1.

0 INTRODUCTION

1.1 BACKGROUND
In today's context construction is one of the highly competitive and high-risk business in Sri
Lanka and in most other countries. Any significant change in global and or national economy
can directly influence the construction sector due to its significant contribution to the national
economy. Prevailing global economic turmoil have influenced many industries around the
\Vorld and construction industry of Sri Lanka have also been affected. According to an industry
analyst, other than the above reason ""shortage of new jobs, soaring prices of constructional raw
materials, the security situation in the country and high interest rates have all contributed to the
situation" (Sakalasooriya. 2007) in Sri Lanka.

··The construction boom which started during the year 2004 is destined to come to a juncture by
now as the Tsunami re-construction work is being almost completed. Hence this slowing down
in the industry is expected and it is quite natural" (Sakalasooriya, 2007). As a result new
opportunities in the market are comparatively less and this situation leads to severe competition
among the construction companies in obtaining new jobs.

According to the Institute for Construction Training and Development (ICT AD), there are over
I 0,000 registered construction companies in the country for various construction disciplines.
These companies are being graded under various classifications based on their expertise,
capabilities and financial strengths. Companies within a particular grade have to compete with
the other members of the same grade and at times with lower grades to obtain new jobs.
Industry inherent common and typical strategies that have been adapted by most of the
companies have made ·wining of a new job· more difiicult through competition.

The 'design-bid & build' system has become the most popular project delivery method in the
country among other methods such as 'design & build' and 'turn-key' methods. In this
common method, it employs design consultants or such organizations to do the designs.
Thereafter construction companies participate in a competitive bidding process to asses their

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chances for securing a new job. Competitive bidding therefore has become more attractive in
the construction industry.

The objective of most competitive bidding models is to find the optimum mark -up to maximize
the expected profit of the company. However. the bidding success mostly depends on
company's long-term interactions with the market, and strengths & weaknesses of its
competitors. Also ··the research results have shown how difficult it for any company to acquire
a long-term competitive advantage by means of only the bidding & marketing strategies in a
competitive environment" (Kim, Jin, Reinschmidt & Kenneth. 2006)

Therefore, it is evident that the traditional methods and strategies that are being adapted by
these companies to survive and maintain the competitiveness would not be effective in the
long- run. Because, new challenges that emerge day by day make these existing strategies less
powerful to remain in business. Therefore, construction companies need to explore and derive
strategically important and innovative systems and approaches that would guarantee the long-
term competitiveness .

.. Innovation, quality, efficiency and catering to the clients requirements would be the most
attractive aspects that would need much attention with regards to the long-term competitiveness
of construction companies'' (Lemos, Almeida, Betts & Eaton, 2003). Hence, exploring of new
concepts and philosophies that can improve the existing systems and processes of companies is
very vital for business success.

In addition, it has also been found that, business success is also achievable through the
improvement initiatives and development of intangible assets such as people and reputation in
addition to other accepted norms. Even the long standing and established organizations need
constant improvement if they are to survive in this fast changing, fiercely competitive global
economy. Therefore, concepts or philosophies that focus on innovation, quality improvements,
customer care and cost efiectiveness need to be recognized in time for business success.

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Therefore, Value Engineering would be a better concept in construction business. due to the
fact that its capability in focusing all the above highlighted aspects .. "With the rapid growth of
competition and shrinking product life cycle, value engineering has become an essential tool
for attaining the competitive advantage" (Kumar, Singh & Jha 2005).

Evidence for use of Value Engineering (VE) in Business

Value Engineering concepts have been widely using by various businesses globally as a very
effective management tool to achieve business objectives. According to the Society of
American Value Engineers (SAVE) International, "VE services return a saving of thirty
percent of the estimated cost for constructing a project or providing a service''.

In addition. Younker (2003) in his book has identified various US Government departments
that use VE practices frequently. According to him, the US agencies for Environmental
Protection, Department of Transportation, Federal Highway Administration. Department of
Energy, Department of Defence, Bureau of Prison, Corp of Engineers. Navy Facilities
Engineering and the City and Country Governments are the frequent users who encourage the

use of VE in their contracts with contractors.

Male, Kelly, Gronqvist & Graham (2005) has highlighted that "some early adopter countries in
the field of manufacturing such as Japan and Korea have taken forward a franchised version of
VE!VM (Value Management) from US methodology, while other countries took up the
methodology and subsequently blended it into their national markets and cultures".

The Indian Value Engineering Society (INVEST) consider ''VE as one of the time tested and
most powerful technique towards cost competitiveness in business".

In their research report, Cheah & Seng (2005) has highlighted that, ''there is a strong belief that
future prospects of VE in the Southeast Asian construction industry are positive, even though
there are a number of impediments still standing in the way''.

,.,
.)
··vAlVE was introduced to Mainland China later than Taiwan, but the achievements in
Mainland China are more exceptional than Taiwan. VA/VE had been introduced to Taiwan 30
years back, and is popularly utilized in the Construction Industry and the Construction
Engineering of the Government" (Chin-Wen, 2001 ).

Through, the literature survey, it was found that VE is a well spread concept that gives very
positive inputs for any kind of business anywhere in the world and the extent of uses however
are varying from country to country due to many reasons.

Sri Lankan VE practice

In 1998, in his research report Karunaseelan has revealed that Value Analysis (VA) has not
been very popular among the industry due to the reasons such as restricted time, conflict of

interests and unavailability of cost data.

After that, in year 2003, Perera, Karunasena & Selvadurai have highlighted that "compared to
the other countries; the application of Value Management (VM) by the Sri Lankan construction
companies is relatively new''. Here the term VM covers the whole range of value techniques
available such as Value Planning (VP), Value Engineering (VE) and Value Analysis (VA).

In their report, Perera, Karunasena & Selvadurai (2003) have also revealed, that "there was
very little evidence on application of VM in the construction industry of Sri Lanka". Various
reasons for such low level of application have also been disclosed. Other than that, number of
main constraints in application of VM in the construction industry was identified. However, out
of all constraints that were identified, following two can be taken as the most important for

better VE practice in the future.

• Unavailability of standard procedure for VM process in Sri Lanka

• The absence of active encouragement by the construction industry regulatory body

of Sri Lanka, that is Institute for Construction Training and Development (ICT AD)
to practice VM in construction.

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Comparison of Global and Sri Lankan VE practice
As discussed above. the concept of VE are being used in number of other countries in various
industries including the construction industry. Various VE applications in different industries
are discussed in more detail in Chapter- 2. However, as discussed above. previous researches
have highlighted that the VE practice of Sri Lanka has not yet matured and as a result, it has not
been very popular in the construction industry. This comparison therefore reveals the existence
ofVE practice gap when compared to that of other countries.

1.2 THE RESEARCH PROBLEM

The reasons for such low level of VE practice in the Sri Lankan construction industry have
been revealed by previous researches. Therefore, now it is required to find answer to the
important question of ''What should be done to establish an effective VE practice among the Sri
Lankan construction companies for enabling them to improve their various business processes
and practices to gain the competitive advantage?.

1.3 RESEARCH OBJECTIVES

Main objectives of my research are,
I) To develop a methodology for application of Value Engineering for the Sri Lankan

construction companies.
2) To develop a Value Engineering guideline I workbook for the Sri Lankan construction

compames.

1.4 SIGNIFICANCE OF THE STUDY

As elaborated in section 1.1 of this chapter, researchers have found that "absence of active
encouragement by the construction industry regulatory body of Sri Lanka (ICT AD) to use VM
in construction" as one of the constraints for proper and effective VE practice in the Sri Lankan

construction industry.

However, as a means of overcoming this problem the ICT AD have now recognized the
importance of including VE concepts into the construction business. As a result. ICT AD has
revised the Standard Bidding Document [SBD/2 - Major Works/2007] to include, required

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 contractual provisions in contracts. This latest contractual provisions provide the facility of
proposing effective VE solutions for the projects, components, equipments, systems and
procedures which may not be the best in terms of functionality, value, cost quality, safety and
other subjective criteria of the project. Therefore, construction companies need to look at this
new development as a good opportunity opened for them to gain competitive advantage in the
market.

The benefits and improvements that the construction companies can gain by having an efTective
VE programme could be enormous. The value improvements or less-cost solutions would be
very attractive to most of the clients who are undecided in the present volatile and uncertain
economic situation. As a result, construction companies would be able to gain the long-term
competitive advantage that is essential in the challenging business environment.

1.5 METHODOLOGY
For the attainment of the research objectives, following methodologies were selected.

A detailed literature review was carried out to understand the concept and principles of VE and
its various applications in difTerent industries and businesses. In addition, various past VE
applications and potential new areas in construction business were identified.

An industry survey was carried out to evaluate the level of VE awareness of construction · f
companies in the country. Awareness in terms of VE concept, various benefits and correct
methodologies were tested. The intention of this evaluation was to identify the best industry
inputs for the development of a tailor-made VE methodology and the guideline for the Sri

Lankan construction companies.

In addition to that, for developing a tailor-made VE methodology and a guideline I workbook

for Sri Lankan construction companies, various VE manuals and handbooks were studied and
analysed in more detail. Proposed workbook would provide a step-by-step approach for a
correct VE practice for the construction companies.

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1.6 LIMITATION OF THE RESEARCH
Initially, it was intended to interview as many as 18 companies representing the three top most
categories (Ml. M2 & M3) of the country. In addition, the study was limited to only for
companies, which have been registered under the buildings category to manage the research
scope within the fixed time frame.

According to JCTAD contractors' registry, there are seventy-five companies in Ml, M2 & M3
grades. Therefore, targeted 18 companies were considered as a proper sample for the study.
However, the number of interviews was limited to twelve companies due to unavoidable
circumstances such as time restrictions, busy schedules of the targeted company representatives
and logistic difficulties in arranging interviews.

Furthermore, rejection or avoiding of discussions by the representatives in higher-grade non-

prominent companies due to unfamiliarity and lack of interest in the subject area was also a
reason to limit the number of interviews. Four of such companies commented that they do not
I .
practice VEin their jobs.
,;

The selection of only the top three categories of companies can be justified by the fact that
'they are the companies that have the capability of investing on such practice in the country.
Other than that, it is a known fact that, only these companies possess the required human skills

that need for aVE practice.

1.7 RESEARCH FINDINGS

The related literature and previous research studies have elaborated on the value improvement
and other benefits that any business can derive from a better VE practice. Improvement in
quality, communication, efficiency, productivity, standards and specification were found as the
other important aspect that companies could expect from VE, in addition to the value
improvement. Furthermore, various potential areas that construction companies can employ VE
for value improvements, such as internal production lines, maintenance areas, procurement &

logistics and operational areas were also identified.

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Various tools and techniques that are used in each phase of the VE methodology and number of
custom-made formats and matrixes developed by different practitioners were identified.

The industry survey results also confirmed the facts revealed by previous researchers that. "VE
practice of Sri Lankan construction companies is in a low level'. In addition. the results also
show that. big and reputed companies use VE concepts in difficult situations to find solutions
on ad-hoc basis. However, none of these companies has a well-established VE practice, which
has a proper VE methodology or guideline. The survey further revealed that. professionals of
these companies normally determine the methodology that company should adapt in ad-hoc VE
applications. The risk here is that, such practice and VE methodology would end when that
particular person left the company. In addition, 62.5% of the responded companies appreciated
the availability of a proper VE methodology and guideline for them to establish a proper
practice in the future.

1.8 ORGANIZATION OF THE REPORT

Most of the literature as well as previous researchers have emphasized on significant benefits
that can be achieved through application of VE in business. The focus of this study is to see
ho\V VE could be eiTectively applied in construction companies. This study primarily analysed
Yarious VE manuals and guidelines that successfully guide the practice today in other countries.
The aim of this analysis is to develop a tailor-made VE methodology and a VE guideline I

workbook for construction companies in the country.

Chapter 1; of the report has discussed areas such as the significance of VE in business, extent
ofVE practice in Sri Lankan and other countries, research problem, research objectives and the
methodology adapted in the study. In addition, the significance of the study and the limitations

of the research were also discussed.

Chapter 2; the concept of VE, its expansion around the world, benefits of VE practice for
construction companies, examples of VE practice in both construction & other industries and
other potential areas of VE application in construction business were discussed.

'lV~

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Chapter 3; would discuss the methodology adapted for the study in detail. In addition to that, it
discusses the results of the industry survey carried out for determining the attitudes. awareness
and knowledge of VE of the people and management of construction companies. Other than
that. this chapter analysed the survey results, which were meant for the determination of
requirement of tailor-made VE methodology and a guideline I workbook for construction

compames.

Chapter 4; discussed and analysed various generic and custom-made VE job-plans and
methodologies in the world in relation to their various phases, scope, common activities, tools
and techniques in determining a tailor-made VE methodology for Sri Lankan construction

compames.

The availability of VE methodology itself will not make any sense. unless it is properly
integrated into the existing business practices of the company. Therefore, Chapter 5; discussed
ways of integrating VE into existing business by considering it as an 'enterprise change model'.

Chapter 6; was for the conclusion and recommendation of the research

Appendix - A, proposed VE guideline I workbook developed for the Sri Lankan construction '
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companies for effective and efficient application ofVE in business.

Appendix- B, Analysis of survey results