Value Management Study for TechWatt Corporation - Essay Example

1 Preparation for Value Management Study designed for TechWatt Corporation Prepared by TMK Consultants TMK Services, an independent Value/Risk Management Consulting firm, has completed this initial report for TechWatt Corporation. TechWatt, a rapidly growing information technology company, in a desire to expand its operations and increase its visibility in the marketplace, has proposed an ambitious new building project. Currently located at Reading International Business Park, Basingstoke Road, Reading, Berkshire, RG2 6DD, TechWatt is currently investigating possible locations for a new regional headquarters facility. The regional headquarters is proposed to consist of: management and administrative offices for a staff of 15; hi-tech light manufacturing facilities for staff of 15; plus sufficient meeting facilities to accommodate clients/potential clients. In preparation for the Value Management Study, TMK Services has determined the need for this preliminary report that will address the specific issues that should be evaluated during the first meeting of the project briefing stage. This report will include details of what should be contributed to the Value Management Study, and who will be involved in the process. In addition, TechWatt will need to provide certain information for the Study, which will be addressed. Finally, a proposed agenda will be submitted for approval. Top managers of TechWatt must be involved in every aspect of this process and, since the company is not large, they will be directly monitoring each feature of the process without exception. At the early stages of decision making, there is no need for any delegation of responsibility. As the process proceeds to the construction phase, 2 obviously some delegation will become necessary, as the managers of TechWatt must rely on professionals in their fields to carry out their instructions. At the outset, TMK Services has been informed that the funds allocated by TechWatt for the proposed HQ total approximately five million pounds. With that in mind, the first logical step in this process must be to determine a suitable location for building and determine what the cost of the land will be. While some locations may seem more desirable from a strictly logistical or geographical standpoint, consideration must be given to the relative cost of land in any given area being considered. We would suggest that TechWatt management not limit themselves to only one possible location at this stage. Going into the Value Management Study meeting, it would be beneficial to have at least two, if not three possible locations on the table. Considering what has been occurring with the price of land in recent years, it becomes imperative to make the proper decision on location. For example: From 1983 to 2002 the cost of one hectare of land in London went from 0.76m to 5.5m. However, in the South West, the price went from 0.18m to 1.7m. Finally, the lowest prices for land are found in Yorkshire with prices raising from 0.1m to only 0.87m per hectare. (UK Land Prices Rocket, 2003) Prices for land vary throughout additional areas of the country, and specific numbers can be provided upon request, however the purpose of providing these statistics is simply to provide the basis for TechWatt management to understand the importance of this part of the decision making process. Obviously, the cost of the land on which the HQ will be constructed will play a major roll in determining the amount of finances remaining for the building process. 3 Although a full hectare of land may not be necessary for this project - that is a determination that will be made at a later date - understanding the cost of land in various locations must be a vital part of the process for TechWatt management. Other factors will need to be considered regarding location, as well. These include: accessibility of location (is it close to majors thoroughfares and easily accessible from airport); quality of surrounding area (will the area make a positive impression on visiting potential clients); safety; extent of pre-construction work necessary to prepare the site; tax issues and zoning matters must also be considered. Management of TechWatt needs to seriously consider all of these factors mentioned when selecting a location. Basing a decision on limited information will prove costly to the company in the long run. TMK Services further recommends that TechWatt top management seriously considers the benefits of using sustainable design for this project. Sustainable design is described as a building concept that "...integrates consideration of resource and energy efficiency, healthy buildings, ecologically and socially sensitive land-use, and an aesthetic sensitivity that inspires, affirms and ennobles." (Research Report 23, 2002). This concept has become more widely used and accepted in the architectural and construction trades in recent years, as well proving to be extremely cost effective in the long run. Since investment in high-performance, sustainable building design and technologies is limited by first-cost decision-making, it is imperative that TechWatt fully understands the cost benefits of this process before the project is initiated. TMK Services has researched this topic thoroughly and will present important factors for TechWatt's 4 consideration. The following information will provide some background information on the current status of sustainable building designs (also called 'green building'), as well as presenting financial benefits for the initial investment. Buildings contribute nearly half (46%) of the UK's carbon dioxide emissions, with businesses contributing 19%. The UK has already started implementing policies and strategies to promote improved energy efficiency in both the new buildings and the refurbishment markets. The UK government has introduced a number of new programs and funding streams for low carbon buildings. Non-government agencies also have developed initiatives, and cross-industry partnerships are being nurtured aggressively. The result: a dynamic sector that is striving ahead, facilitating business investment, promoting research and innovation and developing science and technology for a new world. Architectural successes in sustainable buildings are becoming more and more prevalent in the UK. For example, Wheeler and Beatley (2004) cite The Beddington Zero Energy Development (BedZED) - an environmentally friendly, energy efficient mix of housing and workspace in Beddington, Sutton - is just one example. Using energy only from renewable sources generated on site. It is the first large-scale 'carbon neutral' community (the first not to add to the amount of carbon dioxide in the atmosphere). BedZED shows how construction can be built without degrading the environment. Choosing sustainable design may very well provide an opportunity for TechWatt to receive assistance and support from the government, as well. For example, The Renewable Energy and Energy Efficiency Partnership (REEEP), is one example of the 5 specific commitments made by the UK at the World Summit on Sustainable Development in Johannesburg in 2001.The UK took up the challenge of developing the REEEP in order to bring together committed Governments, businesses, and international organisations in order to translate the political commitment and drive to promote energy efficiency and renewable energy that was expressed at Johannesburg into concrete outcomes. Two areas in which TechWatt may benefit are: - First it will identify and remove market barriers. As these could be different depending on location, the REEEP his developing a network of regional co-ordinators working with organisations in each region. They can aid in regional policy delivery by enhancing the capacity of national regulators to identify, replicate and implement the most effective policy and regulatory mechanisms. - Second, the REEEP will help match finance with innovative renewable and energy efficiency projects. By facilitating links between business and other innovators, REEEP partners will promote sustainable energy projects at the national and regional level. TMK Services has not, at this point, contacted any government agencies to determine whether or not the REEEP may indeed provide benefits for TechWatt's potential building project, but that is something that should be included out as part of the Management Study. On the other hand, TMK has determined some financial benefits that may be derived from pursuing 'green building' techniques. The following list, developed by the U.S. Green Building Council (LEED, 2005), outlines some of the initial and long-term financial benefits of this method. 6 The Benefits of High Performance Buildings 1. First Cost/Mortgage Savings through Quality Packages Integrated System Savings over Individual Components Quality and Modularity with JIT Purchasing over Redundancy 2. Facilities Management Cost Savings Maintenance, Repair, Energy, Water, other Utilities, Cost of Discomfort, Failure costs, employee retention and training 3. Individual Productivity Cost Savings: (skill based, rule based, knowledge based jobs) Speed and Accuracy, Effectiveness, Creativity, Motivation, Absenteeism 4. Organizational Productivity Cost Savings: Profit, Time to Market, Customer Attraction and Retention, Recognition and Publicity, Continuous Work Flow, Real Estate Effectiveness, Team/Multi-disciplinary Creativity 5. Attraction/ Retention or Turnover Cost Savings: Time and Cost to Attract, Quality Attracted, Training Costs, Retention Rates 6. Tax/Code/Insurance/ Litigation Cost-Savings Utility & Tax Incentives, Tax Depreciation, Code Compliance, Insurance & Litigation Costs 7. Health Cost Savings: Workman's Compensation, Medical Insurance Costs, Health Litigation Costs, Environmental Evaluation & Remediation, Lost Work Time 7 8. Spatial Renewability Cost Savings Organizational Labor and material costs for reconfiguring workstations and workgroups, HVAC/lighting/networking system modification costs, occupant down-time 9. Technological Renewability Cost Savings: Technological Networking: data/power/voice change, hardware/software change, training/mentoring costs, organizational/workspace and environmental/conditioning response costs 10. Salvage/Waste Cost Savings Organizational, Technological, Environmental Modifications, Activity related waste, Aging & Wear, Obsolescence, Salvage Value Hence, TMK Services highly recommends that TechWatt management seek out a highly qualified architect/contractor that will commit to the sustainable building concept. We are prepared to provide documentation for the Value Management Study that will provide detailed statistics to substantiate potential savings for each of these areas. TMK Services also recommends that TechWatt utilize Building Commissioning, due to the fact that it helps ensure that building systems operate efficiently, meet the needs of the end user, function as designed, and maintain occupant comfort. The initial costs of commissioning are recovered many times over through increased operating savings, improved staff performance, and avoidance of costly construction problems. This process should be addressed at the Value Management Study. The commissioning process should compliment, or more likely, be carried out by the same entity that is 8 designing the sustainable building project. A word of warning that must be mentioned at this time involves the temptation for any company - especially smaller, less financially secure companies - to accept the lowest bid for their construction project. TMK Services advises TechWatt to carefully consider each bid that will be received for this project and make sure that each company bidding fully understands every detail of the project plan. It is highly unlikely that a company entering a bid that is substantially lower than most of the other bids received will actually be able to provide the type of quality construction, and attention to every detail, that is expected by TechWatt. Top management of TechWatt must engage in detailed discussions, and provide extensive, precise information to any potential contractor or architect to avoid any misunderstandings in this regard. In conclusion, the following information is designed to provide TechWatt with further information they will need to conduct a successful initial Value Management Study meeting. The meeting should be designed to: Define total construction project requirements; explore alternative facility solutions; form a project team; discuss possible Building Commission firms; discuss possible design firms; produce a pre-design program; establish project financing; arrange for publication of request for bids. The top managers of TechWatt should attend the initial meeting, those who are in a position to make decisions in relation to this project. In addition, attendees should include government officials that may have pertinent information for the group, i.e. regarding possible tax or zoning issues, as well as 'green building' assistance. Any staff that may be involved in any aspect of the overall project should also attend this initial meeting. 9 The following is a suggested agenda that may be used for the initial meeting, and be adapted as needed for use with the Risk Management Meeting: Project Briefing Meeting Agenda Project Name: TechWatt Regional HQ Project Circulate Sign-In Sheet Convene Meeting Appoint person to take meeting notes Introduction of Attendees Statement of Purpose of Meeting Hand out document packets to attendees (provided by TMK Consultants) Meeting Items: Introduction and project overview Identification of project representatives (including Risk Management) Consider building methods (i.e. 'green' or sustainable) Planning and Development: Consider possible building locations Facilitator - Comments and questions: Planning and Development Section Plan Review Section Guest comments Review and Adjourn: Review of meeting points by note taker Facilitator adjourn meeting Preparation for Risk Management Study designed for TechWatt Corporation Prepared by TMK Consultants TMK Services understands, and desires TechWatt to accept the fact, that successful risk management requires top management commitment, ownership and understanding of the process, and an active risk management program reviewed regularly in a constructive 'no-blame' culture. Attitudes to risk have a significant effect 10 on the success of the project. An objective of 'not failing' will have a very low tolerance of risks of any kind. Conversely, an objective of 'succeeding' will encourage participants to be more innovative, to take more risk where appropriate and to make more effort to monitor and manage the recognised risks. The Risk Management Team (which should be appointed by management during the initial Project Briefing) must meet with all contractors, vendors, local government officials, the architect, real estate agents, as well as any entities that may have an effect on the overall construction process. This meeting, or even a series of meetings, must take place prior to the pre-design meeting. According to TMK's research, to avoid delays, it is critical that everyone involved with the design and construction conduct a complete review of the construction documents prior to the pre-design meeting. As Aarno Nurminen states, "Many change orders (estimates range between 15% & 35%) can be traced to unresolved drawings or coordination issues. With today's computer-aided design (CADD) and drafting systems, it's much easier to coordinate and clarify drawings in a conference room amid white collar managers." (Today's Facility Manager, February 2001). The cost overruns created by trades' people duplicating efforts or awaiting correct drawings while on the jobsite can be minimized by each of the relevant parties appropriately investing their respective time to thoroughly review the project documentation. This must be monitored by the Risk Management Team. Another important factor to address is making sure that all cost estimates are itemized. No assumptions should ever be made at any step of the process. If there are any 11 doubts as to what will be included in any bid or quote, it must be cleared up well before any work at the site begins. Although nearly all of the planning should have been accomplished in the pre-design meeting, it is still vitally important to anticipate construction with a pre-construction meeting. It is critical for the contractors to understand TechWatt's goals and needs. In the same breath, the top management as well as all of the other parties to the transaction should know what the concerns and questions are of the contractor and architect. It is our assessment that the pre-bid and pre-construction meetings are the best place for any issues to arise, as the further into the project the team ventures without addressing potential issues, the riskier each day becomes with the potential cost overruns and schedule delays looming largely. The project team will live together from start to finish and should have mutual respect for one another throughout the process. With all parties understanding each other's goals and objectives, where all concerns and issues are addressed openly, there will be greater harmony and a higher probability of success from start to finish. Further, TMK Services recommends the use of Integrated Teams comprising managers from TechWatt, designers, contractors and specialist suppliers, all having similar objectives. This approach leads to the use of non-adversarial forms of contact such as good project management practices and minimising claims or disputes. Earlier contractor involvement, either through long-term collaborative relationships or through two stage tendering, leads to practical simplifications and cost reductions. Other 12 necessary items include project-wide insurance, to gain buying power and avoid divisive protective behaviour about faults and no claims records, and the use of project accounts to ensure smooth supplier cash-flow arrangements. TMK Services recognises that the use of digital technology is increasing on construction projects, including CADD drawings, project websites, interactive delivery processes such as online submittal review and online estimating, object-oriented, interoperable design, and the use of computer models. This trend raises three major, distinct liability issues. They include (1) the large-scale use of electronic files and the risk of misuse, (2) the impact of software licensors limitations of liability, and (3) the failure of the industry to address these issues in contracts. However, since TechWatt is a technology-based company, top management, and IT representatives should meet with all contractors or vendors that are expected to use any of these technologies in the project, and address liability issues before work begins. TMK Services considers the following to be key rolls in the entire process of TechWatt's HQ construction project (part of the integrated team): investment decision maker: responsible for making the investment decision; senior responsible management: ownership of the project at a senior level; project sponsor: contact between the client team and the supply team via the project manager as the main day-to-day representative of TechWatt; project manager: managing the project and project team; independent client adviser: providing independent expert advice to TechWatt as required on legal, financial and/or technical aspects of the project. Using an agenda format similar to the one given earlier for the Project Briefing 13 Meeting, TechWatt should conduct the pre-design meeting, including the Risk Management Study. All relevant stakeholders should attend this meeting, including the investment decision-maker, senior responsible management, project sponsor, independent client advisor, contractor, realtor, vendor representatives, and government official(s) - that attended the earlier meeting. This ends the preliminary reports to TechWatt Corporation regarding their proposed regional HQ construction project. All relevant documentation, charts, drawings, and statistics will be provided as part of the second phase of TMK Services' contract. Please notify TMK Services when decisions have been made regarding total number of attendees at each of the forthcoming meetings to enable to proper number of folders to be printed, bound, and shipped to TechWatt's office. 14 References International Facility Management Association (IFMA), (2002), Research Report 23: Project Management Benchmarks. Nurminen, Aarno , (2001), Today's Facility Manager. UK Land Prices Rocket. (2003) UK Land Directory, Available from: [Accessed 26 November, 2005]. U.S. Green Building Council, (2005), "LEED: Leadership in Energy and Environmental Design." Available from: [Accessed 26 November, 2005]. Wheeler, Stephen and Timothy Beatley (2004), The Sustainable Urban Development Reader, (The Routledge Urban Reader Series), Routledge. Read More