Value management: Stephanie Clackworthy describes the origins and applications of the VM method of analysis.

We in the west spend most of our careers being set problems with apparently only one solution and we are rewarded for implementing this as quickly and/or cheaply as possible. Value management (VM), on the other hand, focuses on defining the right problem and then generates a range of possible solutions.

Materials shortages in the US during World War II led to the development of VM. Faced with production bottlenecks, Lawrence Miles worked out a way to define the desired functionality of a product in unambiguous terms and focus on generating multiple solutions. He called it "value analysis". The Pentagon preferred to use the term "value engineering" which stuck in the US. Europeans tend to prefer the broader term "value management".

The first task of this team-based approach is to identify and define goals in terms of the function of the product or service. In the sixties Charles Bytheway developed a method of isolating functions called function analysis systems technique (FAST), which VM practitioners often use to break the agreed purpose into its function-cost elements and identify mismatches between cost and value to find alternative delivery options.

VM involves three principles:

* The continuous awareness of value for the organisation.

A focus on objectives before solutions--eg, Southampton General Hospital needed to save ten to 20 per cent of its budget when it was heading for an overspend of six per cent. The pharmacy department asked a VM facilitator to help it save 20 per cent on a budget of 2m [pounds sterling]. The facilitator helped it to define its function and break this into sub-functions with attributable costs. Initially, it saw its function as "supply drugs", but eventually redefined it as "manage medication". This was part of a much wider function, so it had a total budget of 20m [pounds sterling]. The process helped it to save ten per cent on this.

* A focus on function to maximise innovative and practical outcomes.

The pharmacy department defined many of its functions in two words: a verb and a measurable noun. Asking "Why do we do this?" helped it to put functions in a hierarchy. The primary function is found once there is no further answer to this question. These functions were costed and valued and a series of brainstorming exercises generated ideas.

It's vital that the customer is represented for the valuation part of this exercise. It's also important to specify clear success criteria. Ideas that score well against the criteria can be developed further. Rejected ideas carry little kudos, so teams tend to ensure that proposals are robust. The results are far-reaching:

* The process identifies and expresses needs and wants.

* It ensures customer involvement.

* It generates alternative actions.

* It spreads know-how via multidisciplinary teams.

* It facilitates decision-making

The international benchmark of a successful VM programme is that it should deliver benefits worth over ten times the cost of the work. In practice, the Department of Trade and Industry has found that most achieve between three and 30 times--and that 100 times is common in the construction industry. In 2003 the European Central Bank said that, if the UK's public services were delivered at the productivity levels of the public sector in the US (where the public sector is mandated to use VM), they would cost 70bn [pounds sterling]--less a saving of 2,000 [pounds sterling] every second.

Stephanie Clackworthy FCMA chairs the Institute of Value Management (www.ivm.org.uk).