The value approach origins come from the climate that existed during the Second World War. General Electric (GE) was finding it very difficult to source certain raw materials since every industry was working at maximum capacity to help with the war effort. This situation forced companies to look at using alternative materials. GE soon came to realise that when forced to find alternative materials, if enough research went into the process, cheaper materials could be sourced that gave superior performance to the existing material. They concluded that by looking at the basic function that an item needed to perform was vital in helping to choose the right material. They came to realise that care and attention to function manifested itself at the end of the production line through improved quality and lower costs and providing better value for money.
Value is a subjective term that is very much as the discretion of those involved in the management of projects. Ask the question, what value does the product associated with the project have to the organisation? Can this be really answered by the project management team in one way, by the organisations management team in another and the customer in another way. The principle behind value is the worth that the item has to the individual comprised with the functionality.
The value approach has been further developed into an approach know as value management or value engineering over the years. The value management method is designed to use highly efficient procedures that are consistent with sound management techniques and has a number of characteristics:
- Decisions are made on the value of the product or service and not on criteria such as pure cost or return.
- Understanding the functionality associated with the product or service in order to determine where the value is.
- Directs efforts towards maximum possible alternatives through creativity value orientated m
ethods (i.e. brainstorming).
The process of value analysis (which is value management) looks at the understanding of the product and service from a functional viewpoint, but in doing so tries to comprehend the value that this has towards the end-objective.
Such a concept is important when a project attempts to define the scope of the product. If product value is a concern, project stakeholders should firstly focus their minds on the functionality of the product and then on the other constraints. The most simplistic way to measure value is through Revenue. This measure ensures that the process of value analysis or scoping that undertaken wasn’t worthless. Put it another way, if someone is willing to pay for it then that should mean value to the business. A company can create value without really have to create a product that is new, different or indeed ingenious. Product that generate value, should be able to generate revenue and in turn provide value to the business.
Naturally, revenue is not the perfect measure of value creation — only the simplest. But, as it turns out, it’s not that cut and dry. A product’s value to its makers and users is not an apples-to-apples comparison. For instance, value might be measured in time saved for users, but revenue generated for businesses. You can’t easily put those metrics into an equation to spit out a value score. Generally there are two types of value propositions for project, firstly internal business value and secondly there is external customer value. Another common metric to demonstrate a product’s value is market position. Looking at the sheer volume of the market your product holds over competitors can give a real picture of the way consumers view the product. Many look at the profitability of a product to measure its value such as benefit / cost models but this focuses solely on the benefit to the business, not the user. So it is not an easy proposition to measure value but the key is to make it clear and make it quantifiable.