VALUE ENGINEERING & VALUE

MANAGEMENT

PRANEETH WICKRAMARACHCHI
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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 multi-

disciplinary 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.
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 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.

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 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’.
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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

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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.

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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.
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Value Engineering & Value Management

 Value Engineering and Value Management

often means different things to different
people.

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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.

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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.
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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?

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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.
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Value Engineering Study (Contd.) –
Phase 2 – Basic Job Plan

 Information Phase

 Speculation Phase

 Judgment Phase

 Development Phase

 Presentation Phase
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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.
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Value Engineering Study (Contd.) –
Phase 2 – Basic Job Plan (Contd.)

 Speculation Phase
 During this phase the VE team will list creative ideas
generated from it’s review of the project with the aim of
obtaining a large number of ideas through
“brainstorming”.

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Value Engineering Study (Contd.) –
Phase 2

 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.

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Value Engineering Study (Contd.) –
Phase 2 – Basic Job Plan (Contd.)

 Development Phase
 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.

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Value Engineering Study (Contd.) –
Phase 2 – Basic Job Plan

 Presentation Phase

 During this phase VE team shall present an oral

summary of it’s finding to the owner and the designer,
explaining the basic ideas of alternatives, it’s cost-
saving implications and their attendant rationales.

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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.
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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
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frequent reversion to the previous phase.

VE Job plan

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 The Value Methodology Job Plan
INFORMATION
PHASE FUNCTION
ANALYSIS PHASE CREATIVE
PHASE
EVALUATION
PHASE DEVELOPMENT
 Complete data
package PHASE PRESENTATION
 Identify functions PHASE
 Modify scope  Create quantity of
 Classify functions ideas by function
 Rank and rate
 Develop function
alternative ideas
- What is the models - Conduct benefit
problem or  Select ideas for analysis  Present oral report
 Cost functions  What else can
opportunity? development
 Establish value index perform the function?  Complete technical  Prepare written
 Why do you  Where else can the data report
consider it a problem  Select functions for
study function be  Create
or opportunity? performed?  How must each idea implementation Plan
 Why is a solution work?
 How else can the  Prepare final  Who should be sold?
necessary? function be  What is the proposals  How should the
 What is the cost? performed? feasibility of
 What is the task ideas be presented?
implementation?
function?
 What was the
 What will be the
 What are the basic problem?
cost? How can
functions?
 Develop a plan to disadvantages be  What is the new
 When will we overcome?
gather project data  What are the way, savings, and
breakeven?
supporting functions? benefits?
 Investigate the  Why is the new way
 What is the best better?
project  How will it satisfy
overall alternative?
 Will it meet all the our customers?
 Verify data
requirements without  What is needed to
compromise of form, implement the
fit, or function? proposals?

PRE-STUDY  What are the annual  Who is responsible

savings? for implementing the
POST-STUDY change?

- Collect user/ customer attitudes What is to be included in the study?

Complete data files Who is best able to study the problem?
Determine evaluation factors What are the current and future requirements Verify Did the new way work? - Complete/
of the subject under study? accomplishments implement
Scope the study How much did it cost/save?
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Present results changes
Build data models What type of impediments will the team come Did
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Advertise outcomes customer’s expectations? - Monitor
Determine team composition against?
status

Property of OSC VE Office

Why use Value Engineering?

Save Time
Save Money
Build Teamwork
Improve Quality
Satisfy Customer

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Value Engineering – What are the benefits

• Solve immediate and high • Reduce Time

priority problems
• Establish low cost goals • Reduce commercial risks
• Identify and define stakeholders • Help to increase cooperation
aims and objectives between departments
• Optimize the unit/component • Encourage fresh thinking
cost
• Produce unique solutions • Spread cost-consciousness
• Increase the market potentials • Develop hidden abilities
• Improve communication • Help to provide better
appreciation of the ‘other man’s
job’ – Alternative Perspective
• Improve quality 10/8/201
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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

 VE study costs are approximately 0.4 % of the total

construction costs, which is relatively low compared to
the potential benefit.

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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.

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When to Apply Value Engineering –
Pictorial Illustration

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Potential Savings from VE
No engineering Document Revision
Change Revision
Re-Test/Re-qualification
Drawings Released Tooling Changes

Net Savings from VE

Total Cost of VE Implementation

VE Implementation
beyond this point
results in a net loss.
Engineering
&Production
Concept Design Production
Release
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Value Engineering as per the Provision
of FIDIC

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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.

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Engineer’s role in Value Engineering

 Following task undertaken by Engineers are deemed to

be form part of Value Engineering;
 Advising on cost limits and preparing budgets
 Advising on cash-flow forecasting
 Advising on life cycle costing
 Cost benefit analysis
 Estimating
 Evaluating alternative designs/simple designs
 Undertaking feasibility studies
 Quality matters
 Measuring and describing construction work but only in terms of cost
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THANK YOU

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