© The College of Estate Management 2002

Paper 0137V2-1

Introduction to value management

Contents

Aims

Learning outcomes

1. Introduction
1.1 Definitions
1.2 The current demand for ‘value’

2. Value engineering
2.1 The roots of the discipline
2.2 Value engineering in the construction industry
2.3 Methods
2.4 The workshop programme

3. Value management
3.1 The design cycle
3.2 VM1 workshop
3.3 VM2 workshop

4. Summary and benefits of value management

 Introduction to value management Paper 0137 Page 2

Aims
This paper aims to give you an understanding of different practical and theoretical
approaches to value management/value engineering and of its important role in
achieving greater value for money in projects in the construction and real estate
industries.

Learning outcomes
After studying this paper, you should be able to:

z Discuss the distinctions between value management and value engineering.

z Describe a phased approach to the implementation of value management and

value engineering workshops.

z Understand the benefits of using value management techniques.

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1 Introduction
1.1 Definitions
Specific definitions will be discussed more fully later, but a few introductory
comments here will help to clarify the approach generally adopted in this paper.

z ‘Value management’ is used as a generic title to indicate the broad process.

z ‘Value engineering’ is part of this process but has a somewhat narrower focus.

Value engineering therefore is treated rather more as a special case of value

management.

Two definitions have appeared in the International Journal of Project Management.

They encapsulate well the basic assumptions and distinctions between the two
approaches, or between value engineering and value management, as we are using the
terms in this paper:

z Value engineering. A systematic procedure aiming to achieve the required

functions at least cost. Value engineering is based on the assumptions that:

{ all parties understand the functions being provided;

{ all feasible design alternatives provide the same level of functional
performance and can therefore be assessed on the basis of cost alone.

Within this frame of reference, an increase in value can be directly related to a

reduction in cost.

z Value management. A structured process of dialogue and debate among a

team of designers and decision-makers during an intense short-term
conference. The primary objectives of value management are to:

{ develop a common understanding of the design problem;

{ identify explicitly the design objectives;
{ synthesise a group consensus about the comparative merits of
alternative courses of action.

Value management makes no pretence about finding optimal answers; it is

solely concerned with establishing a common decision framework around
which participants can think and communicate.

1.2 The current demand for ‘value’

The discipline of value management is currently attracting considerable attention.
Clients increasingly demand that it is used at the key stages of their projects. It is not
too difficult to suggest reasons why this is so.

z First, there is greater competition in the marketplace, and this is set to

increase still more in the future. Businesses are facing ever greater pressures in
their attempts to retain their competitive edge. They must pay greater attention
to quality of both product and service. Satisfying the needs of clients has
become crucial, not only to project success but also, essentially, to survival.
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z Second, expectations generally have become higher. Greater involvement,

participation and ownership of problems are demanded from all members of
the construction team, in an attempt to gain our commitment to improved
efficiency and effectiveness. Professionals are being required to take on
broader roles and responsibilities to achieve better integration and
compatibility with corporate objectives. Increasingly, calls are made for
greater accountability, and the ability to justify expenditure has become
paramount. Many, not least construction clients, see value management as
essential to help them get better value for money.

z Third, the Government is insisting that ‘best value’ has demonstrably been
achieved on all its projects. In its procurement guidance, the project sponsor’s
responsibility for optimising and achieving value for money is explained.
Value management is seen as a structured approach to the examination and
development of a project that will increase the likelihood of achieving a range
of user’s requirements at optimum value for money. However, it must be
remembered that value management is a continuous process from inception to
completion.

You may have first-hand experience of this change in climate and its effects upon
practice. Now, more than ever before, clients and customers are demanding
satisfaction of their particular requirements. They want to be more involved in
decisions about their projects and services. For instance, the 1990s saw an arguably
fundamental change in emphasis in the property market. Whilst the industry of the
past was supply-driven, the industry of the present and the future is very likely to
continue to be largely consumer-led.

In the 21st century, clients are much more likely to be owner-occupiers. Because their
buildings are to house their own business activities, the way those buildings affect the
business’s operational performance is potentially higher on the priority list. Clients
are likely therefore to be more concerned about ‘in-use’ value.

When development was speculative (in the mid-’80s) and more buildings were built
for occupation by unknown clients, the concern was mainly about increasing revenue.
That is, the concept of value for money was almost synonymous with ‘exchange
value’. General financial criteria could therefore be seen to constitute an adequate
measure of value in some cases. Now, however, and probably more so in the future,
different criteria are increasingly likely to be appropriate. Clients with tailor-made
buildings for owner-occupation have a range of definitions and therefore also criteria
for determining value.

By the time you have completed your study of this paper, you should have gained an
understanding of value management approaches and methodologies.
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2 Value engineering
2.1 The roots of the discipline
The original concept of value engineering can be traced back at least to the
development of techniques and procedures during the design of a range of railway
locomotives for the Great Western Railway by G J Churchward in the early years of
the 20th century. Churchward sought maximum interchangeability of components in
an attempt to return maximum value for money and efficient operation. He introduced
design disciplines to ensure that every component delivered maximum functionality
at minimum cost.

The concept resurfaced in the USA after the First World War, when the General
Electric Company (GEC) were faced with a significant increased demand for a
number of key components. Components were in short supply, so a task force was set
up to address the problem. Their task was identified by Lawrence Miles, a purchase
engineer with GEC, as being:

‘If we can’t get the part, then we must get the function.’

This approach resulted in a method which identified the function of a scarce

component and then sought its replacement with an alternative component that would
serve the same purpose. It was noticed, as a side effect of this process, that many
substitutions resulted in a reduced cost. This basic philosophy of value engineering
was therefore established as being to eliminate the cost which did not contribute to
the performance of the required function.

The value engineering concept was further developed by GEC over the following 10
years. It gradually became more refined and started to spread throughout the US
manufacturing industry.

2.2 Value engineering in the construction industry

There is a wide-held view that unnecessary cost is endemic in building design owing
to the complexity of the process. There is always a certain amount of unnecessary
cost in every design. There are a number of reasons for this, for example:

z lack of an idea
z lack of cost analysis
z lack of time
z lack of information
z lack of a ‘yardstick’.

So a set of procedures which can be introduced in a systematic way during the design
process, with the promise of tackling and overcoming these problems, is obviously
very attractive.

Value engineering works therefore by bringing together in a team a range of

professionals – quantity surveyors, building surveyors, architects, and engineers, for
example. By pooling their expertise under the guidance of a value engineering team
leader, they have a much better chance of identifying and overcoming potential
problems at an earlier stage in the project and producing better value for money.
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2.3 Methods
The set of procedures for the conduct of a value engineering study is well established.
It is called the job plan and comprises five distinct stages or phases:

1. Information phase
An information-gathering process which focuses attention upon the component
being studied. Particular importance is given to the use of functional analysis.

2. Speculation phase
Creative thinking techniques are used to generate alternative ways to provide
the functions identified in the previous stage.

3. Evaluation phase
The solutions generated are evaluated in terms of their feasibility and cost.
Ideas are combined and consolidated to produce a list of, say, five or six ideas
which are worthy of further consideration.

4. Development phase
The surviving ideas are developed in detail ensuring that all of the interfaces
with adjacent components are fully accounted for.

5. Presentation phase
The best solution is identified and recommendation is made. This is often done
by means of a formal presentation followed up by a written report.

2.4 The workshop programme

Views vary as much with regard to the timing of the study and who should do it as
they do with regard to particular timetables for the value engineering workshop. We
shall return to the first two items later.

Briefly, the alternative programmes for the value engineering workshop are a 40-hour
workshop, a series of mini-workshops conducted at key stages of the project, or a
two-day workshop.

1 The 40-hour workshop

The 40-hour workshop tends to be used in the USA though seldom in the UK. An
alternative design team is brought together usually at the sketch design stage for a
five-day period. Usually, and ideally, in a neutral venue and away from potential
distraction, the team works intensively on a review of the design proposals following
the job plan format. The first day is spent on the information phase, followed on the
morning of the second day by the speculation phase. The ensuing two and a half days
are devoted to evaluation and development, and the presentations take place on the
final afternoon.

It is thought that the new team is more likely to be able to see possibilities for
improvements, as it will be less wedded to the original ideas. There is certainly some
merit in this. However, there can be difficulties in gaining the commitment of the
original team to any proposed changes because of their lack of involvement in this
later exercise. In order to get over this problem, sometimes just a few fresh faces are
engaged to work with the original team rather than having a completely new team.
This approach may also mean that the amount of time spent on the information stage
can be reduced because of the already greater familiarity with the design.
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The 40-hour workshop may be viewed as being somewhat extravagant in terms of

time. This will of course depend very much on the nature and complexity of the
particular design being reviewed. However, careful consideration should be given to
what tasks definitely need to be carried out within the workshop sessions and which
ones would be accomplished more effectively and efficiently outside of this
framework.

2 Mini-workshops
Another approach is to have a value engineer join the design team at the briefing
stage and then act as ‘facilitator’ throughout. Two mini-workshops, again following
the job plan format, are then held to review the proposals at about 15 percent and 35
percent design completion.

3 The two-day workshop

The two-day workshop is currently perhaps the most popular format in the UK.

Irrespective of which of these approaches is adopted, there is a big advantage in

having the value engineering team leader and team established early in the project.
This helps to avoid some of the problems of learning time and commitment to change
mentioned above. It also maximises the opportunities for enhancing value. Time can
be used more economically by assigning tasks to pre- and post-workshop activities.

Much of the essential ‘spadework’ can be done to prepare the ground so that the
workshop will be more effective. This includes data collection and dissemination as
well as priming people in a more psychological sense to ensure, as far as is possible, a
positive approach to the task.

Detailed development work is often better tackled outside the workshop, particularly
in the case of more complex designs. And there is no reason why the report
preparation and follow-up work should involve the entire team. This should be the
responsibility of the value engineering team leader who then would need to delegate
work to others as appropriate. It is of course important that all concerned receive
general feedback and are informed of outcomes.
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3 Value management
3.1 The design cycle
You will have noticed from what has already been said about the implementation of
value engineering that it would make little sense to carry out a functional analysis
with the aim of eliminating unnecessary cost in the very earliest stages of design. To
talk about elements and components of buildings assumes that the decision that a
building provides the solution to a problem has already been made. It also assumes
that a design solution exists.

Whether the decision to build is in fact the right answer to an organisation’s

problem(s) depends on the nature of the problem. But it cannot be taken for granted
that the nature of the problem is fully or indeed widely understood in the same way
even within the client organisation.

This lack of clarity and/or agreement in the very early stages of the conception of a
project very often leads to buildings which fail to satisfy a client’s needs. Frequently,
little or no attempt is made to clarify what ‘value’ means to members of the
organisation in their own terms. Or, if it is, it is often not done early enough to give
the project a better chance of success.

Some way of making explicit what value means to the client is therefore needed.
Since, logically, this has to be done before any designs are produced, discussing
functions at this early stage is not possible. Thus, the methodology for value
engineering as described above may also be viewed as inappropriate at this stage. Yet
it is early in the design phase when the bigger decisions are made and when the
greatest potential for making better design decisions therefore exists (see Figure 1).

Furthermore, in practice it is very often the case that a value engineering study is
commissioned when things start to go wrong or in response to a projected cost
overspend rather than being built into the design programme in advance. The
potential for making better and/or more cost-effective design solutions is then even
more limited. Surely it is much better to ensure that the right decisions are made the
first time than to correct them once they have gone wrong.

FIGURE 1 Cost benefit

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It is for these reasons that a rather different approach, which may better accommodate
the very early stages of design, has been developed. ‘Value management’ is the term
which is adopted to describe the process at this earlier phase, with ‘value
engineering’, as described above, coming later. Or ‘value management’ is used as a
generic term to incorporate both sets of procedures. That is, value engineering as
described is seen as a sub-process of value management.

Figure 2 should help to clarify these distinctions.

FIGURE 2 Concept to detailed design

3.2 VM1 workshop

VM1 takes place at the end of the concept stage when, for instance, the building of a
new facility is first suggested as a possible solution to a perceived problem (RIBA
Stage A). VM1 is closely linked to the decision as to whether the project should
proceed. The primary objective is to verify the need to build before the client
becomes committed to financial expenditure. The secondary objective is to ensure
that there are clear project objectives which are understood by all the parties.

You will notice some similarities between the framework given for the
implementation of value engineering and that outlined below for VM1. But the
differences are both significant and important. The main stages of VM1 are:

Pre-workshop activity
z Stage 1: Identify the key stakeholders

Workshop
z Stage 2: Identify the design objectives
z Stage 3: Construct the value tree
z Stage 4: Speculation
z Stage 5: Evaluation

Post-workshop activity
z Stage 6: Development
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3.3 VM2 workshop

The next workshop, VM2, occurs at the end of the feasibility stage (RIBA Stage C)
when the outline brief has been completed and the design team have formulated a
selection of costed outline schemes.

The task is now to determine whether any changes need to be made to the design
objectives originally formulated. It may well be that, in the intervening period, new
information has come to light or circumstances have changed so that it would be
sensible to amend the objectives in line with these. This does not mean that such
changes should continue ad infinitum, only that, in these early stages, it makes sense
to build in a certain degree of flexibility.

It is also necessary during this second workshop to make sure that the outline design
scheme is selected in accordance with the appropriate performance criteria.
Additionally, VM2 provides the opportunity to secure marginal value improvements
in the chosen design option.

The seven main stages for VM2 are as follows:

z Stage 1: Check the design objectives and amend if necessary
z Stage 2: Reconstruct the value tree
z Stage 3: Assign importance weights
z Stage 4: Evaluate
z Stage 5: Conduct a sensitivity analysis
z Stage 6: Reconcile cost with value
z Stage 7: Look for marginal value improvements.
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4 Summary and benefits of value management

We saw in the Introduction how the demand for value management has been
gradually increasing. We looked briefly at some factors in the socio-political and
economic climate which help to explain this. We have also considered approaches to
value management and stages in its implementation. A value management approach
may achieve the following benefits:

z The need for new projects is always verified.

z Objectives and decisions are openly discussed and explicitly made.

z The frameworks for evaluation and re-evaluation are structured, rigorous, and
more rational.

z Decisions are supported by data and made on the basis of defined performance
criteria.

z Accountability is increased, with an improved audit trail.

z Alternative solutions are always considered.

z Decisions are made with greater confidence.

z There is greater potential for increasing value for money.

z Communication, understanding, and team effort can be improved and may be

disseminated throughout the organisation.

z Participation by users increases the likelihood of satisfaction with the end

product.

z Opportunities for longer-term profitability are enhanced. The overall efficiency

of the project is optimised.

Successful value management depends on the integration and application of both the
rational problem-solving skills and the ‘softer’ interpersonal skills associated with
effective people management. These skills are interdependent: success will not be
achieved without equal attention to both. Use of the structure and procedures
proposed for the workshops will facilitate the rational processes and provide an
environment for creative thinking, ‘ownership’ and commitment.

In particular, the team leader must ensure a thorough understanding of the

methodology, techniques and appropriate timing of studies. But it is also vital that he
or she develops an advanced level of sophistication in awareness and practice of
appropriate behavioural skills if improved group productivity is to be achieved.

While it must be stressed that value management should not be regarded as a panacea
for all of industry’s ills, the potential benefits as listed above are considerable.
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SELF-ASSESSMENT QUESTIONS

1. The main purpose of value engineering is to:

a. cut costs;

b. reduce costs and increase value;

c. reduce unnecessary costs and increase value;

d. reduce quality and time.

2. The main purpose of value management is to:

a. carry out a functional analysis;

b. achieve a shared understanding of a design problem and objectives;

c. reach agreement on design options;

d. allow designers to present design solutions to the client.

3. The best time to implement a value management workshop is at:

a. scheme design stage;

b. during detailed design;

c. concept design stage;

d. after detailed design.

4. The team for the value management study should comprise:

a. the client and project team members;

b. the design team and an external facilitator;

c. the key stakeholders and a facilitator;

d. the technical specialists and value engineering team leader.

(Answers follow)
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ANSWERS TO SELF-ASSESSMENT QUESTIONS

1. c. The main purpose is to increase value. It is a common misconception that the

primary purpose of VE is to reduce costs. Costs may well be reduced in the
process of increasing value. But cost-cutting per se is not the raison d’etre of
VE: eliminating unnecessary cost (ie that which does not contribute to value)
is!

2. b. You cannot logically undertake (a), (c) or (d) until you have a clear
understanding of the nature of the problem and what you are trying to
achieve. This is what VM is all about.

3. c. Following on from the answer above, by the time you get to (a), (b) or (d),
major decisions will have been taken and the degree to which you can
increase value at these stages is very limited. The motto for VM therefore is
‘the earlier the better’.

4. c. If key stakeholders are involved at an early stage, decisions will reflect, at

least to some extent, their interests, and their involvement should increase
commitment to ensuring the success of the project. The facilitator is essential
in managing the process of achieving consensus.