VALUE ENGINEERING

UNIT : 1

CHAPTER : 1

INTRODUCTION TO VALUE
ENGINEERING
 Defining Value Engineering………
• Value Engineering (VE) is an organized process with an impressive
history of improving value and quality.
• The VE process identifies opportunities to remove unnecessary costs
while assuring that quality, reliability, performance, and other critical
factors will meet or exceed the customer's expectations.
• VE is a rigorous, systematic effort to improve the value and optimize
the life cycle cost of a facility.
• VE generates these cost improvements without sacrificing needed
performance levels.
 Defining Value Engineering………
• Life Cycle Costing (LCC), as practiced in Value Engineering, is an
economical assessment of computing design alternatives using the
concept of equivalent cost.
• LCC focus on the total cost ( initial cost + follow on costs). Follow-on
costs are all the associated costs of running the facility.
• Follow-on costs are all the associated costs of running the facility. LCC
concentrates on optimizing energy consumption, maintenance and
operations costs, replacement and alterations expenses, and staffing
costs, including the time value of money, which alone account about
60% of the total cost of running a facility.
 Defining Value Engineering………
• Life Cycle Costs for a typical residential/office building… (Life Cycle = 40 years)

Initial Cost

29% Design
42%
Indirect

Replacement
13%

3%
O&M
12%
1% Finance
 Defining Value Engineering………
• Most facility owners would identify long-term profitability as their
main objective.
• VE play a critical role in managing value to meet required goal. It
provide the networking required for improving coordination and
communication.
• Hence, Value Engineering facilitates management of both VALUE and
COST.
The Objectives of Value Engineering………
• The Value Engineering (VE) is used to achieve many objectives…
• To s a v e m o n e y ;

• To r e d u c e ti m e ;

• To i m p r o v e q u a l i t y, r e l i a b i l i t y, m a i n t a i n a b i l i t y a n d

• To i n c r e a s e t h e p e r f o r m a n c e o f f a c i l i t y o r p r o j e c t .

• VE can also extend the use of financial, manpower and material

resources by eliminating unnecessary or excessive costs without
sacrificing quality or performance.
The Objectives of Value Engineering………
• Three basic elements provide a measure of value to the user:
function, quality and cost.

Value =

• Hence, we can say that:

Value = The most cost-effective way to reliably accomplish a
function that will meet
the user’s needs, desires and expectations.
The Reasons for Unnecessary Costs…???

?
The Reasons for Unnecessary Costs…???
• Unnecessary costs that lead to poor value are generally caused by one
or more of the following reason:
 Lack of information;

 Lack of ideas;

 Temporary circumstances;

 Honest wrong belief;

 Habits and attitudes;

 Changes in owner requirements;

 Lack of communication and coordination;


 When to apply Value Engineering..???
• As early as possible to ensure potential savings.
• Before commitment of funds, approval of systems, services or
designs.
• Later application VE gave rise to increase in two things: 1) the
investment required to implement any changes and 2) resistance to
change.
• VE must be applied after complete involvement of owner(s) and
consultant(s) decision making, to achieve optimal results.
• Hence, optimum results can be expected when resources are set
aside for VE early in the design process, focusing on owner and
consultant impact.
When to apply Value Engineering..???
When to apply Value Engineering..???
 VE Methodology and Techniques..???
• VE use team approach to overcome the various factor responsible for
the unnecessary cost to the project.
• Team efforts are more economical, efficient and complete solution to
break through any obstacles compare to individual efforts.
• VE develops a cohesive team of self-motivated achievers committed
to a common objective.
• Use of Job Plan in VE process fosters improved decision making to
realize the optimal expenditure of owner funds, while meeting
required functions at most favourable value while considering
owner’s trade-offs.
 VE Methodology and Techniques..???
Assembling the VE Team:
• A typical VE team consists of mix of personnel for various background.

• A good rule to follow is to seek out team members with equal or better
qualifications than the original design team.
• To improve implementation, a decision-making representatives for the
owner must be thoroughly evolved during application of the Job Plan.
• VE techniques create changes to optimize decision on purpose rather than
letting changes occurs by accidents.
• VE Job Plan is built around the scientific approach to problem solving.
 VE Methodology and Techniques..???
Assembling the VE Team:
• The various structured phase of well documented VE process are follows:
 Information Phase;

 Creative Phase;

 Analytical Phase;

 Proposal/Presentation Phase;

 Implementation Phase.
VE Methodology and Techniques..???
VE Methodology and Techniques..???
 VE Methodology and Techniques..???
VALUE ENGINEERING
JOB PLAN
DROPPED

Creativity & Idea

Generation
Pre-Study NO

YES Implementation
Information Function Value Selection
& Decision &
Gathering Analysis
Circle Evaluation Follow Up

Development of
Proposals

RESULTS

Presentation
 Interface with other programs.
Project Manager’s duties involve the protection, conservation, and
constructive utilization of the resources allotted to them.

Static Dynamic
Mechanisms Mechanisms
Personnel Celling Work Simplification
Budget Limitation Cost Reduction
Competitive Procurement Paperwork Management
Regulations Life Cycle Costing (LCC)
Government Laws Total Quality Management
Value Engineering
Energy Conservation
Risk Analysis….
 Interface with other programs.
Dynamic quality of dynamic mechanism is determined by several
factors..

 Emphasis on and utilization of dynamic mechanisms fluctuates with the changes

in organizations and economics.

 The level of use of dynamics mechanism by managers and employees is limited

by understanding, experience, training, and preconceived nations.

 Appreciation of dynamic mechanisms as a resource is dependent on staff

perception of top management’s interest in them.
 Interface with other programs.
Value Engineering, as a dynamic tool perfectly fit to achieve the PM’s
needs.
 VE has a universal application with objective to improve the value.
 Raise Productivity

 Improve management

 Improve LCC

 Improve quality

 Simplify work

 Reduce cost
 Interface with other programs.
Value Engineering, as a dynamic tool perfectly fit to achieve the PM’s
needs.
 VE has the advantage of concentrating on techniques that focus on the
relationship of cost and worth to the function.
 Through Job Plan, VE provides a system to ensure that approved studies reach a
definite conclusion while it improve quality.
 Many studies has shown that the project are subjected to one or many of the
following pitfalls:
 Definition of the incorrect problem.  Failure to gather all information.

 Recommendation of unworkable conditions.  Failure to quantify benefits.

 No demonstration of creativity.  Failure to include implementation actions.

 Concluding……
 Establish a mandated program for VE to recognize saving not only for initial
capital costs, but also for the follow-on (LCC) costs.
 Establish the organizational unit at a management level with responsibility for
both initial expenses and operations and maintenance costs.
 In establishing requirements for implementing VE programs, top management
should set the goals and objectives by focusing on optimizing decision making,
including project enhancements.
 VE efforts are most effective when applied early during the design process. (In
large construction agencies, expect program costs of 0.1-0.3% of total project
costs for an effective program. These funds should result in a minimum of 5-10%
savings in initial costs and 5-10% follow-on cost savings in annual maintenance
and operations costs.)
 UNIT : 1

CHAPTER : 2
PROJECT SCOPE AND BUDGET
 Project Scope and Budget
• Project budget development is the process of predicting (or forecasting)
within acceptable variances what the actual project cost will be, when the
project is completed.

• Formerly, COST took third position in its triad relationship with

performance and schedule.

• With change in time, now COST is in the uncomfortable position of being

equal to, or in some cases more important than, schedule and
performance. Owners are sometimes required to make tradeoffs among
these three factors.
 Project Scope and Budget
• Social values are also changing as costs go up.
• Problems concerning budgeting and cost control generally fall into the areas of
"before" and "after" budget approval.
• How can budgets be wrong at the start?
• Owner requirements are not fully known.
• Initial planning and design programming are inadequate.
• The design and construction schedule is not established.
• Estimators have obtained requirements in disorderly fashion.
• Too many requirements are lump summed.
• Owner politics force budgets to match a predetermined figure rather than
reflect actual requirements.
 Project Scope and Budget
• Social values are also changing as costs go up.
• Problems concerning budgeting and cost control generally fall into the areas of
"before" and "after" budget approval.
• How can budgets go astray after approval?
• Project scope is misunderstood by owner and users.
• Requirements are not clearly communicated to the designer.
• The designer is not monitored.
• User changes are not controlled.
• Project cost is not properly evaluated during reviews.
• The schedule is not met.
 Project Scope and Budget
• Each of the discussed items represents a potential problem, whether real or imagined,
to the client. VE must contribute solutions for the effort to be deemed a success.

• In order to judge its validity, the value engineer should know the COMPONENTS OF A
PROPER BUDGET.

• Proper budget preparation is necessary for management to make sound investment

decisions related to the worth of the project.

• Once the investment decisions are made, the budget can be used through VE as a
vehicle to control project scope and design decisions before experiencing a cost
overrun.
 Elements of Project Budget
Project Budget Elements

Estimated Total Program Costs (ETPC)

Estimated Estimated Site Cost Estimated Estimated Design & Estimated Management
Construction Cost (ESC) Reservation Review Cost (EDRC) & Inspection Cost (EMIC)
(ECC) Cost (ERC)
Acquisition Contract Admin Contract Admin.
Building Equipment
Appraisal A/E Fees Inspection
Approach Work Furnishing
Advertising CM Fees
A/E Fees
Legal Fees Fine Arts Design Review
VE Services
Surveys Relocation Special Studies
Testing Fees
Demolition CPM Design
Change Order
Site Preparation Travel CPM Updating
Environmental
Reproduction Travel
 Project Scope and Budget
• The method used to develop the project budget must be precise enough to provide a
basis for monitoring throughout the detailed design process.

• A good budget should be supported by established design parameters and quality

levels, then priced on a conceptual basis in enough detail to allow the control process
to be effective.

• If the budget used to seek the project financing cannot be used in this fashion, control
during execution will be difficult or impossible to achieve, and the effective
performance of VE will be in jeopardy.
 Prevalent Budgeting Techniques
• The square foot method of estimating was used by 82% of all architect-engineer (A/E)
firm to prepare budget estimates.

• About 12% of the A/E firms surveyed used a modular quantity take-off method for

budget preparation.
• One of the largest variables in budgeting is effective cost control through design
development.

• The survey also indicated that the budget technique most commonly used for facilities
is one that employs the following elements:
 Identify the type of facility.
 Budget the cost per gross square footage
 Prevalent Budgeting Techniques
• The minimum amount of information necessary for this type of budget is:
 Historical cost for the facility type.
 Desired gross square footage.
 Geographical location.
 Desired completion date.

• Project budgets developed on this basis are inadequate for controlling costs during
subsequent design stages.
 Prevalent Budgeting Techniques
• Construction budgeting publications show a wide variation in historical $/GSF,
depending on the type of building. Within building types, cost ranges similar to the
following sample data are typical:
 Offices (5 to 10 story) $59.15-$98.15/GSF
 Parking Garages $20.15-$46.25/GSF
 Auditoriums $62.35-$114.00/GSF
 Courthouses $93.55-$125.00/GSF
• Budgeting on this basis might be called "pick a number." When budgeting is performed
in this manner, one is limiting or selecting, without documentation, factors such as
facility quality level, program content, space efficiency, facility configuration, and
future life cycle cost (LCC) experience.
 Cost Control
• There is a difference between managing costs and controlling costs.

• To manage costs is to succeed in accomplishing a cost objective.

• Control is a process; in other words, a systematic series of actions directed toward a

desired result. To exercise cost control, one must have a budget baseline against which
to compare, so that management can spot deviations in time to take corrective action.

• Cost control does not promise an end to the problems of management, whether they
are inflation or design related.

• The strong- assumption in the term control is that management is willing to exercise
authority-to make a decision.
 Cost Control
• Many feel that cost control means the control of money or a budget review.

• In fact, when cost control is mentioned, the first thing project managers do is consult
the estimate to see what prices can be cut.

• VE does not control costs by looking solely at estimates, money, or cash flow. For them
to control cost is to control scope.
Designing to Budget Versus Improving Value.
• The task of holding project costs at the level initially accepted by the owner depends
on a team effort, an effort identified by the term project cost control.
• The project cost control team members are the project manager, the cost engineer,
the design professionals, and the owner's representative.
• Simply achieving the budget does not mean, however, that optimum value is achieved.
• VE is a technique directed toward improving value. This can be achieved by providing
more building scope (if needed by the owner) for the same budget, the same building
scope for a cost below budget, or less building scope (if approved by the owner) for a
reduced budget.
Designing to Budget Versus Improving Value.
• Thus, the information needed to control design is the same information needed to
improve its value.
• Basic design parameters and quality levels should have been established during
budgeting. If not, then the value engineer must determine what they are before
beginning his work.
• These parameters must then be used as guidelines in supporting the ultimate VE
recommendations for value improvement.
 Project Scope.
• For a construction project, scope is defined by words, drawings, and cost figures.
• To most designers, scope consists merely of the owner's program needs for net square
feet of space.
• If square feet is all that is specified, there is a wide range of opportunity for freedom
of choice of everything else in the project. With such maneuvering room, cost will also
have a wide variance.
• The key to achieving cost control through scope control lies in the definition of scope.
The old-fashioned idea of viewing scope as building square feet is not sufficient.
• Scope control is achieved by identifying essential requirements and generating a
baseline document to record them.
• Such a system requires close monitoring by management, but it does permit
verification to take place in order to regulate, thereby achieving the control function.
 Project Scope.
• The scope of a project includes three elements as follow, each of which represents
"values" thought to be desired by the owner:

• Management Organization.
• Total Budget.
• Method of Accomplishments.
• Site Development.
• Procurement Schedule.
• Building Systems.
Project
Project Cost
Managemen
Plan
t Plan

• Project Goals • Site Analysis

• Functional Requirements. • Massing Diagrams
• Space Plan • Energy Data
Design Base
• Code/Zoning Analysis • Building Parameters
• Quality Levels
 Project Scope.
• KEY SCOPE DRIVERS:

1. Function Area:

• The net square feet of each space to be provided in the project should be listed by
type.

• The sum of all this space should represent the owner's requirements for the facility.

• Knowledge of these quantities of space facilitates the budgeting of equipment,

finishes, and various system quantities (such as for power, lighting, heating, air
conditioning, plumbing and ventilation) for each space type.
 Project Scope.
• KEY SCOPE DRIVERS:

2. Occupancy:

• Many features of a facility depend on the number of occupants who will use it, as well
as the operating profile of the facility. The following information should be known:
Number of permanent employees
Number of part-time employees
Number of visitors
Operating hours
Number of shifts
Number of employees per shift
 Project Scope.
• KEY SCOPE DRIVERS:

2. Occupancy:
• This data influences the necessary amounts of plumbing; circulation for stairwells and
exits; elevating; parking to meet local zoning; and support space such as lunchrooms,
auditoriums, and so on.
• The type of functional space planned for a facility will also determine the number of
visitors it will draw.
• For example, space to accommodate tour groups, shopping, theatre, training, and
large conference facilities can increase building system requirements at a higher
budget than if they were not provided.
 Project Scope.
• KEY SCOPE DRIVERS:

3. Configuration:
• Configuration data does not refer to the process of designing the building. It does
mean indicating the number of floors, height, perimeter, and volume.
4. Design Parameters:
• Once a program and configuration are established, one can estimate the design
parameters for the major systems of a process facility or building. The parameter
quantity for each system depends on the criteria used or assumed.
• Generally, four major systems depend on engineering calculations based on design
criteria. These are the structural, mechanical, plumbing, and electrical systems.
 Project Scope.
• KEY SCOPE DRIVERS:

5. Special Systems:
• Special systems involve the identification and quantification of all special systems aid
features to be provided, unintenuptible power supply, emergency generation, and
communications systems. Normally, the decision to include them is a simple "yes-no"
decision by the owner.
6. Schedule:
• Key milestone dates must be fixed or assumed to provide the scheduling data for a
controllable budget.
 Project Scope.
• KEY SCOPE DRIVERS:

7. Geographical Location:
• It provides essential data for use in developing project scope. It provides structural
criteria (seismic and wind loading) and mechanical criteria (outside winter and
summer design temperatures).
• Geographical information is also important for determining necessary index
adjustments to labor, material, and equipment costs. Geological data is also necessary
for basic drainage and foundation information.
• System costs known for one location can be indexed to another location and, if the
location is remote, budget elements can be added for transportation of materials and
labor adjustment.
 Parameters and Parameter Cost
• Parameters are good indicators of worth for the value engineer.
• A parameter is an arbitrary constant whose values characterize an element of a system.
• The most common way to estimate a new building is by the cost per square foot. This
classical parameter is really not a parameter at all. Cost is not constant; it does not vary in
a consistently predictable pattern; it does not characterize any particular system.
• The major problem with using costs per square foot as a parameter to determine function
worth is that the cost for that unit of measure is constant for only one class or type of
building at a particular time.
• Retrieval and reapplication of Rs/GSF data requires extreme care, good judgment, and
complete understanding of the separation of lasses inherent between differing Rs/GSF
statistics.
 Parameters and Parameter Cost
• Related Ratios

• Parameter measurements result in the development of quantities associated with

each system. These quantities can vary widely depending on the efficiency of design.

• System quantities can often be increased or decreased without affecting basic system
function

• Over time, related ratios for system quantities have been developed that provide a
value standard to judge parameter quantity.