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://www.wanferndconsulting.com
[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 multidisciplinary 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 owners or users
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 owners 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 its 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.)Phase
Development

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 its finding to the
owner and the designer, explaining the
basic ideas of alternatives, its costsaving 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 mans
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 Surveyors 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