Value Engineering

by Scott Cullen, Hanscomb Faithful & Gould

Last updated: 01-19-2006

Introduction

Value Engineering is a conscious and explicit set of disciplined procedures designed to seek out optimum value for both initial and long-term investment. First utilized in the manufacturing industry during World War II, it has been widely used in the construction industry for many years.

Value Engineering (VE) is not a design/peer review or a cost-cutting exercise. VE is a creative, organized effort, which analyzes the requirements of a project for the purpose of achieving the essential functions at the lowest total costs (capital, staffing, energy, maintenance) over the life of the project. Through a group investigation, using experienced, multi-disciplinary teams, value and economy are improved through the study of alternate design concepts, materials, and methods without compromising the functional and value objectives of the client.

The Society of American Value Engineers (SAVE) was formed in 1959 as a professional society dedicated to the advancement of VE through a better understanding of the principles, methods, and concepts involved. Now known as SAVE International, SAVE has grown to over 1,500 members and currently has over 350 active Certified Value Specialists (CVS) in the U.S. Requirements for registration as a CVS were developed by SAVE at the request of the U.S. General Services Administration in the early 1970's.

VE can be applied at any point in a project, even in construction. However, typically the earlier it is applied the higher the return on the time and effort invested. The three main stages of a project and VE's application are described below.

Planning

At the Planning stage of development, there are additional benefits to be derived from a Value Engineering Workshop. An independent team can:

• Review the program
• Perform a functional analysis of the facility
• Obtain the owner/users definition of value
• Define the key criteria and objectives for the project
• Verify/validate the proposed program
• Review master plan utility options (e.g. Central Utility Plant versus individual systems)
• Offer alternative solutions (square footage needs per function, adjacency solutions, etc.)
• Verify if the budget is adequate for the developed program

The benefits are tremendous.

• Any changes to the program at this stage have very little if any impact on schedule and A/E time and redesign costs.
• The project will be developed with fewer changes, redesigns, and a greater understanding by all parties of what the final function and space allocations will be.
• An independent team can bring a fresh outside view of alternate solutions from other similar projects.

Design

This is the stage that most VE participants are used to becoming involved, when the design has at least made it to the schematic stage. Most government agencies require at least one VE session at the design stage on projects over a certain $ size. The primary tool available to the VE team is the Workshop—typically a 40-hour session (or less for smaller or less complex projects).

The Workshop is an opportunity to bring the design team and client together to review the proposed design solutions, the cost estimate, and proposed implementation schedule and approach, with a view to implementing the best value for the money. The definition of what is good value on any particular project will change from client to client and project to project.

Methodology and Approach

During the actual Workshop portion of the VE study, the five-step Job Plan is followed, as prescribed by SAVE International:

The VE Job Plan follows five key steps:

1. Information Phase
2. Speculation (Creative) Phase
3. Evaluation (Analysis) Phase
4. Development Phase (Value Management Proposals)
5. Presentation Phase (Report/Oral Presentation)

These five key steps are described as follows:

1. Information Phase:
At the beginning of the VE Study, it is important to:

• Understand the background and decisions that have influenced the development of the design through a formal design presentation by the design A/E.
• Analyze the key functional issues governing the project. The functions of any facility or system are the controlling elements in the overall VE approach. This procedure forces the participants to think in terms of function, and the cost and impacts associated with that function.
• Define Owner's objectives and key criteria governing the project.
• Determine Owner's definition of Value.

2. Speculation (Creative) Phase:
This step in the VE study involves the listing of creative ideas.

• The VE Team thinks of as many ways as possible to provide the necessary function within the project areas at a lesser initial or Life-Cycle Cost which represent improved value to the client.
• Judgment of the ideas is prohibited.
• The VE Team is looking for quantity and association of ideas, which will be screened in the next phase of the study.
• Many of the ideas brought forth in the creative phase are a result of work done in the function analysis. This list may include ideas that can be further evaluated and used in the design.

3. Evaluation (Analysis) Phase:
In this phase of the Project, the VE Team, together with the Client and/or Users,

• Defines the criteria to be used for evaluation.
• Analyses and judges the ideas resulting from the creative session. Ideas found to be impractical or not worthy of additional study are discarded. Those ideas that represent the greatest potential for cost savings and value improvement are developed further. A weighted evaluation is applied in some cases to account for impacts other than costs (such as schedule impacts, aesthetics, etc.).

4. Development Phase:
During the development phase of the VE study, many of the ideas are expanded into workable solutions. The development consists of:

• Description of the recommended design change.
• Descriptive evaluation of the advantages and disadvantages of the proposed recommendation.
• Cost comparison and LCC calculations.
• Each recommendation is presented with a brief narrative to compare the original design method to the proposed change.
• Sketches and design calculations, where appropriate, are also included in this part of the study.

5. Presentation Phase:
The last phase of the VE Study is the presentation of the recommendations in the form of a written report. A briefing/oral presentation of results is made to the Client and Users, as well as the Design Team representatives. The recommendations, the rationale that went into the development of each proposal, and a summary of key cost impacts are presented at that time so that a decision can be made as to which Value Management proposals will be accepted for implementation and incorporation into the design documents.

In addition to the monetary benefits, a VE Workshop provides a valuable opportunity for key project participants to come together, then step aside and view the project from a different perspective. The VE process therefore produces the following benefits:

• Opportunity to explore all possible alternatives
• Forces project participants to address "value" and "function"
• Helps clarify project objectives
• Identifies and prioritizes Client's value objectives
• Implements accepted proposals into design
• Provides feedback on results of the study

Construction

During this phase value engineering is still possible through the use of Value Engineering Change Proposals (VECP). Contractors can be provided monetary incentives to propose solutions that offer enhanced value to the owner, and share in the financial benefits realized. Clearly the owner must consider contractor-generated proposals very carefully, from a life-cycle perspective and a liability perspective. The A/E team must be brought in to the decision-making process to agree to the proposed change as not having any negative impact on the overall design and building function. The evaluation of a VECP is treated similarly to any change order during construction, with issues such as schedule and productivity impacts being considered along with the perceived cost savings generated.

Conclusion

In the final analysis, Value Engineering is not only beneficial, but essential because:

• The functionality of the project is often improved as well as producing tremendous savings, both initial and Life-Cycle Cost.
• A "second look" at the design produced by the architect and engineers gives the assurance that all reasonable alternatives have been explored.
• Cost estimates and scope statements are checked thoroughly assuring that nothing has been omitted or underestimated.
• Assures that the best value will be obtained over the life of the building.

Major Resources

• Techniques of Value Analysis and Engineering, 3rd ed. by L.D. Miles. New York, NY: McGraw-Hill, 1972.
• "The Dread of VE: Understanding Why It's Not Used More" in Value World by Scot McClintock. Vol. 11, No. 4, Jan./Feb./Mar. 1989, pp. 12-14.
• Value Engineering: Practical Applications for Design, Construction, Maintenance, & Operations by Alphonse J. Dell'Isola. Kingston, MA: R.S. Means Company, Inc., 1999.
• Value Engineering Theory, Revised Edition by Donald E. Parker. Washington, DC: The Lawrence D. Miles Value Foundation, 1995.
• Value: Its Measurement, Design, and Management by M. Larry Shillito and David J. De Marle. New York, NY: John Wiley & Sons, Inc., 1992.
• Value Management Practice by Michel Thiry. Sylva, NC: Project Management Institute, 1997.