatively, by the project. For example, a new
building may be perceived to enhance an area. It may have aesthetic appeal, contribute
to the regeneration of an area, provide some service that is desirable to the community
or increase employment from the staffing and running of the facility that will be
required. In such circumstances it would be considered an asset to an area and be
positively received by the local community and members of the public, who represent
an aspects of the external environment. Given this scenario, the stakeholders in the
projects external environment would not present a problem or risk to the project.
Conversely, projects may be received negatively by sections of the local community.
Projects which are perceived to be detrimental to an area for any number of reasons-
because they degrade the landscape, cause people to worry about the effect on the
value of their own property, object to the activities that will be carried out in the
building, or object to the nature of the client’s business. Perhaps the noise and
disruption from the construction process itself creates objections. There have been
several high profile examples of projects severely disrupted by individuals and protest
groups for environmental or political reasons. In such circumstances the external
environment and its stakeholders pose a substantial threat to the project. Stakeholders
have to be taken account of as part of the RM process.
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7.3.2 Internal Environment
The Internal environment largely comprises the project team- both demand and supply
side. The former represented by the various elements of the client organisation
(sponsor, users, employees, design team consultants, project manager) and the latter
the production side of contractors, sub-contractors and suppliers). The performance of
this project organisation is very important to achieving the project objectives, as the
discussion on the project as a temporary multi-organisation in the previous unit has
introduced.
Somewhere in the interface between the external and internal environment are
agencies such as utility companies, local authorities, planning and building control.
They are not core part of the project or design team, but nevertheless will directly
influence decisions made and affect project success.
7.3.3 Controllable or Uncontrollable?

Risks can also be categorised as “controllable” or “uncontrollable”. As the terms
suggest a controllable risk is one that can be managed and controlled, and its likelihood
of occurrence is directly related to competency of management on a construction
project and to the performance of site personnel and operatives. Risks in the internal
project environment would fall into this category.
Conversely an uncontrollable risk is outwith the control of any of the parties to a

project. Environment risks such as adverse weather conditions and inflationary rises on
material costs are examples of uncontrollable risks. Risks from the external project
environment would fall into this category. Although uncontrollable, such risks can be
foreseen and accommodated for.
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7.4 Risk and the project life cycle
Unit 4 described the phases of the project life cycle and its evolution from a strategic
focus in forming the project value system in relation to the client’s business need,
through to the tactical issues of design and delivery of the construction project. Making
a distinction between the strategic and tactical phases of a project is also useful from a
RM perspective. At the early stages risk is speculative and relates to the investment in
the project for the business. There is always, of course, the option not to proceed and
“do nothing,” but indeed this may be the biggest risk of all in terms of not developing
the business or adapting to necessary change. If the client does commit to a
construction project as the solution to their needs, the early issues to be faced and
decisions to be made are broad in nature including the type and location of project and
site selection. It is only when these executive level decisions are made that the project
develops as a construction project and becomes more technical in nature.
Consequently, the nature of risk changes from being speculative and business driven to
the risks that are inherent in designing and delivering a project that meets
predetermined targets for the schedule and budget.
Value Management, Risk Management and the Project Life Cycle
VM and RM
VE
Definition Delivery
Strategic issues Tactical issues

(largely client related) (client and contractor related)
Concept Brief Sketch Detail

design design construction
Level 1 Level 2 Levels 3 and 4

concept spaces Elements and components
Broad issues Narrower range of issues

•Investment opportunity •Procurement
•Project type •Manufacture
•Size and location •Co-ordination
•Site works
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The evolving nature of risk is concisely summarised in RICS (2004) “The management of
risk – yours, mine and ours” publication. The essence of this is distilled into the main
issues faced at the strategic, technical design development and construction phases in
the 3 diagrams below.
7.4.1 Risk and strategic project development
At the strategic development phase risk relates to broad questions about the quality of
the investment and soundness of the business case. Thereafter has the construction
project brief been properly scoped and defined to meet the business need? Third party
risks relate to acquiring the site and securing the necessary planning approvals to
proceed.
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7.4.2 Risk and technical design development
Once the technical design is underway risk relates largely to project and cost
management as the design solution is developed in response to the brief. Is it clear and
complete enough for the design team to interpret? Success will depend largely on
having the right project structure and people on the team where there are clear lines
of communication and decision making.
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7.4.3 Risk and construction
At the construction stage there are many internal and external sources of risk to
achieving timely completion within budget. Effective management and coordination of
all the works packages and activities undertaken by the supply chain in a technically
challenging environment is required.
See RICS (2004) “The management of risk – yours, mine and ours” available at
http://akc.ie/documents/PMRiskFINAL.pdf for detailed list of risks at each phase.
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7.5 A Checklist of Risks
The previous section presented a timeline of risks. An alternative way to categorise risk is by
source as in the generic checklist of risks that a construction project may be exposed to.
Reproduced from Edwards (1995) Practical risk management in the construction industry
3rd Party Risks Contractor risks
Approvals Failure to meet programme

Planning approvals Poor co-ordination of
Conservation area consents subcontractors
Environmental impact assessment Inclement weather
Legal Agreements Price changes
Rights of way permitted under
Rights of light certain contracts
Noise control requirements Disputes and claims
Site of special scientific interest Poor site management
Pressure Groups Accidents or injuries for which
Local pressure groups client retains responsibility
National pressure groups Under contract
Industrial action Due to client staff
Terrorism Latent Defects
Changes in regulation Liquidation of contractor
Site specific risks Client Controlled risks
Ground conditions Inaccurate or insufficient terms of

Extent of pre-construction reference
investigations Changes in project scope
Soil types and variability Occupancy
Mining works/subsidence Usage
Contaminated land Size
Climate and weather conditions Delays
Access restrictions/limitations Late decision making
Existing occupiers/users Late handing
Alternative provision over of site
working hour restrictions Delayed
maintenance of access roads programme
Maintenance of services
Existing buildings
Need for protection Design team risks
Need for demolition Inaccurate interpretation of terms
Security of reference
Errors in design, contract
documents, drawings
Environment risks
Failure to meet timescale
Estimating inadequacies
Political change
Escalating labour,
Government legislation plant, material costs
Taxation changes
Liquidation of design team
members
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7.5.1 Risk and the ‘source-event-effect’ chain
To recap, in construction risk management a risk is any event or occurrence not turning
out as planned and affecting some aspect of the project (usually adversely). In practical
terms this usually means an increase in cost or time being incurred by parties to the
project. To understand this more fully it is useful to analyse risk in terms of its
component parts- the various sources of risk, corresponding events and the effects
they have.
SOURCE EVENT EFFECT
Where does risk How does risk What is impact

come from? manifest itself? T, C, Q?
The source of a risk refers to where in the project environment, internal or external,
the risk emanates from. At the general environment level, extreme weather conditions
such as prolonged rain, frost or high winds are a source of risk that could potentially
affect the project - usually negatively. At the project level any of its participants, directly
or indirectly involved, are all potential sources of risk.
The risk event is the actual manifestation of a risk on some part of the project or the
project as a whole i.e. how it occurs. For example, if an unproven supplier is a potential
source of risk, the associated event might be late or wrong delivery of materials to the
site. If severe frosts are a weather risk, the associated event might be delay to
concreting operations. If volatile economic conditions are an example source of risk,
the associated event might be serious increase in the cost of skilled finishing joiners
later in the project. Generic risk checklists contain potential sources of risk exposure on
a project, but the associated risk event is particular to the project and surrounding
circumstances.
The effect of a risk refers to what impact or consequences it will have for a party or
parties to the project. The impact can be measured in time, monetary or quality terms
- though ultimately the impact of risk events occurring will be monetary for somebody.
Therefore, whilst it is true to say there are many sources of risk on a project, the effects
are few.
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7.6 The Risk Management Process
Having understood the nature of risk and uncertainty and the ways in which it can affect
the construction project, how then are these risks to be managed and controlled
throughout the project life cycle? The RM framework is the generic process for
controlling risk as part of the overall project management, adapted from the Project
Management Institute PMBoK
Define the process to be followed

-Agree process for the project
Risk management planning -Identify roles and responsibilities
-Decide frequency of reviews and reports
A number of techniques available

Risk identification - brainstor
ming
- chec
klists
- intervi
ews
- questionnaires
Quantitative or qualitative
The Risk analysis - quantitative: simulation, scenario
study analysis…
- qualitative: nominal group techniques
What to do about priority risk areas?

Risk Response Action taken to mitigate threats/exploit
opportunities
Ongoing evaluation of risk
Risk monitoring and control throughout Project life cycle.

Updating of the Risk Register
7.6.1 Risk management planning
The first stage of RM is for the project team to actually define and agree the process to
be followed at the outset as part of the overall project management plan. This may
already be reasonably well defined where an established PLC framework is being
followed. An example would be where the public sector OGC procurement framework
is being adopted. This has clearly identified RM application points throughout the PLC,
each having a particular purpose. Alternatively, in the case of organisation’s with no
recognised approach, this would have to be defined from scratch. This is likely to
depend on the level of experience and maturity of the organisation as far as its risk
management practice is concerned. In addition to identifying the points at which RM is
to be applied in the project, it is necessary to identify roles and responsibilities of the
participants involved, agree the methods and approaches to be used and review and
reporting frequency. In short, the RM plan defines how RM will be undertaken and
implemented throughout the project.
For each risk study the appropriate members of the team will come together and work
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through steps 2] to 4] as described below, within a facilitated and highly structured
workshop type setting. It is likely that either the project manager or someone else with
specific RM responsibility will facilitate the risk study sessions. An external consultant
7.6.2 Risk identification
This is the first step to be carried out within each risk study undertaken on the project.
There are a number of possible creativity techniques that can be used for risk
identification, but by far the most common is the technique of brainstorming. There is
no single “best” technique to be used; only the most appropriate to fit the
circumstances. Part of the facilitator’s skill is in selecting the techniques most
appropriate to the nature of the study and the team members involved.
The purpose of the risk identification stage is to capture all possible range of risks that
might affect the project at that stage of its development. The emphasis is to maximise
the quantity of possible risks rather than their quality. i.e. no assessment is intended at
this stage as this may stifle the creativity process. By generating a large quantity of
imaginative risk scenarios, it is more likely that all possible scenarios will be covered.
At the conclusion of the risk identification stage the team will have a list of risks that
threaten the project (or opportunities to be exploited)
7.6.3 Risk Analysis
In this step an assessment of the likelihood of each risk is made for its likelihood of
occurrence (probability) and effect on the project objectives (impact) if it were to occur
This assessment may be a simple descriptive (or qualitative) statement of their
perceived likelihood of occurrence, or in a more detailed exercise a numerical
probability will be attached to each. A two stage approach may be adopted, with the
first stage used to quickly screen out those risks not worth further deliberation (either
because their likelihood is so small, their impact insignificant, or a combination of both).
The approach to be used will be influenced by the quality of information available and
also upon the type of analysis to be carried out by the team. Again, there is no “correct”
or “best” approach and the level of sophistication is not necessarily an indicator of the
quality of the exercise. There is not normally any detailed ‘analysis’ as such. i.e. there is
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no sophisticated number crunching involved. Such a quantitative approach would not
normally be appropriate for use with a workshop setting, though may be carried out
separate to the study. An techniques applied within the workshop setting should be
simple to understand and easy to apply, so that the team can concentrate on the real
issues at hand, rather than being bogged down and distracted with complicated
analysis techniques. The amount of effort expended should be commensurate with the
needs of the project. At the end of this step the team will have a clear view of and
consensus of the risk profile of the project at that point in time, based on the
knowledge, expertise, experience and judgement of all those involved. A consensus
should emerge on what the priority areas are where attention and resources should be
focussed on dealing with the risks.
7.6.4 Risk Response
In this step, planned responses to the most pertinent of the identified risks are
developed. Obviously it is not possible, affordable or appropriate to develop responses
to all identified risks. The team will focus only on the higher priority areas. Whatever
the approach to dealing with each of the identified risks is agreed, it will lead to one of
the following effects, and this should be clearly identified as part of the exercise. The
following all relate to negative risk, where the objective is always to minimise.
Elimination
This is obviously the most desirable outcome to completely eliminate the risk. Possible
areas may be to eliminate a safety risk by not undertaking a certain type of welding
inside a building, but perhaps prefabricating.
Reducing probability of occurrence

This involves reducing the probability of a risk event materialising. For example, if theft
of materials from the site is considered a major risk, the contractor may respond by
employing 24-hour security on the site. Introducing education and training
programmes in the use of certain equipment for staff will reduce the probability of
occurrence.
Reducing impact of occurrence

Acknowledging that a risk event may still materialise no matter how much effort has
been invested in avoiding it, strategies may be put in place to minimising their
consequences. Such strategies may include providing a standby generator in the event
the main one fails, preparing an emergency evacuation plan in the event of terrorism,
fire drills etc and installing a sprinkler system in the building to reduce effects of fire
damage.
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Transfer risk
Contractual transfer of a risk perhaps to another party or insurance company is a
method of dealing with risks that cannot be wholly or partially eliminated. Of course,
transferring a risk does not reduce the effect it would have, or the likelihood of its
occurrence- it only passes the responsibility for it to another party.
Threats Opportunities
• Eliminate • Exploit
• Transfer • Share
• Reduce probability • Enhance probability
• Reduce impact • Enhance impact
• Absorb (accept) • Ignore
Insurance as a risk transfer strategy

A common means of risk transfer is through insurance. The effect of obtaining insurance
cover is to convert an uncertain exposure to some risk to a known cost, that is to say,
the premium to be paid for obtaining cover. It has the advantage of smoothing out
unpredictable peaks in losses, in favour of a regular annual liability to the insurance
company. Insurance is an easy “sleep soundly” option to risk management, suitable for
organisations who could not cope with financial exposure to such losses from time to
time. However, it is also perceived as an unsophisticated approach to risk management
and should only be used as a last resort or when strictly necessary, such as when
required by the contract or for statutory reasons.
Insurance often does not represent value for money for an organisation, since the
premium will be based on general claims experience of other organisations that may
not reflect the firm’s own experience. Also there is a high mark-up to cover the
overheads and profit of the insurance company, and also the possibility of disputed
claims and delayed payments if the service offered is poor.
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The growing cost of insurance services has been a contributory factor in the development
of the risk management profession. Recently insurance cover has proved to be too
expensive for some organisations or unobtainable for some risks. This has led to the
necessity for more improved management of the risks an organisation carries.
Organisations that are more sophisticated in their risk management techniques are less
likely to need widespread insurance cover, instead using it tactically where strictly
necessary rather than for blanket coverage. A consequence of this is that the insurance
market is made up of cover for organisations that are poorly managed, or for risks that
are unpredictable and high impact, leading to ever-spiralling premiums.
The risk register

The results of a risk management exercise should be recorded in a single
document, known as the risk register. The risk register is simply a single source
of reference for all the risks and their current status for a project. It should be
emphasised that the risk register is a dynamic document and will need updating
over time as the risk profile changes.
7.6.5 Risk monitoring and control
The final step of the risk management process aims to monitor the status of identified
risks, identify new risks, ensure the proper implementation of agreed responses and
review their effectiveness, as well as monitoring changes in overall project risk exposure
as the project progresses. Risk review meetings maybe held to assess the current status
of risks to the project, and project review meetings should include status reports from the
project team on key risks and agreed responses.
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7.7 Tools and Techniques of Risk Management
The next section introduces some of the more common tools and techniques applied within
a RM workshop study. These help the team lend structure to the study for effectively
identifying and assessing risks that affect the project. Tools and techniques that are
appropriate for a workshop study will be easy to understand and straightforward to apply.
7.7.1 Techniques for the Risk identification stage

The objective of this stage is to compile a list of possible risks that might affect the project.
A number of information sources or certain techniques may be used, and some of the more
common are described below.
Historical data
Probably the best means of assessing what the risky aspects of a project are is to
draw from direct experience of similar past projects, since most projects contain a
number of reasonably standard and recognisable risk situations. Useful historical
data for risk identification in the construction project may come from a number of
sources. An obvious example of historical data is that of the Meteorological Office
for weather forecasting, where prediction of future events is based on many years
of recorded past events of rainfall, temperature, wind speed and direction etc.
Although this is from outside the construction industry it obviously has its uses in
construction management and planning, such is the influence the weather has on
many operations.
Insurance companies, by the very nature of their business, are sophisticated in risk
management and also rely heavily on historical records of the occurrence and impact
of past events for risk analysis. Within the construction industry, bodies such as the
Building Cost Information Service observe past trends on tender price levels and the
effect that inflation has on the labour and materials markets. Based on this data,
predictions for the future are made.
Although actual experience, documented in historical records, is the most reliable

and desirable source of information for use in risk management, it has to be said
that it is also the most wanting in construction management. The types of databases
of information simply do not exist in any usable form yet for widespread use. The
extent and usefulness of records kept within the organisation itself will depend
partly on how sophisticated its risk management operations are. If a register, or log,
of the risk profile of previous projects has been built up, this will provide a useful
source of information. It may be that these will develop over time as the discipline
and the industry matures. On the other hand, much has been made of the
“uniqueness” of construction projects [Raftery et al] and the problem may be too
intractable to develop any meaningful industry wide databases.
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Checklists
Generic checklists are a useful source of information when compiling a list of
possible risks associated with a project. A checklist is simply a comprehensive list of
risks that could affect any project. Although necessarily general in nature checklists
can be used as prompts in determining what the potential risks are for the project
under study. Published risk checklists in texts and journal papers can be consulted
as part of the risk identification process. Separate ones exist for client, contractor
and consultant perspectives. Whilst checklists are undoubtedly a convenient and
relatively simple approach to risk identification it is important not to be over reliant
on them. There is a danger that they can act as a straitjacket and actually inhibit
detailed thought on specific project risks that may not be recorded on a generic
checklist.
Brainstorming
This is one of the most powerful, and most widely used, techniques for risk
identification. Brainstorming is a creativity technique extensively used in value
management and much can be found written about it in value management
literature. Essentially a brainstorming session is a short-term intensive group
exercise, where a team of individuals will generate as many ideas as possible for risk
events that may adversely affect the project. In a sense, this may be termed
“negative brainstorming” as the team of individuals is trying to determine all the
things that may go wrong with the project i.e. the downside risks, as compared with
more conventional value management brainstorming where the team is trying to
generate ideas for fulfilling functions.
7.7.2 Techniques for the Risk analysis stage
The second phase of the risk management process is risk analysis. The objective of risk
analysis is to determine what the impact or consequences would be of a risk event occurring.
The impact may not be restricted to the project itself, but could have an effect on the whole
organisation depending on how serious a risk, or combination of risks, are. Not all of the
risks identified at the risk identification stage will be given the same consideration since
there are simply too many to consider. There are an almost inexhaustible number of risks
that could affect any project and it would simply be too time consuming to deal with them
all. The point is to limit the analysis of project risks to those that are most serious, namely
those that have a high impact on the project in terms of time, cost and quality. It is also
worth considering risks which may have lesser, but still significant impact, if they are highly
likely to occur since the cumulative effect of a number of low impact risks materialising may
have serious impact. Ultimately, the effect of all risks directly or otherwise is in increased
costs for one or more parties to a project, whether client, contractor, subcontractor or
consultant.
The assessment of likelihood of occurrence i.e. the probability, may be a simple qualitative
exercise where probability of each event is assessed against some descriptive scale. This
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may be as basic as a three point scale of “low”, “medium” or “high” probability, or it can be
refined up to any number of descriptions. The two tables below are examples of probability
gradings. Although this may appear to be a subjective or “unscientific” approach to assessing
probability of risk occurrence, the use of a common scale gives a measure of objectivity to
the exercise. Such intuitive assessment, formalised in this way, is a powerful technique when
employed by experienced individuals.
It can be seen from the second column of the tables below that an informal, qualitative
grading can be quantified and expressed in more formal, numerical terms. This provides a
format suitable for any subsequent quantitative risk analysis.
1. Assessed likelihood 2. Equivalent probability

3. No chance of occurring 4. 0%
5. Unlikely to occur 6. 5 - 45%
7. As likely as not 8. 45 - 55%
9. Likely 10. 55 - 95%
11. Almost certain 12. 95 - 99%
13. Certain to occur 14. 100%
15. Assessed likelihood 16. Equivalent

17. Loss is not possible 18. 0
probability
19. Very remote possibility 20. 0.1
21. Remote possibility 22. 0.2
23. Slight chance of 24. 0.3
25.
occurrence
Slightly less than equal 26. 0.4
27. Equal chance of
chance 28. 0.5
29.
occurring
Fairly possible 30. 0.6
31. More than likely to occur 32. 0.7
33. Predictable 34. 0.8
35. Very likely to occur 36. 0.9
37. Loss is certain 38. 1.0
From Qualitative to Quantitative, two examples (adapted from Edwards)
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The risk grid (probability-impact matrix)
After a risk list is compiled using brainstorming and any other appropriate
techniques each identified risk area is gone through and a quick assessment made
of its impact and probability of occurrence. This is a group activity and the
assessments should be based on consensus. Depending on which “box” on the grid
each risk is placed in, based on probability and impact, it can be prioritised as having
low, medium or high priority for further investigation and consideration. The
advantage of the risk grid approach is that it is quick and easy to apply, and can be
readily understood by everyone involved in the risk workshop. Its limitations are that
it is a rough technique, and further analysis will almost certainly be required for
those risks having a higher priority. However it is always useful as a “first pass”
through the list to streamline it and quickly focus on the most important areas.
Hillson (IJPM 20, 2002) developed a risk grid which separately identifies upside risk
from downside risk, and termed the high priority area as the “arrow of attention.”
PROB.
MEDIUM HIGH
PRIORITY PRIORITY
LOW MEDIUM
PRIORITY PRIORITY
IMPACT
“Arrow of Attention”
VHI
VHI
HI
HI
Probability
Probability
MED
MED
LO
LO
VLO
VL
VLO LO MED HI VHI VHI HI MED LO VLO

Negative impact Positive impact
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The impact of risks can be further qualitatively assessed by some classification of their
impact as in the table below. Some subjective estimate may also be made as to the financial
loss associated with risk occurring.
39. Grad 40. Assessment of impact 41. Estimated

42.
ing 1 43. Little impact, nuisance only cost
44. 2 45. Medium loss
46. 3 47. Manageable loss
48. 4 49. In range of largest previous loss
50. 5 51. Serious loss
52. 6 53. Catastrophic
Risk analysis: severity grading
7.8 Quantitative or qualitative risk analysis?
Although the term risk analysis suggests some detailed numerical or statistical work, it is
often the case that there is no actual number crunching to be done in a risk analysis exercise.
Where some technique has been applied which requires input of numerical data and the
carrying out of some calculation work, this is known as quantitative risk analysis. There are
a number of standard techniques used in construction risk analysis that you may have come
across before. Most are techniques developed in the operational research discipline (also
known as quantitative management science) that have been appropriated for use in
construction. A quantitative risk analysis study provides some numerical results that allow
more informed decision-making by the team.
Qualitative risk analysis does not involve any mathematical manipulation or application of
numerical techniques. Instead, a subjective assessment based on the experience and
intuition of the team may be used to determine risk impact. Although there is no “hard”
analysis, a qualitative exercise still requires to be carried out using some structured system
or rules in order that that the project risks are made transparent and presented in a
consistent manner. Reasons for adopting a qualitative approach as opposed to quantitative
may include a lack of resources (in terms of staff expertise and software for carrying out a
numerical technique), lack of demand for a more detailed approach, absence of numerical
data relating to identified risk e.g. probability of occurrence and its financial implications.
On the other hand qualitative and quantitative exercises can be complimentary in the risk
analysis phase.
At this stage it may be felt that a qualitative exercise is in some way inferior or less
professional than the application of some numerical analysis in a quantitative exercise.
However, this is an oversimplification since the type of analysis carried out will depend on
such considerations as the data available, amount of time available, resources of the
organisation carrying out the study and the attitude of management who will be making
decisions on the basis of the outcome of the risk analysis. In short, there is no overall “best”
technique: those used will depend on what is appropriate for the circumstances prevailing.
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Once you have read and understood the above you should consult the following
core reading and then attempt the self-assessment questions.
Reading
Dallas Ch 11
Kelly, Male and Graham Ch 10.3
RICS The Management of Risk, RICS Project Management faculty (2004)

available at http://www.akc.ie/documents/PMRiskFINAL.pdf
1. What are some typical management, commercial and technical related risks on a
project?
2. Which of the risks identified above are controllable by the project team?
3. In what ways does the external environment shape the project?
4. In what ways does a project affect the external environment and what are the
associated risks?
5. Who should be involved in a project risk study and why does the team
membership change over the duration of the project life cycle?
6. How do qualitative risk analysis techniques differ from quantitative techniques?
7. What are the five ways that downside risk on a project are controlled as a result of
some management action carried out following a risk study?
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APPENDIX 1 PAST EXAM PAPERS
SCHOOL OF THE BUILT ENVIRONMENT
Centre of Excellence in Sustainable Building Design
D31VR
Value and Risk Management
Semester 3 – 2014/15
Duration: 2 Hours
Answer 3 questions: one question from Section A,

one Question from Section B plus one other question
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Scenario
The local government authority has allocated £9.5M to invest in a project to deliver
high quality community services in a suburb of the city. The Community Hub project is
intended to bring together and give citizens access to a number of local authority,
leisure and community services within a single facility (these have still to be decided
as part of the project).
This will be a high profile project to transform the community and improve the quality
of life of citizens in a sizeable area of the city, and the sponsor is looking for innovative
proposals to get the most from their investment. The project has to support a diverse
mix of resident groups. The client is looking for innovative proposals to provide an
inspiring and enriching experience for citizens.
Your VRM consultancy has been engaged to provide value and risk management
services to help ensure optimum VFM is achieved from the project investment. The
project will be initiated in the next month and the client has selected RIBA Plan of Work
2013 as a framework to procure the project.
SECTION A
Question 1
Design a 1-day Charete type VM study agenda to be undertaken by the project team.
This should identify the key stakeholders that will be required to participate in the study
and highlight some of the main tools/techniques to be applied.
Question 2
The lever of value can be related to the life cycle of any project.
Explain what the lever of value represents and discuss the Value Management and
Value Engineering issues at each stage along the lever.
105
Question 3
Prepare a report on the value drivers and associated measures of success that will
inform the development of the brief for the community hub project. This should
consider the range of stakeholders and the benefits they will derive from the project
investment.
SECTION B
Question 4
Mitigating project risk involves adapting to the external environment and managing
the internal environment as far as possible.
With reference to the Community Hub project identify the types of risk from the
internal and external environment and discuss the extent to which it is possible for the
project team to mitigate downside risk.
Question 5
A Risk Management framework may comprise a series of risk studies during the project
life-cycle. Discuss the timing of risk management interventions during RIBA Plan of
Work 2013 highlighting how attendance and the nature of the information being
processed in study workshops will vary over time.
END OF PAPER
106
SCHOOL OF THE BUILT ENVIRONMENT
D31VR
Semester 3 – 2014/15 –
Duration: 2 Hours
Answer 3 Questions: one question from Section A,

one Question from Section B plus one other question
107
Scenario
The local government authority has allocated £9.5M to invest in a project to deliver
high quality community services in a suburb of the city. The Community Hub project is
intended to bring together and give citizens access to a number of local authority,
leisure and community services within a single facility (these have still to be decided
as part of the project).
This will be a high profile project to transform the community and improve the quality
of life of citizens in a sizeable area of the city, and the sponsor is looking for innovative
proposals to get the most from their investment. The project has to support a diverse
mix of resident groups. The client is looking for innovative proposals to provide an
inspiring and enriching experience for citizens.
Your VRM consultancy has been engaged to provide value and risk management
services to help ensure optimum VFM is achieved from the project investment. The
project will be initiated in the next month and the client has selected RIBA Plan of Work
2013 as a framework to procure the project.
SECTION A
Question 1
“Clients struggle to articulate what value means to them, and too few projects develop
a clear brief that defines their business, social and environmental requirements”
Constructing Excellence (2009) “Never Waste a Good Crisis: A Review of Progress since
Rethinking Construction”
With reference to the community hub project critically analyse this statement and
suggest how VM can be deployed to ensure value is effectively articulated for project
success.
Question 2
Your client has commissioned you to facilitate a two day VM workshop study on the
community hub project to be carried out at concept design stage of RIBA PoW 2013
As a VM consultant, propose an agenda for the study identifying who should

participate and explaining some appropriate techniques that you propose to be applied
in the study.
108
Question 3
A key question for any client organisation considering their project investment is “why
invest, why now and for what purpose?”
At what point within the Project Life Cycle would this be explored and how does Value
Management help provide the answers?
SECTION B
Question 4
“Risk is an uncertain event or set of circumstances that, should it occur, will have an
effect on the achievement of a projects objectives”
Association for Project Management
With reference to management, commercial and technical categories, explore the

types of risks that the community hub project is exposed to in its delivery.
Question 5
It may be argued that the every construction project is unique.
Discuss the extent to which this statement can be supported and highlight aspects of
the construction and procurement process that can be standardised to reduce risk and
uncertainty.
END OF PAPER
109
School of Energy, Geoscience, Infrastructure and Society
D31VR
Semester 1 – 2015/16 –
Duration: 2 Hours
Answer Question 1 AND Question 2
110
Scenario
Your client is developing a high end hotel, of 4 or 5 star quality, providing 400 bedrooms. The
City centre site has been identified and purchased and the client has selected RIBA PoW 2013
framework to manage and deliver the project.
The client is seeking innovative scheme proposals to become the market leader in exploiting
the growing business and leisure market opportunities that a high-end hotel will service. Your
VRM consultancy has been hired to provide value, cost and risk services to the client and
design team throughout stages of RIBA PoW 2013 (see below). The purpose of hiring your
consultancy services is to ensure the existing design team develop innovative and cost
efficient scheme proposals befitting a high profile and prestigious development that can be
delivered on time and to budget.
Value
Question 1
With reference to the RIBA Plan of Work prepare a report on how your company
can provide a comprehensive Value Management and Value Engineering service
to the client and design team to enhance Value For Money (VFM) from the project
investment. Your report should include advice on how VM and VE will be
implemented as well as the expected input from the client and design team.
(50 marks)
Risk
Question 2
With reference to the RIBA Plan of Work prepare a report on how your company
can provide comprehensive risk management services to the client and design
team to ensure risks are controlled throughout the project. In particular explain
the use of the risk register as a control document from Stage 0 to Stage 5 of the
RIBA Plan of Work.
(50 marks)
END OF PAPER
111
School of Energy, Geoscience, Infrastructure and Society
D31VR
Duration: 2 Hours
112
Scenario
Your client is developing a high end hotel, of 4 or 5 star quality, providing 400 bedrooms. The
City centre site has been identified and purchased and the client has selected RIBA PoW 2013
framework to manage and deliver the project.
The client is seeking innovative scheme proposals to become the market leader in exploiting
the growing business and leisure market opportunities that a high-end hotel will service. Your
VRM consultancy has been hired to provide value, cost and risk services to the client and
design team throughout stages of RIBA PoW 2013 (see below). The purpose of hiring your
consultancy services is to ensure the existing design team develop innovative and cost
efficient scheme proposals befitting a high profile and prestigious development that can be
delivered on time and to budget.
Value
Question 1
With reference to the stakeholders of the hotel development project explain how
the various categories of value could be reflected in the evolving design solution
to best meet project requirements. Your report should explain how a Value
Management study carried out at Stage 1 of the RIBA Plan of Work will ensure
project requirements are clearly identified and expressed to ensure a balanced
brief.
(50 marks)
Risk
Question 2
Design a structure for integrating formal Risk Management into the RIBA PoW
in order that a risk register can be set-up and maintained throughout the design
and construction phases. The Risk Management structure should identify the
key stages when a risk study is required, identifying expected participants and
explain the risk issues to be evaluated.
(50 marks)
END OF PAPER
113
SCHOOL OF ENERGY, GEOSCIENCE, INFRASTRUCTURE AND SOCIETY
D31VR
Date: Friday 16 December 2016 Time: Edinburgh 13.00 – 15.00

Dubai 17.00 – 19.00
Duration: 2 Hours
Supplied: BCIS analysis #28544
114
Scenario
The scenario is based on the Citizen M hotel development project BCIS analysis
#28544 which accompanies this paper. You should use the scenario information
as far as possible within your solutions.
Value
Question 1
(a) The Citizen M hotel design solution was developed as a response to the
client’s project value system. Explain the benefits of making the project value
system clear and well defined, identify the various dimensions of value that
would have been considered during the briefing process and suggest the
priorities driving the project.
(25 marks)
(b) The client wishes to value engineer the project to achieve a significant saving
on the £13.69M cost plan budget. Discuss how Value Engineering can be
applied to achieve the savings and suggest which elements could be targeted
to minimise impact on the project value system.
(25 marks)
Risk
Question 2
(a) With regard to management, commercial and technical sources, explain the
main risks associated with delivering the Citizen M hotel project from the
contractors perspective.
(25 marks)
(b) Propose how a RM system could be applied by the contractor throughout the
technical design and construction stages to control risk.
(25 marks)
END OF PAPER
115
D31VR
Duration: 2 Hours
DO NOT REMOVE THIS PAPER FROM THE EXAM HALL
116
Scenario
#28544 which accompanies this paper. You should use the scenario information as
far as possible within your solutions.
Value
Question 1
(a) With reference to the Client’s project value system, explain how the various
categories of value are reflected in the Citizen M hotel design solution and
explain how a strategic level Value Management study would have helped
build consensus in the project team in identifying the value drivers.
(25 marks)
(b) Explain how Value Engineering the design and cost plan is better than a
traditional cost cutting exercise in finding savings to the budget.
(25 marks)
Risk
Question 2
Design a structure for integrating formal Risk Management into the technical
design and construction process in order that a risk register can be set-up and
maintained throughout the design and construction phases. You should identify
the key risk categories that would need to be managed by the Design and Build
contractor for the citizen M hotel project to help ensure its successful delivery.
(50 marks)
END OF PAPER
117
D31VR

(Independent Distance Learning)
Resit Diet – 2016/17
Duration: 2 Hours
DO NOT REMOVE THIS PAPER FROM THE EXAM HALL
118
Scenario
Value
Question 1
(a) Prepare a report on how a comprehensive Value Management and Value

Engineering service could have been applied to the procurement process of the
Citizen M hotel to ensure the client achieves Value For Money (VFM) from the
project.
(25 marks)
(b) Identify the elements of the cost plan that might be targeted in a Value
Engineering exercise to save costs and evaluate the possible impact on project
functionality that might result from making savings.
(25 marks)
Risk
Question 2
(a) With regard to the management, commercial and technical sources, explain the
main risks associated with delivering the Citizen M hotel project from the
perspective of both the client and the contractor.
(25 marks)
(b) Propose how a risk management system could be applied throughout the
technical design and construction stages to control risk.
(25 marks)
END OF PAPER
119
D31VR

(Independent Distance Learning)
Resit Diet – 2016/17
Duration: 2 Hours
120
Scenario
Value
Question 1
You were hired to provide a comprehensive Value Management (VM) and Value
Engineering (VE) service throughout the design process of the Citizen M hotel
project. Prepare a report which explains how VM was applied to develop a sound
brief and explain how VE could be applied to the design solution to achieve budget
savings.
(50 marks)
Risk
Question 2
Design a risk management framework to be integrated into the construction process

that will provide effective risk control in delivering the project. The framework should
identify who should be involved in any risk studies and suggest the key areas of risk
that would need to be managed to help ensure successful delivery of the project.
(50 marks)
END OF PAPER
121

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D31VR Value and Risk Management Course Handbook

2 Value Management & Value Engineering of construction projects

3 Value, Function and Cost – Function Analysis

4 Project value systems and the Project Life Cycle

5 An introduction to Risk Management – A discussion of Risk and uncertainty

6 Risk and the Client

RIBA Plan of Work 2013, Royal Institution of British Architects (2013)

RICS The Management of Risk, RICS Project Management faculty (2004)

Baccarini, D and Archer, R (2001) “The Risk Ranking of Projects: A Methodology”.

Office of Government Commerce Guide 04 Risk and Value Management

Office of Government Commerce Guide 03 Project Procurement Lifecycle: The

Fewings P (2005), Construction Project Management: An Integrated Approach, Taylor &

Kelly, J (2007) “Making client values explicit in value management workshops”

RICS (2003) Surveyors construction handbook extract- Section 3: the management of

Norton B R and McElligott W C (1995), Value Management in Construction: a practical

Raftery (1994), J Risk Analysis in Project Management E and FN Spon 1994

Loosemore M, Raftery J, Reilly C and Higgon D (2006), Risk Management in Projects,

Smith, N J (1999) Managing Risk in Construction Projects Blackwell Science

1.1 Aim of the VRM course

The objectives are

• To develop a practical understanding of the value and risk management of the

Both systems require:

A team approach to the processing and qualitative and quantitative

An outcome in terms of an implementation strategy (value management) or a

1.1.1 Construction value management

In construction, value management is typically a proactive, creative, problem solving

Value is a measure of customer satisfaction relative to the level of effort to achieve

1.1.2 Construction risk management

In construction, risk management is typically about the identification, measurement and

Risk Management is the systematic application of policies, procedures methods and

Strategic project development

Tactical project development

1.2.1 Client types

Large/small private developer

Large/small public owner occupier

1.2.2 Identification of client needs

Business case team A team of people with an understanding of the

Client The customer for construction.

Client adviser The independent adviser, with a knowledge of

Client project manager The individual or organisation supplying the

Client representatives Individuals, often heads of department, who

Investment decision maker A term used in Office of Government Commerce

Project owner A term used in Office of Government Commerce

Project sponsor A senior executive from the client organisation

Stakeholders The key interested parties, such as investors and

Key point for reflection

1. Why is it logical to integrate value management and risk management into a

Simplistically, value management is the name given to an enterprise concerned with

Value analysis is an organised approach to providing the

Value analysis is an organised approach to the identification and

Unnecessary cost is:

In 1954 the US Department of Defence’s Bureau of Ships became the first US

2.2.1 Project Life Cycle

APM BoK RIBA PoW BS6079 OGC CIRIA

Design Concept design Implementation Procurement Scheme design

Contract Developed design Operation Investment Production

Implementation Technical design termination Outline design Tendering

Commissioning Construction Detailed design Construction

Handover Handover Readiness for Operation

VALUE MANAGEMENT OPPORTUNITIES

VALUE ENGINEERING OPPORTUNITIES

RIBA Plan of Work 2013

Value analysis/value engineering was initially a service for manufacturing industries

Value management is a service that maximises the functional