Value Engineering Value Management-1

VALUE ENGINEERING & VALUE MANAGEMENT

by

Upali Fernando MRICS,MCIOB,MAcostE,ACIArb,MASI,AIQS(SL)

(Chartered Quantity Surveyor, Cost Consultant, Independent Adjudicator and Charted Builder)

Managing Consultant

WANFERND CONSULTING

Construction Consultant Specialized in Quantity Surveying, Project Management and Claims and Contract Administration

http://[email protected]

What is Value Engineering

Value Engineering (VE) is a management technique that seeks the best functional balance between Cost, Reliability and Performance of a product , project , process or service.

VE is generally conducted by an experience multi-disciplinary team with varied specializations.

The whole perspective of the VE team is to analyse the project from a functional/cost standpoint. Therein VE team would work out alternative design options that may improve the performance, build-ability and life-cycle cost.

Value Engineering Team

Value Engineering team is generally independent of the design team, but its members must have experience in the particular field of the project in question.

Origin of Value Engineering

Value Engineering began during the World War II at General Electric.Co (GE)

Value Engineering came into effect to maximize the limited labour, raw material and component parts otherwise being utilize for the war.

Due to the scarcity of resource Lawrence Miles, Jerry Leftow and Harry Erlicher at GE, look for substitutes.

They realize that substitution they came up with often reduced costs, improved product or both. What started as an accident of necessity was turned into a systematic process which they called ‘Value Analysis’.

Evolution of concept Value Engineering

Initially Miles and Co at GE observed that many of the substitute were providing equal or better performance at a lower costs; thus the first definition of Value Engineering became focused on the Cost ; i.e. costs validation exercises.

Initial definition of Value Engineering; It is an organized approach to

providing the necessary functions at the lowest costs

Evolution of the concept of Value Engineering (Contd.)

However, Miles initial definition, i.e. value engineering to be a cost validation exercise completely ignored the quality and the end-use of the product/project.

Value Engineering is not a cost cutting exercise by sacrificing the quality of the product of services.

Evolution of the concept Value Engineering (Contd.)

The original definition therefore transformed to as Value Engineering is;

A organized approach for the identification and elimination of unnecessary costs.

Unnecessary costs implies to cost which provides neither use , nor life, nor quality, nor appearance and nor customer features.

Value Engineering & Value Management

Value Engineering and Value Management often means different things to different people.

Value Engineering & Value Management

Value Management (VM) Value Management can be defined

as a structured process through which the various elements and functions of a project are critically analyzed to ensure maximum value for money.

Value Engineering & Value Management

Value Engineering (VE) Value Engineering can be defined as

a externally facilitated process through which the owner/client can demonstrate that the overall design objectives of the project are being provided at a minimum costs whilst maintaining the stated quality.

Value Engineering & Value Management

What is the difference ? One of major difference between VM and

VE is that VM considered from the strategic point of view whereas VE considered from a tactical point of view.

In simple terms VM address WHY ? And VE address HOW?

Why owner/client pursue on Value Engineering

The client could be concern of the escalation of the estimated cost for the project.

The client could be concern due to the tenders received were in excess of the budget.

The client may be loosing confidence in the design team and/or project.

The client may require an independent audit of the project before it is submitted for approval.

The client may seek to minimize the capital and/or operational costs and maximize profits

The client may genuinely wish to pursue an innovative/better solution for his/her project.

Value Engineering Study

A VE study to identify the lowest life cycle costs for the function required by the owner/client of the development.

The relationship between value, function (worth),quality and cost can be symbolized as follow:

Value = Function + Quality Cost

Function – the specific worth that a design/item must perform

Quality – The owner’s or user’s needs, desire and expectation

Cost – The life cycle cost of the product/projects.

Value Engineering Study (Contd.)

Forgoing the above equation. i.e. Value = the most cost effective way to

reliably accomplish a function that will meet the user needs, desires and expectations.

As such value can be increased by the following approach(s);

Value (V) = (F) + (Q) ---------------------------------------(c)

Value Engineering Study (Contd.) VE methodology is based on three(3)

specific phases: Phase 1 - The Pre-study preparation

phase

Phase 2 – The Project Study Workshop Phase

Phase 3 – The Post Workshop Phase

Value Engineering Study (Contd.) – Phase 1

Phase 1 - The Pre-study preparation phase This is the beginning of the VE process. The process often commences with a meeting

between the owner, designer and VE team leader to attain a common level of understanding of the study.

During this phase the team shall appraise the schedule of events for the study and the information required to carry out the study.

During this meeting strategies will be discuss the progress with the study and data may exchange.

Value Engineering Study (Contd.) – Phase 2

Phase 2 – The Project Study Workshop Phase The Project Study Workshop phase is generally

conducted at a location convenient to the owner/the client and the designer, mostly at the owner’s premises near the project site.

The first stage of the phase 2 will have an agenda including;

Introduction to the process Briefing on Value Engineering Presentation of project design by project designer Outline of the project constraints Questions by VE team members for the designer Following the above the VE team will follow with the

Basic Job Plan

Value Engineering Study (Contd.) – Phase 2 – Basic Job Plan

Information Phase

Speculation Phase

Judgment Phase

Development Phase

Presentation Phase

Value Engineering Study (Contd.) – Phase 2 – Basic Job Plan (Contd.) Information Phase Further familiarization of the project by the

team; all team members participate in a function analysis of the project as a whole, and then of its component part, to determine the true needs of the project.

Areas of high costs or low worth are also to be identified during this phase.

Information phase of the Value Engineering Study is a never ending process as it keeps on adding as the study progress.

Value Engineering Study (Contd.) – Phase 2 – Basic Job Plan (Contd.) Speculation Phase During this phase the VE team will list

creative ideas generated from it’s review of the project with the aim of obtaining a large number of ideas through “brainstorming”.

Value Engineering Study (Contd.) – Phase 2 – Basic Job Plan (Contd.) Judgment Phase During this phase VE team will analyze

the creative ideas generated during the previous stage.

Ideas found to be impractical and to be irrelevant, or not worthy of additional study shall be regarded.

Ideas with the potential of cost saving or improvements to the project shall be identified for further development.

Value Engineering Study (Contd.) – Phase 2 – Basic Job Plan (Contd.) Development Phase During this phase VE team shall prepare

alternative designs with capital and/or life cycle cost comparison of original design and proposed alternatives.

All recommendations are supplemented with written descriptions, sketches, basic concepts , technical information and cost summaries.

Value Engineering Study (Contd.) – Phase 2 – Basic Job Plan (Contd.) Presentation Phase During this phase VE team shall present

an oral summary of it’s finding to the owner and the designer, explaining the basic ideas of alternatives, it’s cost-saving implications and their attendant rationales.

Value Engineering Study (Contd.) – Phase 3

Phase 3 – The Post Workshop Phase In the Post Workshop Phase the VE team

will prepare a report for the owner incorporating their findings discuss in previous phases.

The owner and the designer shall then consider the VE recommendation , and jointly decide which recommendations have merit for implementation in the revised design.

Value Engineering Study (Contd.) – Five Step of the Job plan

The five (5) steps of the job plan are shown in the diagram above. The significance of the arrows is that whilst a cascade system is used, with each phase flowing on from and using the output of the preceding phase, there is a frequent reversion to the previous phase.

Value Engineering – What are the benefits

• Solve immediate and high priority problems

• Reduce Time

• Establish low cost goals • Reduce commercial risks

• Identify and define stakeholders aims and objectives

• Help to increase cooperation between departments

• Optimize the unit/component cost

• Encourage fresh thinking

• Produce unique solutions • Spread cost-consciousness

• Increase the market potentials • Develop hidden abilities

• Improve communication • Help to provide better appreciation of the ‘other man’s job’ – Alternative Perspective

• Improve quality

Value Engineering – What are the benefits - Some Facts A recent study carried out in United States shown

that typical VE study may realize saving of over 5% of the capital costs of the project and achieve a return of over ten dollars (US $ 10.00) per dollar (US$ 1.00) expended.

VE study costs are approximately 0.4 % of the total construction costs, which is relatively low compared to the potential benefit.

When to Apply Value Engineering

Value Engineering can take place at any stage of the Project.

However, it is acknowledged that there is a greater Return of Investment (ROI) if VE is used at a very early stage of a project, as illustrated in the following figure. (See next slide).

Ideally VE should be carried out even before allocating funds for the project.

When to Apply Value Engineering – Pictorial Illustration

Value Engineering as per the Provision of FIDIC

Value Engineering as per the Provision of FIDIC – Why Sub Cl. 13.2 in the Contract For the Contractor profits are derived

from the contract costs; therefore, reducing the costs will reduce the profits.

Therefore, after the Contract was awarded there is little reason for the Contractor to reduce the acquisition or life cycle costs.

Sub-Cl. 13.2 dramatically neutralize this advantage.

Quantity Surveyor’s role in Value Engineering

Following task undertaken by Quantity Surveying practitioners are deemed to be form part of Value Engineering;

Forecasting expenditure flow Cost planning and cost controlling Advising on cost limits and preparing budgets Advising on cash-flow forecasting Advising on life cycle costing Cost analysis Cost benefit analysis Estimating Evaluating alternative designs Undertaking feasibility studies Investment appraisal Measuring and describing construction work but only in terms of cost

planning

Value Engineering