CPD 5 2019: The benefits of value engineering

Introduction

Value engineering (VE) was first developed at General Electric by Larry Miles in 1947 when shortages in raw materials and labour triggered a search for alternative options which were found to offer product improvement, reduced costs and in many instances both.

This CPD, sponsored by Eurocell, will look at the scope of VE, its application and how its utilisation can benefit a production process.

Early analysis

What started out as a circumstantial necessity – the second world war created acute shortages of a wide range of raw materials, components and manufacturing labour – was quickly turned into a systematic process. Referred to as ‘value analysis’, General Electric eventually developed the ‘value methodology’ defined as a systematic approach to improve the value of a project by providing the necessary functions to meet the required performance at the lowest overall cost. This method still holds huge benefits for businesses willing to use an alternative solution to achieve the same performance and aesthetics of a finished project.

Value engineering is a conscious and explicit set of disciplined procedures designed to seek out optimum value for both initial and long-term investment and has been widely used in the construction industry for many years. It is not a design/peer review or a cost-cutting exercise, rather it is a creative, organised effort, which analyses the requirements of a project for the purpose of achieving the essential functions at the lowest total costs (capital, staffing, energy, maintenance, etc) over the life of the project. Through group investigation by 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. VE can be applied at any point in a project, even in the construction phase. However, the earlier it is applied the higher the return on the time and effort invested.

The three main stages of value engineering are:

• planning
• design
• methodology and approach.

At the planning stage of development there are additional benefits to be derived from a VE workshop. An independent team can review the programme; perform a functional analysis of the facility; obtain the owner/users definition of value; define the key criteria and objectives for the project and verify/validate the proposed programme.

Then there is a review of masterplan utility options, while consideration is given to alternative solutions and an assessment is made to see if the budget is adequate. The benefits of value engineering can be significant and any changes to the programme at this stage have very little if any impact on schedule.

Design

This is the stage where most VE participants get 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 above a certain monetary value. The primary tool available to the VE team is the workshop – typically a 40-hour session, although this can be shorter for small 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, proposed implementation schedule and approach, in order to implement 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 workshop element of a VE study a five-step job plan is followed. The steps are:

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 architect/engineer. An analysis of the key functional issues governing the project needs to be carried out. The functions of any facility or system are the controlling elements in the overall VE approach and this procedure forces the participants to think in terms of function, and the cost and impacts associated with that function. The project owner’s objectives and key criteria governing the project should be determined, as does the 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 to provide the necessary function within the project areas at a lesser initial or lifecycle cost which represent improved value to the client. No judgement is made; instead the group will look for quantity and association of ideas which will be screened in the next phase of the study.

Many of the ideas brought forward 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 the VE team, together with the client and/or users, defines the criteria to be used for evaluation. The ideas resulting from the creative session are the judged. 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 a description of the recommended design change; a descriptive evaluation of the advantages and disadvantages of the proposed recommendation; cost comparison, and lifecycle cost 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 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 this time so a decision can be made as to which value management proposals will be accepted for implementation and incorporation into the design documents.

Avoiding mistakes

When it comes time to value engineer a project, which a large percentage of commercial projects have to do, there are mistakes that can be made in the process. These mistakes do not come intentionally but are usually the result of project management habits and time constraints. There are five things that can be done to make the most of VE in a project.

Do not sacrifice quality: wWhen the project budget calls for cuts to be made and value engineering hits the table, a lesser quality product can often be selected to save money. However, initially specified products are usually not selected with price as the main focus but aesthetics and functionality. With this in mind, there are usually many alternatives that can be provided that match the initial aesthetic of the product and still provide considerable savings.

Be open to alternatives: Value engineering can provide an opportunity to re-evaluate the selections and see if there are better alternatives. There are advancements made in construction products so regularly, there may be additional products now available that weren’t initially on the table to consider. A possible scenario could be a project where hardwood flooring was originally specified, but now that advancements have been made in luxury vinyl flooring, it may be a better fit and could potentially provide a lower product and maintenance cost compared to hardwood, while maintaining the same design aesthetic that was originally selected.

Stay ahead of the problem: Many times value engineering comes in the 11th hour of a project to keep things on budget. When this happens at the last minute, it can limit product options. This can be in part to limited available stock, production time, or extended importing timeframes. When value engineering is discussed months in advance of the installation, it is possible to have products imported or even custom made. This can equate to project savings and maintaining a great design aesthetic.

Expand your product network: If value engineering is a need for a project, it is essential to expand the reach outside of the initial network of manufacturers and distributors that were considered. If you expand out of the initial manufacturers that were specified, it is usually possible to find an equal (or better) product at a more competitive price. This can be done by sourcing directly from manufacturing mills and allowing other manufactures to compete for the project.

Make it an opportunity: VE provides a unique opportunity for the architect, client and contractor to re-evaluate the project and the finishes. It can be a time to shift focus and make sure the client is getting the best results possible.

Challenges

When value engineering becomes a reality in a project there will inevitably be challenges. However bear in mind the following and these can be addressed:

Maintain the production schedule: since VE usually comes late into a project schedule it is essential changes that are made that do not slow down the project. When searching for new products one that is more economical may be selected, but it could have extended lead times that would slow down the completion schedule.

Maintain product quality: one of the easiest ways to save money on a project is by changing to a lower quality product. This will help the budget immediately, but it will not produce the highest quality project.

Getting everyone on board: the first thing to communicate is the reason for value engineering. If everyone recognises and understands the need to make changes, it will be an easier process. It should also be presented as an opportunity to re-evaluate the initial selections to see if there are changes that could benefit the project, regardless of the budget. 

Protecting margins: staying as involved as possible when making changes to products is essential for decision makers. Ensure the project is getting maximum benefit from the process of value engineering, and that the best result is being created for the client.

Value 

By incorporating value engineering into the design and construction process results in greater added value and reduced costs for clients. Considering all aspects of the construction project when making value engineering proposals to the client is crucial. Areas for consideration will include cost reduction; value added; life-cycle analysis and maintainability.

During the construction phase, value engineering is still possible through the use of value engineering change proposals (VECP). Contractors can be provided with monetary incentives to propose solutions that offer enhanced value to the client and share in any financial benefits realised. Clearly the client must consider contractor-generated proposals very carefully, both from a life-cycle perspective and a liability perspective. The architect/engineering team must be brought into the decision-making process to agree to the proposed change does not have 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.

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, ensuring – and consequently re-assuring clients – that nothing has been omitted or underestimated. It also re-assures that the best value will be obtained over the life of the building. 

In the recent past many construction professionals have viewed value engineering as a way to keep projects on budget, but the full meaning of the term has been diluted.

In recent years however, the construction industry has been forced to re-evaluate its approach to value engineering and look to bring true value back into the process. With the rising popularity of design-build lump sum or best value contracts, contractors have an opportunity to act as project champions for their clients. They can seek out efficiencies between building systems, instead of squeezing each system to the detriment of the whole project.

The introduction of more value engineering workshops has had a big impact on the industry, allowing construction professionals to examine the functionality sought for a project and identify any mismatches between functions, project goals and the budget. Such workshops have helped to demonstrate the opportunities to improve the project through value engineering and how to price out those improvements while considering operational costs and any synergies between them. Clients can now confidently discuss with their design teams where additional costs might deliver added value and which capital cost reductions would likely cost them more money over time. While forecasts of lifecycle costs aren’t always perfect, the analysis still produces a relative idea of which strategies would be worth the investment over time.

Software

There has also been a huge advancement in software to support VE, which now has access to a sophisticated new set of economics software tools, which can conduct triple bottom line cost benefit analysis in real time to determine who benefits and by how much in monetary terms from a given design scenario. These advances in technology allow the construction industry to put to work the data from numerous studies of building projects.

And by using life cycle cost analysis it is possible to develop a more complete cost picture than traditional cost estimates, which can often give a skewed view of costs including upfront labour and materials costs instead of the total cost of ownership.

By quantifying costs and benefits across the triple bottom line (financial, social and environmental), software calculates not only the financial ROI of incremental monetary spent factors such as super-insulating walls and windows but also the social improvement in tenant productivity and health from better thermal comfort. Plus it can determine the environmental improvements from factors such as avoided local air pollution.

And by localising the analysis using data from the project’s market, climate, economy, wage rates and more, it avoids the need to artificially apply cost and benefit values from past projects, which can be misleading and result in poor design decisions. Although leading designers and contractors know this already, it is key project stakeholders that are demanding better than the ‘so-called’ value engineering of yesterday. Instead, they are demanding that value is brought back into value engineering by looking at alternatives holistically and using powerful new analytical tools to do show the improvements that can be made.