PBSRG GLOBAL

Dean Kashiwagi, P.E., PhD Director, Professor

Performance Based Studies Research Group

CIB W117 Coordinator Fulbright Scholar

IFMA Fellow Pbsrg.com

Nov 4, 2014

SKEMA Business School

Best Value Approach

Objectives

• Utilizing expertise is the only way to improve performance and minimize cost

• Natural laws govern reality

• Make things simple and transparent

2

Rules of Change

• Nothing personal

• Change makes everyone uncomfortable

• Logic and common sense must be used

3

= = Past Present Future

# of Natural Laws

# of Natural Laws

# of Natural Laws

100% 100% 100%

Natural Laws

Natural Laws are discovered and not created

Conditions Always Exist

Conditions are unique and change

according to natural laws

Unique

Conditions

PAST

Unique

Conditions

PRESENT

Unique

Conditions

FUTURE

5

Past Conditions Present Conditions Future Conditions

100% 100% 100%

Unique Conditions Are Related

Unique initial conditions

Unique final conditions

Time (dt)

Natural Laws Natural Laws Natural Laws = =

Event [by Observation]

Unique Final Conditions are Set by Initial

Conditions [No controlling of event,

Minimizing Decision Making]

Impact of Understanding Natural Laws

• Makes things simple

• Explains what someone may not know due to a lack of detailed information

• Minimizes decision making

• Minimizes thinking

• Allows observation to identify accurate predictions

• Simplifies and creates transparency

• Minimizes actions reducing cost, stress, and poor results

1976

1992

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Supply Chains P

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Myself a

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ife

Child

ren

Child

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Futu

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ilies

Child

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Futu

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obs

Child

ren's

Futu

re C

hild

ren

Sim

plic

ity/D

om

inant

Info

rmation

Technical Details

30K Foot Level

Lessons Learned

• Talk less

• Observe more

• Risk increases when we attempt to change, influence or modify behavior of others

• Everything is predictable [if we observe]

• These are natural laws

• Breaking natural laws increases risk, lowers performance and increases cost

Best Value Approach

• Natural laws and deductive logic

• Simplify

• Minimize the use of management, direction and control [MDC]

• Do not make decisions

• Utilize expertise to increase value and performance and minimize cost

15

Industry Structure

High

I. Price Based

II. Value Based

IV. Unstable Market

III. Negotiated-Bid

Wrong person talking

Management, direction, and control

No transparency

Buyer selects based on price and performance

Vendor uses schedule, risk management, and quality control to track deviations

Buyer practices quality assurance

Perceived Competition

Pe

rfo

rman

ce

Low

High

Minimized competition

Long term

Relationship based

Vendor selected based on performance

Utilize Expertise

Manage, Direct and Control [MDC]

High

Low

Owners

“The lowest possible quality

that I want”

Contractors

“The highest possible value

that you will get”

Minimum

MDC Systems result in adversarial environment and reactive behavior

High

Low

Maximum

Best Value: Utilization of Expertise [Win-win]

Expertise

Medium

Trained

Vendor X Customers

Outsourcing

Owner

Partnering

Owner

MDC

Environment

Minimal

Experience

Decision Making by Non-Experts

• Should be minimized

• Increases risk

• Increases the need to trust each other

• Increases relationships

• Minimizes continuous improvement

19

20

Challenge: Minimize Decisions

• Decision Less Structure

• No management, direction and control (MDC) Approach (use expertise)

• Results

– Transparency

– Accountability

– Experience and expertise

– Detailed pre-planning

21

Traditional Risk Model [DM/C]

22

50% 50%

Whose Fault? • Decision Making • Transparency • Risk • Accountability

Risk Model: Minimize DM

23

100% 0%

“No control”

• Control and influence [form of control to alter final outcome] causes risk and transactions

• Decision making accompanies MDC

• Control is not used in the Best Value approach

• BV PIPS is different because there is no use of control

• Cannot override NL

24

Simplistic Approach

• Decision Making [No]

• Direction and control [No]

• Utilization of Expertise [Yes]

• How do you know expertise?

– see into future

– Simple

– Know why

25

Plan

• Detailed schedule from beginning to end

• Expertise used in areas where there is insufficient information [II]

• Risk that cannot be controlled [Risk]

29

Deliverables [metrics]

Milestones [metrics]

[II]

[II]

[Risk] [Risk]

BV Approach Creates Transparency

• Simple

• Communicate in form of metrics

• Does not require “trust”

• Accountable

• Forces pre-planning

• Utilizes expertise

30

When to Use Best Value

• When the project is the most complex

• When the budget is critical

• When expertise is most needed

31

Model of the Future: Performance Information Procurement System (details documented in manuals at pbsrg.com and ksm-inc.com)

32

Expertise identified by natural law

BV expert’s proposal must be acceptable to user

Expertise is utilized

Identify expertise Dominant Simple Differential (non-technical performance measurements)

Clarification Technical review Detailed project schedule Resource & Man- power schedule Expectation vs. delivered

Risk Management using metrics Quality Control Quality Assurance

SELECTION CLARIFICATION/

PRE-AWARD Execution

Project Capability Submittal

Claim: best project manager in company, does only clean room projects, best in the Midwest area

Verifiable performance metrics:

1.last 10 years

2.20 clean room projects

3.scope $50M

4.customer satisfaction 9.5

5.cost deviation .1%

6.time deviation 1%

ICT Project Submittal

• Claim: vendor has completed two similar projects in the last year.

• Supporting Metrics:

– Customer satisfaction: 9.5, cost/time deviation LT 1%

– Scope: $10M, project duration: 1.5 year average

– Function: ERP platform

– Interface into average of six existing software packages

– Users had six different departments, ten heavy users in each department, 10K transactions per month

– Two maintenance managers, 120 hours training on system, $1K maintenance support for the first five years

34

Best Value Research #1 Worldwide

Construction Projects 1,622 Construction Projects ($) $4B Non-Construction Projects 95 Non-Construction Projects ($) $2B Projects on Budget 96.7% Projects on Time 93.5% Largest Awarded Client ASU Total $ Award to Date at ASU $1.7B Testing in Number of States 31 Testing in Number of Countries 6

• Over-management of vendors

• Procurement and execution takes too long [12 years]

• Infrastructure repair is critically needed [drivers spend 1-2 hours on road going and coming]

• 16 project, 6 awards, $1B test of best value PIPS

• Goal is to finish 10 projects in 3 years

36

36

Dutch Implementation

37

37

• Program results: 15 projects finished (expectation was 10)

• Delivery time of projects accelerated by 25%

• Transaction costs and time reduced by 50-60% for both vendors and client

• 95% of deviations were caused by Rijkswaterstaat or external [not vendor caused]

• NEVI , Dutch Professional Procurement Group [third largest in the world] adopts Best Value PIPS approach

• Now being used on complex projects and organizational issues

• Concept in entire supply chain including engineers, risk/project managers [RISNET/CROW]

Results

Best Value PIPS in Oklahoma

Steve Hagar

Central Purchasing Deputy Director

Licensed by ASU

Certified BV Expert

405-522-3369

Steve.Hagar@omes.ok.gov

Longest Sustaining U.S. Effort

State of Oklahoma Central Purchasing Best Value Project Results

# of Awarded Projects 19

# of projects given to lowest bidder 12

# of cancelled projects 6

Estimated $ of BV Projects Procured $ 137.7/$208.7M

Average $ per project $ 6,2M

Estimated $ Cost Avoidance $ 71.8M

Average $ cost avoidance per project $ 3,26M

Customer Satisfaction 9.0

# of customer satisfaction surveys 9

Environment Environment

More Likely to:

1. Believe in luck and chance 2. Blame others 3. Be surprised 4. Be emotional 5. Try to control others 6. Feel controlled by others 7. Be reactive

More Likely to:

1. Plan things in advance 2. Be accountable 3. Have vision 4. Listen to others 5. Think of other people 6. Be at peace 7. Be organized

Influence No Influence

Influence vs. “No Influence”

By Success model, NO control or Influence is reality

System Created to Assist People to See

System Created to Increase Value and Performance

BV Environment Changes People

• Tested concept in Kashiwagi family

• Now testing in ASU honors program

• Optimizes behavior through simplicity, natural laws and transparency

• Minimizes negative behavior [depression, drugs, instability, suicide]

• Creates vision

44

Case Studies show BV can improve performance of “blind”

• Contractors in Hawaii become experts

• Contractors increase profits and finish faster

• “Blackballed” contractor turns into performer in BV structure

• Goes bankrupt when exposed to traditional environment

• BV contractors deliver at much lower costs

45

Best Value

• Identify the expert

• Help the expert be better

• Get the client to let the expert do their project

46

CL Performance at ASU

47

CenturyLink | ASU MSA Annual Review | August 2013 | PAGE 48

Business

Outcomes Pre MSA MSA (2010) MSA (2013)

MSA Baseline $12.29M $10.81M $11.96M

CL Business Outcomes: Costs

Growth – Out

of Scope N/A N/A $1.15M

Value Add N/A $0.43M/yr $0.98M/yr *see appendix for details

Net MSA $12.29M $10.38M $9.83M

CenturyLink | ASU MSA Annual Review | August 2013 | PAGE 49

CL Business Outcomes: Reliability &

Satisfaction

Business

Outcomes Pre MSA MSA (2010) MSA (2013)

# of Major

Outages N/K 37 11

% Uptime 99.802 99.989 99.998

Customer

Satisfaction 3.6 3.71

(max 4.0)

3.81 (max 4.0)

% of Tickets

within SLA 94% 97% 97%

CenturyLink | ASU MSA Annual Review | August 2013 | PAGE 50

Business Outcomes: Technology

Business

Outcomes Pre MSA MSA (2010) MSA (2013)

% Network

supported (Not at end-of-maintenance)

89% 99% 99%

% 1Gb- Wired

Connections 57.0% 71.5% 96.0%

% Wireless(n) 9.0% 8.7% 92.6%

IT Spending

Ratio 6/94

(New vs. Maintenance)

26/74 (New vs. Maintenance)

56/44 (New vs. Maintenance)

Includes New Growth

Includes Wireless-n

Arizona Department of

Environmental Quality IT Project • Development of myDEQ

webportal

• Automating 35 manual process

• Benefits of myDEQ: – Decrease transaction times

(permits, approvals, etc.) – Increase access and

transparency of documents

• First AZ government unit to

attempt

Potential Difference with Best Value

Phase I (Traditional)

• 23 Processes [13 Processes delivered (56%)]

• Delivery Time: 1 year [1.3 years (+33%) (+66% if all processes delivered)]

• Cost: $5M [$7M paid (+40%) (+80% if all processes delivered)]

Phase II (Best Value)

• 22 Processes

• Delivery Time: 10 months

[- 40%]

• Cost: $6.8M

[- 57%]

52

Case Study: SBP BV Characteristics

• No MDC: No management positions

• Voluntary Expert Lead Engineer/team

• Lead expert interfaces with customers

• Risk Definition/Mitigation Model

• Efficiency/Effectiveness/Performance Metrics

• Best interest of the client (business model case studies)

53

Schuberg Philis Growth 2004-2013

40

65

10 1

150162

175

CUSTOMER SATISFACTION

20 0 4 20 0 6 20 0 8 20 10 20 12 20 13

7.2

8.7

8.1

8.9 8.9

Customer sat isfact ion

6.5

13.2

30.4

42.5

56.3 56.4

Revenues in € million

FTE

99.995%99,990 % 99,990 % 10 0 .0 0 %Availabilit y

7.27.7

8.78.2

8.18.5

8.9 8.8

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

40 5065

85

101

118

149

170180

170

Customer Satisfaction (Scale 1 - 10)

FTE

Revenues

(in € 1.000)

6.59.0

13.2

20.2

30.4

35.0

42.5

47.5

56.051.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

2014 Giarte Report Performance Results

70

58

65

60

68

62

57

86

78

68

80

71

76

66

65

100

94

94

91

80

79

83

78

100

40 50 60 70 80 90 100

Reliability

Acts-as-one

Control

Quality Management

Business Knowledge

Counter Weight

Vision and Innovation

Outsourcing Recommendation Scores

Highest Ranked IM/EUM Next Best (IM/EUM) Average IM/EUM

De Nederlandsche Bank Report and Girate Performance Ratings

86%

73%

100%

73%

60%

79%

50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%

(6) HP Enterprise Services

(5) IBM

(4) Schuberg Philis

(3) Capgemini

(2) ATOS

(1) KPN

Outsourcing Recommendation Scores for Top 6 Critical Providers in NL

(1) Provider A

(2) Provider B

(3) Provider C

(4) Schuberg Philis

(5) Provider D

(6) Provider E

SBP Performance Metrics

# Criteria Metrics

1 Total # of projects in last 10 years 991

2 # of large projects (€150K- € 3.3 Million )** 47 (72)

3 % of large projects on time 89.36%

4 % of large projects on budget 95.74%

5 % of large projects customers satisfied 93.62%

6 Highest customer satisfaction 7 years in a

row (Market Average)* 8.9 (6.9)

7 Recommended by customers by year* 100% 5 years

in a row

*Market average, customer satisfaction and recommended by customers was taken from the Giarte Reports **Documentation older than 6 years was not available.

Harbor Authority Service

Performance Criteria Before SBP SBP

Downtime in a year (hours) ≥24 0

Longest downtime due to IT failure (hours) 4 0

Application deployment life cycle (weeks) 26 3

Cost per functionality change - -75%

Business time required related to mediating downtime and incidents 1 FTE 0

Backlog of application related business requirements

3 years 0

Problems with legal issues / liability claims / reputational damage

Yes No

Banking Industry

Performance Criteria Metrics

Total # of banks 14

*Delivery time (months) 6-14

Cost and time overrun 0%

Customer satisfaction (1-10) 9.0

*Normal delivery time in marketplace is > 2 years or 24 months with a 50% success rate.

Potential Failure of ICT Projects

• ICT projects failure is caused by a lack of ICT expertise

• Failure to utilize expertise causes failure

• Failure of the expert to know from the end to the beginning utilizing non-technical metrics causes clients to get more involved in project details

60

Transparency, details, “work together”, more communications

High

I. Price Based

II. Value Based

IV. Unstable Market

III. Negotiated-Bid

Wrong person talking

Management, direction, and control

No transparency

Buyer selects based on price and performance

Vendor uses schedule, risk management, and quality control to track deviations

Buyer practices quality assurance

Perceived Competition

Pe

rfo

rman

ce

Low

High

Minimized competition

Long term

Relationship based

Vendor selected based on performance

Utilize Expertise

Manage, Direct and Control [MDC]

BV Environment [use of logic] • Identify expert

• Have expert plan from beginning to end [including risk and assumptions]

• Minimize MDC [abusive and does not add value]

• Use metrics to communicate

• Simplified environment will help vendor become better than they are

• Save 10 – 30% of all costs

62

For Further Information, drop a business card

Linked in Dean.kashiwagi@asu.edu YouTube Pbsrg.com ksmleadership.com Jan 11 -15, 2015 Tempe, AZ 2015 Best Value Education and Training Best Value Netherlands A+ Certified Group Delft Research Program Sicco Santema

• Paper of BV model • Manuals • Further education