Value Engineering (VE) is one of the most effective techniques known to identify and eliminate unnecessary costs in projects. Value is a fair return or the equivalent in goods, services, or money for something in exchange. Value can be understood by the formula: Value = Function/Resources. The function is measured by the performance requirements, and resources are measured in the materials, labor, price, time, etc., required to accomplish that function. Value Methodology (VM) focuses on improving value by identifying the most resource-efficient way to achieve a function that meets the required performance expectations.
The term VE is used when applying VM to new projects. VE refers to an organized effort to analyze functions of systems, equipment, facilities, services, and supplies to achieve essential functions at the lowest life-cycle cost, consistent with required levels of performance, reliability, quality, and safety.
Value Methodology (VM)
VM is not cost-cutting, quality reduction, or a process that can be applied without top management support and the support of all functional disciplines. VM is however, a process to identify unnecessary cost in a project, and to offer alternatives while assuring quality, reliability, life cycle cost, and other critical factors meet or exceed expectations. A VM workshop consists of gathering the required stakeholders and conducting VE sessions that follow sequential six phases.
- Function Analysis
This phase will take you beyond your present knowledge to a fuller understanding of the complete project being analyzed. It encompasses three techniques, securing the facts, determining the costs, and fixing costs on specifications and requirements.
The project overview consists of identifying the background, purpose, location, budgets, schedule, and also the identities of the designers, owners, contractors, and other stakeholders. It includes an evaluation of the gathered information for the project such as; studies, operations, site issues, material or labor constraints, municipality requirements, front end engineering (FEED), or architectural renderings. Securing the facts focuses on the information of; why, what, when, where, how, and who for the project. The information is placed in worksheets which lead the team through the information gathering exercise.
Function Analysis Phase
The purpose of the Function Analysis Phase is to identify opportunities for the improvement of value. A function describes the purpose or intended use for anything. The purpose of the Function Analysis phase is to identify the most significant opportunities for the improvement of value. We need to ask the questions, what does the function do, and what is the value of the function?
Identify functions – Determine all possible verb-noun combinations that describe the functions of the subject under study (Ex: charge battery, control heat).
Classify functions – Classify the identified functions into basic and secondary. Basic is the specific purpose, and secondary supports the basic. Battery example – basic = deliver energy, secondary = store energy.
Segregate the higher order functions from the lower order functions, and prioritize them by selecting the functions that have significant opportunity for savings.
Organize the functions by using function analysis worksheets to correlate various types of information with the functions. Use a Function Analysis System Technique (FAST) which displays in logic format deepening the understanding. (see diagrams)
The purpose of the Creative Phase is to generate a large number of ideas or alternates that can perform the essential functions (brainstorm). Withhold judgment for the ideas, and develop as many as possible.
- What other solutions will perform the function?
- What else will create the required outcome?
- Does it need to be performed at all?
The purpose of the Evaluation Phase is to evaluate the options produced in the Creative Phase. Screen the fresh ideas to reduce them to a manageable quantity. Answer the questions for the possibilities.
- Will the idea achieve the essential function?
- Will the idea improve value?
- Is it readily available to implement?
The objective of the Development Phase is to collect additional data, to thoroughly analyze those best alternatives selected during the Evaluation Phase, and to prepare cost estimates and initial designs that will ensure acceptability and ultimate project implementation.
- Determine sources for additional information. Consult with specialists, suppliers, contractors for additional input, and cost information.
- Ascertain feasibility of the selected alternatives.
- Presentation Phase
- The purpose of the Presentation Phase is to sell your ideas when putting the recommended alternatives before the decision-makers. Answer the questions regarding each value alternative.
- What are the specific recommended changes?
- How do they perform the required functions?
- What roadblocks need to be overcome?
Value Policy Statement (VPS)
It is a visible record of VM acceptance by your organization’s senior management. It signifies acceptance, endorsement, and encouragement and defines the relationships with other departments.
A VPS contains
- A statement permitting a professional review of the organizations’ products, processes, and services.
- Guidelines for establishing Value Programs in each division.
- How Value Methodology will be applied.
Value Engineering Timing
The highest return of the VE efforts occur during the early design stages.
US Army Corps of Engineers Examples
Federal agencies such as the US Army Corps of Engineers (USACOE) are required to utilize VE per Title 41 §1711 of the U.S. Code. Each executive agency shall establish and maintain cost-effective procedures and processes for analyzing the functions of a program, project, system, product, item of equipment, building, facility, service, or supply of the agency. The analysis shall be—Performed by a qualified agency or contractor personnel; and Directed at improving performance, reliability, quality, safety, and life cycle costs.
The federal Office of Management and Budget in its OMB Cir A-131 requires federal agencies to consider and use VE as a management tool to ensure realistic budgets, identify and remove nonessential capital and operating costs, and improve and maintain acceptable quality in program and acquisitions functions. For new projects and programs, VE shall be required for new agency projects and programs when the project cost estimate is at least $5 million or such a lower threshold as determined by the SAO and identified in the agency’s VE guidelines.