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Risk Based Estimating and Alternative Selection Using Value Analysis

Risk Track



The selection between project alternatives and corresponding plans of action is one that is fraught with many facets of uncertainty and risk. In order to enhance the reliability and quality of the information provided to decision makers, an approach of performing a Risk-Adjusted Value Analysis is suggested for project, process, and product alternative evaluation and selection. The use of this assessment technique based in Value Methodology allows for the multi-dimensional weighing of performance, cost, and duration attributes under the influences of risk and uncertainty. Traditional approaches of observing cost as the controlling variable have been shown in many accounts to not offer the overall best Value in achieving the functional requirements and specifications of the desired end product once the acquisition is complete. The use of Value Analysis helps to identify the alternatives and strategies that functionally offer the best Value by accounting for the functional performance, cost to acquire that function, and duration to acquire that function. Taking performance, cost, and time as dimensional inputs into the calculation of Value, the value equation may take the form of:

Where V = Value, f = Function, P = Performance, C = Cost, t = Time, α = Uncertainty, and N = the number of value alternatives.

Looking more holistically beyond cost of delivery as a primary indicator of best Value allows for the understanding of the trade-offs between execution, delivery, and operational performance characteristics. This is achieved by combining principles of risk assessment into Value Analysis for performance, cost, and duration inputs in the exploration of the range of possible outcomes for the Value of options and strategies. In the context of Value Analysis, quantitative risk assessment is utilized in the analysis of risk exposure and the corresponding management of cost and duration uncertainty. Performance modeling is utilized to assess the relationship and uncertainty of key performance characteristics that encompass the functional purpose and needs of delivering a project or product. By modeling the uncertainty derived from the quantitative risk assessment and the uncertainty present in the performance, information surrounding uncertainty in the estimated range of project Value can be better understood and allow for decisions to be made based on the relationships and trade-offs of certain options and strategies. Incorporating factors of uncertainty such as event risk, estimating variance, and the range parameters of the underlying data being utilized to estimate Value also yields a more robust approach to finding the optimal strategic path for any project, product or process versus a single point estimate that assumes the ideal conditions. The range of outcomes presented helps reinforce the rank of possible strategic pathways while allowing for observation of conditions in which overlap among options occurs. Overall, the use of Value Analysis in a risk-adjusted context provides a range of measurable outcomes and a means to dimensionally factor in considerations of the desired functionality with the necessary inputs to achieve those functions when making informed decisions and performing strategic trajectory selection.


Gregory Brink, CCE/A, CVS, PMI-RMP
Value Management Strategies, Inc.
Gregory Brink is the Principal Economist and Director of Risk Management for Value Management Strategies, Inc. (VMS), a Value Engineering and Management Consulting firm based in Escondido, CA. Mr. Brink is a Certified Cost Estimator/Analyst (CCE/A), Certified Value Specialist (CVS), and Risk Management Professional (PMI-RMP) with extensive experience performing risk analysis, risk management, cost estimating, financial and life-cycle costing analysis, forecasting, value analysis, and economic impact analysis on projects of all scale and scope. Mr. Brink specializes in Value Optimization through the use of Value Methodology, including techniques in quantitative/qualitative risk and uncertainty modeling and analysis, risk management, project management, financial analysis, economic analysis, market analysis, and economic forecasting for both private sector and government organizations. Mr. Brink’s experience in Value Optimization and alternatives selection includes working on infrastructure projects in transportation, transit, water/wastewater and vertical construction projects such as Military facilities and U.S. Embassies of varying scale and scope. The projects, products and processes Mr. Brink has worked on range in capital value of a million dollars to multibillion dollar engagements.