VALUE ENGINEERING

Roger Knowles

And

Nigel Barr

INDEX

Background
What is it
What isnt it
Pareto Chart
The Team
Five Phases
Unnecessary Cost
Team Objectives
Essentials of VE
Timing of VE
Projects Which Are Most Likely to Benefit from VE
Examples of VE
VE Team
VE Workshops
The Gateway Process
Client Types
Client Priorities
Standard Questions
Model Answers

VALUE ENGINEERING
Background
Value Engineering which for the remainder of this module will be referred to as VE is
a relative newcomer to the construction industry. However it has been in use in other
industries since the Second World War. In keeping with many management
techniques VE started life in the USA. L D Miles one of the gurus in the subject
introduced VE into GEC in the 1940s. In the mid 1950s the USA Department of the
Navy began routinely to incorporate incentive clauses in procurement contracts. VE
began as a method of overcoming shortages during and just after the Second World
War and involved widespread substitution of goods

What is it?
VE comprises:

A systematic approach
A concentration on value and not cost
The removal of unnecessary cost without reducing value

The main objective is to improve the value of the end product or service whereby the
clients receives more for their money. This could be defined as an organised approach
to the identification and elimination of unnecessary cost without loss of function.
Unnecessary cost means cost which provides neither use nor life nor quality nor
appearance nor customer features.

What it isnt
VE is none of the following

An attack on the quality or appearance of the project

A cost cutting exercise
A criticism of the design professionals
A review of the constructability of the project

There are all too many examples of techniques masquerading as VE involving a

hatchet job with the sole objective of reducing cost. Function must remain intact for
true Value Engineering.
Pareto Chart
A simple method for starting the VE process is by use of a Pareto chart. This sets out
the construction cost data in chart form with the most expensive items at the top and

the cheapest at the bottom. Paretos law states that 80 per cent of the costs will be
found in 20 per cent of the items. VE should concentrate on the high value items.

The Team
John E Williams founder of US Cost Inc Atlanta expressed an opinion that VE has to
be done by a seasoned team leader so as not to create bad blood Many designers can
be sensitive to suggestions that the design on which they have lovingly spent a great
deal of time and thought is to be the subject of change. The process has to be
undertaken with a great amount of sensitivity and tact. It is the norm in the UK for VE
to be undertaken by a team with skills which cover design, constructability, cost and
time. It would be normal for the team to include representatives from the Architect or
Engineer, contractors construction and buying departments, quantity surveying and
input from specialist sectors of the construction process which may be affected. It is
also often essential to have input from the user of the facility
The tasks undertaken by the team comprise:

Gathering information about the present design determining the needs,

requirements and constraints of the owners/users/stakeholders
Establishing design criteria
Developing a cost model, breaking down the project into functions and
performing a functional analysis.

Five Phases
The Chartered Institute of Building in a booklet entitled Value Engineering the Search
for Unnecessary Cost by S Green and P Popper suggests that VE be undertaken in
five phases
1. Information Phase
The initial task for the VE team during this phase is to identify the elements of the
project which can benefit most from the process. Prompt questions can be useful in
providing a structure to this process

What is it?
What does it do?
What else does it do?
What does it cost?
What is its value?

2. Speculation Phase
In this phase the object is to generate alternative design ideas. It is essential that any
ideas to be considered are creative.
3. Evaluation Phase

Once ideas have been identified and selected they need to be fully evaluated and
either accepted or rejected. The advantages and disadvantages of each idea will be
properly considered. A criteria against which each idea is to be judged is established
at the outset of this phase. Each design alternative can be assessed against each of the
performance criteria in order to produce an overall point score. At the end of this
phase there should be a list of feasible options which should be listed in order of merit
with the option gaining the highest score at the top.
4. Development Phase
The option selected in the Evaluation Phase is then more fully developed including
costing. Full life-cycle costing together with energy use should be employed as far as
possible. A decision is then made as to the options which are to be recommended.
5. Presentation Stage
The purpose of this stage is to convince the original design team and the client of the
merit of the chosen options.

Unnecessary Cost
Value Engineering the Search for Unnecessary Cost provides six examples of
unnecessary cost
1. Cost of an unnecessary component
An example of this type of unnecessary cost is specifying a covering to a drainage
pipe which is thicker than is essential. Covering to rebar can be a topic of contention
and engineers are often accused of being over cautious when designing concrete
cover.
2. Cost of unnecessary material
This occurs where an expensive material is specified when a cheaper one would do
the job just as well
3. Excessive cost of buildability
Often the designer does not consider the manner in which the work is to be
constructed. This can result in expensive plant being employed for longer periods than
is really necessary or labour cost being well in excess of what would be incurred if
more thought were given to the buildability of the project.
4. Unnecessary opportunity costs
An examples of this type of cost is a retail shopping mall where due to inefficient
design the net lettable area is less than could be achieved with a more efficient
approach. This could affect the clients rental income and the value of the building.
5. Unnecessary life cycle cost
When comparing design alternative it is becoming common to include an exercise
relating to the life-cycle performance of the alternative. Due to the uncertainties of

future levels of interest and inflation the comparison can be distracting. However if
appropriate the importance of life cycle costing can be reflected in the scoring system

Team Objectives
The team work together to develop the VE process to achieve the following:

Provide in detail the alternatives with the greatest potential value

Establish costs and backup documentation needed to individually convey the
alternative solutions.

The Team will normally present a written report to the management together with a
verbal presentation. It is usually advisable when making a presentation to use power
point or something similar. This will often act as a stimulant in bringing out questions
to which answers can be given. This process usually results in quicker decisions being
made.

Essentials of VE
The essentials of VE may be summarised as follows:

The overall objectives of the project and performance standards must be

clearly defined and prioritised and understood by all stakeholders as early as
possible in the project development process.

It is essential that evaluation criteria for considering each idea is established at

the outset. Evaluation criteria will differ for each project depending upon the
clients corporate/project objectives. A school for example would have a very
different VE evaluation criteria than that of a chemical plant. It is usually good
practice to link the evaluation criteria to the Strategic Brief which contains the
objectives for the project.

Sufficient energy, time and creativity is spent in developing a range of

solutions.

The range of potential solutions is properly and objectively evaluated to

influence final choice of the preferred solution

Chosen solutions are validated at appropriate intervals both during and after
project development

All of the implications of preferred solutions (costs , risks and other

commitments) have been properly considered and are understood, accepted
and agreed by all stakeholders

Preferred solutions are successfully implemented at minimum cost without

detriment to required quality and performance standards

It is normal for a design freeze to be placed on new ideas at some stage in the
process, as late design changes tend to cause delays and additional cost.

Timing of VE
It is generally accepted that the earlier the VE process is undertaken the more
effective it is likely to be. The later in the construction process changes are made the
more expensive they will become which in turn makes them less effective. There are
however differing views on this matter. The ENR magazine published in the USA in
its March 1990 edition states:
The impact of a VE study on the design is often most evident when undertaken after
the start of construction. For example a decision to change the originally specified
square columns to less expensive round columns at Chicagos Boulevard Tower
South building saved $250,000
Value Engineering the Search for Unnecessary Cost recommends that value
engineering studies are not undertaken after 50-60 per cent of the design has been
completed.
Others will often argue that the VE process is on going and it should not stop until the
work has been completed.

Projects Which Are Most Likely to Benefit From VE

Those which are:

Costly
Complex
Repetitive
Unique with few precedents
Highly visible and subject to external audit.

Examples of VE

1. Limehouse Link Tunnel London

This is a major relief road which provides access to Canary Wharf. The contract
comprised a 1.1 mile stretch of road and tunnel employing cut and cover. VE was
employed to good effect. One example relates to the omission of 150,000 square
metres of roof waterproofing and substituting concrete crack control which prevents
the moisture from reaching the rebar. The diameter of rebar was also reduced to
eliminate the need for a crane. Both of these changes produced a significant saving in
both cost and time.
2. City Place Chicago
This is an example of VE which was successfully carried out when the work on site
was well advanced. The work comprised a 40 story reinforced concrete tower. Work
was well underway when a redesign took place. However a $475k saving was effected
by replacing a steel arch roof with a space-frame assembly. The mechanical
penthouse was also replaced by a prefabricated metal building.
3. Commercial Building in the City of London
This example is included in Value Engineering the Search for Unnecessary Cost
where the VE took place after the initial cost estimate produced from the initial design
made the project barely financially feasible. The facility was a commercial office
development on a congested site which was intended to be let on completion. A major
construction company was requested to provide a team to VE the design down to an
acceptable level. The team comprised a chair, two structural engineers, project
manager, cost engineer and quantity surveyor. Several design changes were suggested
which increased the lettable area from 75% to 80% and concentrated the location of
the main plant items in the basement. The team met for 70 hours costing 30,000 and
resulted in the design producing a more financially viable scheme.
4. Residential Premises Peoria USA
This case serves to illustrate that not all VE exercises prove to be successful. It
became necessary to reduce cost and the insulation was identified as a possible source
of saving. The domestic and hydronic systems were insulated with fibreglass and it
was decided that a rubberised closed cellular type of insulation would achieve the
required reduction in cost. Unfortunately the heat trace hot water maintenance system
in the domestic system was incompatible with the rubberised insulation and extensive
cost was incurred in correcting the fault. It was obvious in hind sight that when
undertaking the VE the whole process should have been considered and not just the
component. This perhaps is a good example of a cost cutting process masquerading as
VE.

VE Team
The ERN magazine in its March 1990 edition makes the following suggestions as to
the ideal VE team. Numbers may vary from five to twenty five depending on the
projects complexity. While the VE team for a high rise building would include an
architect, structural engineer, a wind engineer, a mechanical engineer, a cost expert
and programming, a VE team for a hospital or power plant would require a larger
team with a greater number of specialists. There can be a case made out for the

employment of a team independent of the original design team. This however could
lead to a them and us situation which may operate contrary to team working. In the
USA the Society of Value Engineers promotes the idea of using an independent value
engineer on most projects. This has been met with resistance by some employers as
they consider that the existing team should be capable of operating VE. Care should
be taken when devoting time to VE and costs carefully monitored to ensure that the
cost of the team is not out of proportion to the benefits derived from the VE.

VE Workshops
In the UK it is normal for the VE process to involve workshops. For large and or
complex projects it is usual for there to be three major workshops involving the whole
team. Smaller and/or less complex projects may require less than three. It is common
for there to be an external facilitator. The profession of value engineer however has
not developed in the UK to the same extent as in the USA. The workshops comprise
the following:
VE 1 Information gathering
VE 2 Brainstorming/evaluation
VE 3 Development of chosen ideas
VE 4 Formulation and presentation of recommendations.
These workshops produce the best results if held outside the normal working
environment and should be spread over 4 or 5 days.

The Gateway Process

The Office of Government Commerce in an effort to improve time, cost and quality of
central government projects developed a system of project management referred to as
Prince 2. It consists of project reviews by experienced specialists independent of the
project team. These reviews are made at key decision points in the project life cycle.
They are intended to provide a reality check on project progress and likely
performance.
The system involves traffic lights at each stage
Green means go
Amber means proceed with caution
Red means stop and reconsider
There are six Gateways some of which include for VE

Gateway 0 Strategic Assessment

Gateway 1Business justification
Gateway 2 Procurement strategy which includes a review of VE
Gateway 3 Investment decision which includes a review of VE
Gateway 4 Readiness for service
Gateway 5 Benefits evaluation.

Client Types
When undertaking VE it is essential to have a thorough understanding of the clients
objectives. Clients fall into different categories which include the following:

The experienced corporate client who undertakes construction projects

frequently and has a good understanding of how the construction industry
works.

The inexperienced corporate client who rarely procures construction projects

Private clients who are often inexperienced and nave.

Client Priorities
Clients have varying reasons for undertaking construction work which includes:

For investment

To carry out their business

To meet social needs such as roads and schools

To make a statement and demonstrate confidence such as a company

headquarters

For private occupation

Clients have differing priorities in relation to the following:

Function and performance of the facility

Time and cost

Quality and sustainability

Flexibility

Risk

It is essential that the VE team is fully aware of all these factors which should be
taken into account when undertaking the VE process.

STANDARD QUESTIONS

1. What is Value Engineering

(a) A cost cutting exercise
(b) The removal of cost without reducing value
2. What is Paretos law
(a) 80% of the cost will be found in 20% of the items
(b) 20% of the cost will be found in 80% of the items

3. Which of the following are unnecessary costs

(a) Allowance for inflation
(b) Cost of components which could be omitted from the design
(c) Floor area in excess of minimum requirement

4. Which of the following types of project are most likely to benefit from VE
(a) Housing Project
(b) Warehouse of simple design

5. Ideally when should VE be undertaken

(a) Immediately after outline sketches and budget prices have been
prepared
(b) On completion of all the design before work starts
(c) After work on site has commenced

6. Which of the following client priorities need to be considered when

undertaking VE
(a) Number of employees
(b) The purpose to which the facility when completed will be used
(c) The clients need to keep the running costs of the facility as low as
possible

7. How should VE be carried out to achieve maximum effect

(a) Individual appointed from the design team to make recommendations
(b) Team using workshops

MODEL ANSWERS

1. (b)

2.

(a)

3. (b) and (c)

4. (a) and (c)

5. (a)

6. (b) and (c)

7. (b)