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business analysis

Value engineering WILL add value

Adam Boughton | Transport, Infrastructure & Logistics Lead, Brisbane | 26 September 2019

Value engineering is a well-defined and documented process that is not just about cutting costs. In the last part of the 'Creating the Optimal Asset Series', Adam Boughton shares the value engineering process and how it can ultimately drive project success.

What is value engineering?

Value engineering began at General Electric Co. (GE) during World War II, as a shortage of skilled labor, raw materials, and component parts necessitated the need to look for acceptable substitutes. These substitutions often reduced costs, improved the product, or both. What started out as an accidental necessity turned into a systematic process which GE called “value analysis.”

It is a systematic, structured, and organized effort to discuss the main functions of a system, its equipment, process or installation, to reduce costs significantly, without compromising its essential function or quality. It also introduces other value benefits that may not always be cost-based.

The value of a product or service can provide an increase of its function or a reduction of its cost. Therefore, value engineering seeks to analyse this function by questioning the how and why to identify relationships that increase value.

Benefits can include lowering operating and maintenance costs, enhancing quality management and efficiency of resources, lowering staff or raw material costs, simplifying procedures, increasing competitiveness, and improving social and environmental footprint.

Value engineering should be embedded in the project development fabric from the start. If positioned near the construction phase, it will drive behaviors that can translate to a “value-loss” as the relationship between money and time (schedule) is inverse.

It is ideal to involve a contractor or experienced construction professionals. This will allow a focus on budget priorities which can be incorporated into the construction schedule. If it’s not applied until much later, changes made will require additional services from the engineers/consultants, having significant follow-up costs and causing schedule delays. 

Value engineering is not just a process about cutting costs. The driving force needs to be able to get more from the spend. Overall project vision has defining purpose here as return on investment for the project is always a defining point. Many things can drive the client to invest and build: social improvements, improved image, diversity, flexibility, environmental improvements, asset longevity, reduced whole of life impact costs or more (the list is endless) These all have value. Understanding these at the start and progressing the project through a value engineering exercise to look for ways (at times at zero cost) to exploit them must be a key responsibility of the engineer. Providing a priority approach to these driving factors will help determine where the design focus should be and where the dollars will make the most impact.

Value engineering DOES NOT stifle creativity. Engineering professionals understand that every project has a set of parameters it must meet, and that clients don’t have endless budgets. Like architects, engineers are also trained to be creative under constraint – working on a project with unlimited funds is a proverbial unicorn. A good team will incorporate value engineering into the creative process, seeing it as a challenge instead of a limitation.

To achieve value for money, it is necessary to maximize optimization of the design. However, in reducing costs, it is important that key project objectives such as system capacity and operational flexibility are not sacrificed. 

Value engineering DOES NOT stifle creativity. A good team will incorporate value engineering into the creative process, seeing it as a challenge instead of a limitation.

The value engineering process

Value engineering is a well-defined and documented process, and there are many training programs available for people to gain awareness. The foundational steps of problem solving are fairly straightforward. It does, however, require the involvement of a competent team, led by a structured approach with a clear process that defines parameters for success.

Six systematic major phases of value engineering are:

Phase 1: Information phase

This is where the problem to be solved is defined: defining the vision, the inputs, and the outputs; understanding the BoD; and gathering information about the problem.

Phase 2: Speculative phase

Creative juices need to flow here. This is about developing alternative approaches to provide the required functions (current and new), or additional value at a zero gain, or reduced cost. A functional analysis is developed, normally by a process called the Function Analysis Systems Technique (FAST), which is a diagramming procedure that demonstrates the logical relations among the functions of a building, system, or component. With the FAST diagram, the VE team can get started on generating a vast variety of ideas— this is brainstorming with no holding back here. Everything is possible.

Phase 3: Analytical phase

Here we apply cost comparisons and define the optimum alternative(s) to those presented in the previous phase and compare them to the “norm”. Whole of Life Cost (WLC) would also be applied here to develop the option costs, and arrive at a final alternative.

Phase 4: Proposal phase

Now that the hard work is complete and you have applied a process to extract greater value to the vision, the results need to be presented to stakeholders for approval. However, this not always as straightforward as you may think. It is common for people to have a pre-defined approach or understanding of how things are done, which is why it was likely going a certain path in the first place. So even though you have reduced cost, created value, and improved the end result, stakeholders may still only see risk in flashing lights. So consideration to the impact on risk assessment, and the presentation approach is extremely important.

Phase 5: Implementation

This phase entails rapidly and properly putting the improved proposals into action to achieve the proposed savings or project improvements.

Phase 6: Auditing

The objective of the audit phase is to check that the desired results have been attained, documented, and reported.

Explore all six parts of the 'Creating the Optimal Asset Series'.