Value Engineering and Risk Management: Citizen M Hotel Analysis

This report provides a comprehensive analysis of value and risk management strategies applied to the Citizen M Hotel development project. It begins by defining value engineering as a systematic approach to enhance project value at the lowest possible cost, focusing on substituting materials, technology, and processes with cost-effective alternatives. The report uses the BCIS Cost System to estimate the initial project cost and compares it with similar hotels, revealing that the Citizen M Hotel's initial cost is significantly higher. Two scenarios are developed to enhance project value: cost-saving and function emphasizing. The cost-saving approach explores ways to minimize costs while maintaining functionality, suggesting the use of post-tensioned (PT) slabs as an alternative to steel to reduce superstructure costs. The report includes detailed cost breakdowns, comparative analyses, and recommendations for optimizing value and managing risks throughout the project lifecycle, highlighting the importance of balancing cost efficiency with quality and functionality. Desklib offers a wide array of resources, including past papers and solved assignments, for students studying similar topics.

VALUE AND RISK MANAGEMENT

Table of Contents
PART 2............................................................................................................................................5
VALUE ENGINEERING THE DESIGN AT RIBA STAGE 4.....................................................5
RISK................................................................................................................................................1
Strategic risk................................................................................................................................1
Design and construction risk.......................................................................................................3
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10
APPENDIX....................................................................................................................................13
Cost Breakdown of Citizen M Hotel Development...................................................................13

Index of figures
Figure 1Photovoltaic Cladding System.........................................................................................16
Figure 2 Key benefits or features of Triple Glazed window.........................................................17
Figure 3 Foldable Table Mounted to Wall....................................................................................18

Index of tables
Table 1: Rank based on likelihood..................................................................................................4
Table 2: Risk measurement and mapping........................................................................................5
Table 3: Risk matrix........................................................................................................................6

PART 2
VALUE ENGINEERING THE DESIGN AT RIBA STAGE 4
In every construction project, value engineering can be defined as a systematic approach
to enhance project value at lowest possible cost. It promotes substituting various sources i.e.
material, technology and processes with alternative which are available at less cost but give
better results and productivity (Assaf and Al-Hejji, 2006). Thus, the concept highly focuses on
the function or components of the project with the key aim to increase value. Here, value can be
referred as the cost effective ways to produce and perform a work.
After or during the concept design phase, value engineering work should be performed to
enhance the value of the hotel project (Kelly, Male and Graham, 2014).. Therefore, some design
solutions have to be improved and proposed to the Client through the concept&technical design
stages. Value Management Company made some feasibility studies to define the initial cost of
the building and compare it with similar projects. The initial cost estimation provides opportunity
to the Client to decide on appropriate design option and control the budget of the project. For
defining the initial cost of the hotel project BCIS Cost System has been used.
Referring to the scenario, Citizen M Hotel Development Project value can be enhanced
following VE. It will be helpful to improve technical as well as conceptual design of the
construction work to deliver more value. In this, initially, project manager need to estimate cost
and it must be match with the other similar construction projects which helps to create the best
design solution at controlled cost. BCIS (Building Cost Information Service) is the body that
estimate cost for different kind of construction projects and helps in cost planning. Thus, in order
to find out the cost of Citizen M hotel, this system has been taken into consideration.
Project budget
Budget is constructed to know required investment to build Citizen M Southwark Hotel.
The expected cost is compared with the 4 other pioneering hotels that are Travelodge, Shendish
Manor Hotel, Premier Inn Hotel and Robin Hood Airport Hotel. The 4 other hotels -that are
selected from BCIS Cost Plan System- in below Table-2 that have steel structure. Except for the
Shendish hotel they have 4 to 6 floors.

COST
ELEMENTS
Travelodg
e Hotel
Shendis
h
Manor
Hotel
Premie
r Inn
Hotel
Robin
Hood
Airpo
rt
Hotel
Citizen M
Southwark Hotel Averag
e Cost
per m²
Deiffer
ence of
Citizen
M
HotelCost per
m²
Cost
per m²
Cost
per m²
Cost
per m²
Total
Cost
Cost
per
m²
1- Substructure 79 123 94 27 847,829 143 81 177%
2- Superstructure 561 414 442 349 7,866,576 1,32
7 442 301%
3- Internal
Finishes 79 163 116 114 377,514 64 118 54%
4- Fittings 27 185 48 163 295,800 50 106 47%
5- Services 368 452 296 412 2,243,147 412 382 108%
Building Sub-
Total 1,114 1,337 996 1,065 11,630,86
6
1,99
6 1,128 177%
6- External Works 140 79 93 119 471,836 80 108 74%
7- Preliminaries 154 109 99 210 1,075,754 181 143 127%
8- Contingencies 0 10 4 1 0 0 4 0%
9- Design Fees 0 N/A 44 N/A 311,325 53 22 241%
Contract Sum 1,408 1,535 1,236 1,395 13,489,78
1
2,31
0 1,394 166%
As per the table, it is seen that Citizen M Southwark Hotel will require an initial cost of
13,489,781 for the construction at a cost of 2,310/per meter square. However, on the other side,
looking to the other comparable company’s average cost, it is too high, because, for Travelodge,
Shendish, Premier Inn and Robin Hood Airport Hotel determined cost of just 1408/m2, 1535/m2,
1236/m2 and 1395/m2 at an average cost of 1394/m2 only. However, on the other side, SCitizen
M hotel per unit cost is 65.71% greater than mean cost of hotel construction in similar areas.
Considering, subtotal of the building construction work, it is visualized that superstructure
reported very high cost of 1327/m2 while average cost is just 442/m2 only. On the other side,
substructure actual cost is 177% of mean cost, because for Citizen M Hotel, it is found to 143
while taking into account all the comparative hotels, average cost is 81/m2 only.

Figure 1 The proportion of cost of hotel construction project
As per the pie graph, it is seen that 58% of the total investment will be spend on
superstructure work include upward extension and other structural work above the Ground Level
such as beam, floor, wall, roof, column. However, other components such as substructure,
internal finish, fitting, services, external work, preliminaries, design fees and contingencies
accounted for less proportion.
Client requested VSL to develop two different scenarios to enhance value of the project.
The scenario one is based on the cost saving situation, while the function of the project is kept at
same level, the cost of the project is reduced to increase the value through this approach. The
other scenario is based on the function emphasis that the function improvement is done with the
increase in the cost of the project. Here, in order to increase value of the project, there are two
methods that can be used, one is cost saving and another is function emphasizing that are
analyzed here as follows:
Cost saving approach: In current uncertain era, every project manager struggle to
minimize cost and driving maximize efficiency with the key aim of create more value. More
importantly, construction projects of Citizen M Hotel Development require huge investment and
with the change in period, cost of material, labour, equipment and technology may be change.
Besides this as technology advances, new techniques and equipments must be use for designing
and constructing an innovative infrastructure and in hotel, it really matters. In this approach of
VM, developers take measures to cut cost at the same functional level (Frimpong, Oluwoye and

Crawford, 2003). It can be done through using alternative sources or substitutes that are available
at lower rates, removing unnecessary cost elements. Thus, it requires a thorough analysis of the
each and every cost component to examine that which one can be avoided and which factor such
as material and labor can be replaced by substitute at cheaper charges. Here, it must be noticed
that in order to minimize cost, it is necessary to ensure that quality of the work should not be
affected adversely (Walker, 2015).
VSL developed some design solutions to decrease the cost of the building while keep the
function at same level. This is not easy process. It reduces the cost; some of the components has
to be changed or removed. For changing with its substitutes or removing it, all of the details
related with this component have to be known thoroughly and supplied after changing or
removing. Likewise, alternative materials or services can be adopted in place of previous one.
Travelodge
Hotel
Shendish
Manor
Hotel
Premier
Inn
Hotel
Robin
Hood
Airport
Hotel Average
Average
%
allocation
Citizen M
Southwark
Hotel
Citizen
M
allocation
%
Excess
allocation
1- Substructure 309,525 328,986 469,078 104,645 1,212,234 6% 847,829 6% 10%
2-
Superstructure 2,196,920 1,103,045 2,196,065 1,358,513 6,854,543 32% 7,866,576 58% 80%
3- Internal
Finishes 309,705 434,465 577,675 443,203 1,765,048 8% 377,514 3% -66%
4- Fittings 104,896 492,698 239,321 636,416 1,473,331 7% 295,800 2% -68%
5- Services 1,441,958 1,204,472 1,471,123 1,604,926 5,722,479 27% 2,243,147 17% -38%
Building sub-
total 4,363,004 3,563,666 4,953,262 4,147,703 17,027,635 80% 11,630,866 86% 7%
6- External
Works 548,210 209,403 462,623 462,673 1,682,909 8% 471,836 3% -56%
7-
Preliminaries 603,862 291,681 492,248 818,881 2,206,672 10% 1,075,754 8% -23%
8-
Contingencies 0 26,050 21,618 2,500 50,168 0% 0 0% -100%
9- Design Fees 0 0 217,140 0 217,140 1% 311,325 2% 125%
Total 5,515,076 4,090,800 6,146,891 5,431,757 21,184,524 100% 13,489,781 100% 0%
Cost per m2
Travelodge
Hotel
Shendish
Manor
Hotel
Premier
Inn
Hotel
Robin
Hood
Airport
Hotel Average
Citizen M
Southwark
Hotel
Excess
cost
1- Substructure 79 123 94 27 80.75 143 62
2- 561 414 442 349 441.5 1,327 886

Superstructure
3- Internal
Finishes 79 163 116 114 118 64 -54
4- Fittings 27 185 48 163 105.75 50 -56
5- Services 368 452 296 412 382 412 30
Building sub-
total 1,114 1,337 996 1,065 1128 1,996 868
6- External
Works 140 79 93 119 107.75 80 -28
7- Preliminaries 154 109 99 210 143 181 38
8- Contingencies 0 10 4 1 3.75 0 -4
9- Design Fees 0 0 44 0 11 53 42
Total cost 1,408 1,535 1,236 1,395 1393.5 2,310 917
According to the above comparative table, it is clearly visualized that on total cost of
Citizen M Hotel in Southwark is found to 13,489,781 which is above the average hotel
construction cost of 21,184,524 identified taking into consideration other four hotels in the same
area. However, cost per square metre is found to be 2,310/m2 which is 917/m2 higher than
average cost of hotel construction to 1,393.5/m2. As seen in above, VSL recognized that there
are big differences between substructure and design cost of the project and the average cost of 4
other hotel projects but the biggest difference is shown in the superstructure of the building. The
superstructure of the building has the biggest cost of the project; also it has the biggest deviation
from the average costs among the cost elements (Mir and Pinnington, 2014).
As per the allocation percentage to every cost component, it is seen that on an average,
hotelier had allocated 32% on superstructure while in case of Citizen M hotel; it is too high to
58%, 80% more above mean. Thus, it clearly exhibits that developer must focus on cutting cost
over super-structural framework (Harris and McCaffer, 2013). Consider a detailed cost
breakdown of itizn M hotel, it can be seen that under the super-structural work, it had allotted
43% money on frame only at a TC and cost/m2 of 5,842,395 and 985 pound. However,
comparable firms, Travelodge Hotel, Shendish Manor Hotel, Robbing Hotel and Premier Inn
Hotel put only 10%, 2%, 4% and 12% shows considerable deviation. It clearly shows that
Citizen M hotel invested too high on frame, thus, company must focus on taking measures to
control such excessive expenditures (Bak and et.al., 2017). Hotelier must look after the
alternative sources which can be used as a substitute for steel at lower charges to minimize
overall construction cost and gain more value. Thus, post tensioned (PT) slabs can be used as an

alternative material that is similar to reinforcing steel. In this method, engineer arranges cables to
each other in a systematic way to run through the slab center (Messenger and Abtahi, 2017). It is
useful for both smaller like residential and larger projects like bridges, floor and others. In this,
strong and flexible steel wires, called tendons are placed together and embedded with the slab
edge. By stressing the strands, wire can be stretched easily to carry out construction. Fire
resistance, cost-effective, speed, less use of material, robustness and thermal mass are the key
benefits associated with the use of PT slabs instead of steel (Nicholas and Steyn, 2017).
Post-tension system reduces the thickness of the slab and the amount of the steel bar
inside the slab so that the weight of the slab and weight of the building decrease. If you decrease
the total weight of the building, it means that the frame of the building withstands less force.
Therefore, the thickness of the columns and beams also would decrease (Lasnier and Juen,
2017). Likewise, it also helps to reduce the total amount of material that is used in the frame
structure of the building and even you can reduce the size of your foundations or length of the
piles under the foundation. It would create big opportunity to reduce the cost of the building
while the functions stay at same level (Steyn and et.al., 2016).
In addition to this, although design fees shows a great difference between averages cost
of similar hotels and Citizen M. Considering allocation basis, it is just twice to that of mean
allocation and the average fees each square metre is 53 pound, greater by GBP42 to average
cost/m2 of 11. Thus, hotelier must bargain with the architecture to reduce their fees and minimize
total cost of construction.
Function emphasizing approach: As name implies, this approach of value management
focuses on incorporating new and unique functions to increase value of a project. With the
coming of latest technologies, hotel developers can use advanced techniques to bring
improvement in their existing functions. Unlike cost saving approach, this method results in
more expenditure to create innovative design solution. Adding new function in the hotel or
improvement of the existing function requires increase in expenditure so that to produce design
solution for the enhancement of value is easier for the function emphasis approach than the cost
saving approach (Tse, Chow and Su, 2016). Now-a-days, hotel success not only depends upon
quality of services but also impacts by its building infrastructure, uniqueness and design. Thus,
the approach is highly beneficial for the Citizen M Southwark Hotel to use tactics to create more

value by process improvement. However, the benefit of function improvement has to be more
than the increase of the cost to enhance the value.
VSL proposed the use of photovoltaic (PV) panels as a cladding for building facade. PV
is a term that converts light into electricity through the use of semi-conducting materials which is
known as photovoltaic effect. It includes solar panels which consist of multiple solar cells which
produce electric power. Photovoltaic cladding system produces electricity and this can be stored
and used for the energy consumption of the hotel (Polman and et.al., 2016). It decreases the
energy cost of the building. Installation of the photovoltaic panels increases the CAPEX but
through the operational period it will decrease the OPEX. OPEX is the second priority of the
Client while the CAPEX is the third. Photovoltaic panels are environmental system and reduce
the carbon footprint of the project so that this system enhances environmental facet of the
project. It is because; use of solar tracker helps in energy efficiency and maintains ecological
balance with no emission of harmful gases in the environment. If the photovoltaic cladding
systems is used, the facade of the hotel does not need to be cladded with another system. In the
BCIS Cost Plan, it is seen in Table – 3 that item 2E external Walls (Stone composite panels,
Marley Eternit, St Ives block and curtain walling) is costing to £1,005,141. Likewise, at least
20% of this item can be saved. Also, it is known that the use of photovoltaic panels is subsidised
by the UK Government roughly 30%. Because of these reasons, the total cost of the photovoltaic
cladding system can be reduced dramatically and it will not increase CAPEX too much.
Additionally, photovoltaic cladding system supports the thermal insulation of the building and
this causes the decrease in the energy consumption of the building. In below picture, it can be
seen that photovoltaic cladding has nice, aesthetic aspect.

Figure 2 Photovoltaic Cladding System
VSL reviewed the complaints of end users in “booking.com” company internet page.
Customers stated that rooms are so small. As a solution for this complaint, foldable desk can be
installed in the room (it is mounted to the wall). Customers can install it easily when they need
and it can be folded easily when customers do not need it. This small solution can cause a little
bit spaciousness for end users. This can increase CAPEX slightly but it will increase the comfort
of the room also and comfort is the highest priority of the Client. A sample is shown in below
picture in below illustration. The shape, style and aesthetic of it can be improved by designer.
As another solution, tripled glazed system can be used for window. It has several key
strengths that are warm, quite, safety and toughened glasses (Smirnov, Tyutikov and Zakharov,
2017). It will help to use space properly, drive larger efficiency and generate more value for the
project.