Course: Strategic Construction Management

Lecture 7: Value Engineering or Management

By: Dagnachew Adugna (PhD)

20 July 2023 1
 Contents of the presentation
Brainstorming

Short animation video

Lecture

VE in the construction industry _ Video

Q&A

Project #2

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Brainstorming
What is Value Engineering?

Its application?

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 Value Engineering

It is an organized study of functions to satisfy the user’s

needs with a quality product at the lowest life cycle cost
through applied creativity
However, VE is not about:
Cost Cutting
Design Review
Project Elimination
Scope Reduction
Quality Reduction
Detailed Cost Estimating
Redesign
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 Value Engineering / Value Management (VE/VM)
VE techniques can be applied to:
VE is an: any product process procedure
intensive, & system or service in any kind of
interdisciplinary problem business or economic activity
solving activity that focuses on including health care, governance,
improving the value of the construction, industry and in the
functions that are required to
accomplish the goal, or objective service sector.
of any product, process, service,
or organization.
VE is a powerful methodology for
VE is a: solving:
function oriented, problems and/or reducing costs
while maintaining or improving
systematic team approach and performance and quality
study to provide value in a requirements.
product, system or service.
Often, this improvement is focused VE can achieve impressive savings,
on cost reduction; however other much greater than what is possible
important areas such as customer through conventional cost reduction
perceived quality and performance exercise.
are also of paramount importance
in the value equation.
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 Value Engineering / Value Management (VE/VM)

Value engineering relates Value, Function/performance & Cost as:

Function/Performance max

Value max = Cost min

VE is a management technique that seeks the best

functional balance between cost, reliability and
function/performance of a project or product development.

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 Function, Value & Cost ----------- V = F/C
FUNCTION VALUE
1. What is the purpose of the project 1. Cost Value – Cost of Manufacturing a
or element? product / component.
2. What does it do? 2. Use Value – Functional value / Service
rendered
3. What does it cost?
3. Esteem Value – Appearance value
4. What is it worth?
4. Exchange Value – It is exchanged for
5. What else could do the job?
something else.
COST
A comprehensive list of five specific causes of unnecessary costs.
1. Cost -Unnecessary attributes Failure to examine attributes which cause no useful
function
2. Cost -Unnecessary specification Failure to examine specifications due to needlessly
expensive materials/components .
3. Cost -Poor build ability ,Failure to consider construction implications during design
4. Cost – Lifecycle Failure to consider future operational costs
5. Cost
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Opportunity Failure to consider the cost of losing potential revenue 7
 Value Engineering / Value Management (VE/VM)

From the perspectives of VE or VM, Value is expressed:

Value is the lowest cost to reliably provide the required function

with essential performance.

Value is always increased by decreasing costs while

maintaining essential performance.

Value may also be increased if the customer needs, wants, and

willingness to pay increased for greater performance.

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 What are the causes of poor values?
Poor communication in developing
Lack of and/or poor coordination
project scope
among designers
Lack of consensus among project
Poor definition of needs and wants
stakeholders with regard to project
Design based on traditional approach scope

Not enough time for project Outdated or inappropriate design

standards
formulation and/or design
Incorrect assumptions based on poor
Failure to utilize latest technologies
information
Negative attitudes / Change Resistant Fixation with previous design concepts
Behavior Honest wrong beliefs

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 VE vs Cost Cutting/Reduction
Value engineering: Cost reduction:
seeks to maintain or improve
seeks to cut INITIAL costs, often
performance while reducing TOTAL
costs. at the expense of project quality.
is a pre-planned allocation of time and is usually a reaction to budget
effort.
overruns.
is a highly structured process using a
is an informal process.
formal methodology.
utilizes an objective, multi-disciplined generally involves only a few
team and a trained facilitator. management personnel.
provides an organized follow-up,
implementation and reporting program.
Value Engineering is a tool/method to enhance
QUALITY
Some VE Study Objectives
Performance Improvement

Significant Cost Savings/Avoidance

Optimization of Resources (Time & Money)

Review (Technical, QA) – Optional Objective

Coordination (In- House & Users)

Transfer Innovative Technologies

 Application of VE or VM

It applies to everything because every project or process has

a function

It can be applied at any point of the project process

It is a problem solving technique

It can be used as a technique for developing design criteria

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 Process of VE/VM:

Step 1 – Preparation/Organization

Step 2 - Information
Step 3 – Function Analysis

Step 4 – Speculation/Creativity

Step 5 – Evaluation

Step 6 - Development

Step 7 – Presentation/Report

Step 8 – Implementation & Audit

 Information Phase
Purposes Techniques
To determine user needs Get all the facts from the best possible
sources (e.g. design team)
To gather and tabulate
Develop cost models
information concerning the item
as presently designed Determine and evaluate the function(s) of
the present design
To build team knowledge and
Prepare a FAST diagram
understanding of the project
Identify & define project Performance
To completely understand the
Criteria
specific use of function
Develop project Performance Ratings
requirements of the item
Determine present design objectives &
To visit the site (preferable)
constraints

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 Function Phase
Specific purposes or intended use of an item (What is this? What is
it supposed to do? What else can it do?)

Function is that which makes a product, process or project successful.

All cost is for function.

Primary functions posses value and are required to make a product

successful.

Secondary functions have no value and are present due to the current
design of the product.

Focus on characteristic that makes a product or service have value

Determine by considering the user’s actual needs

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 Speculation Phase
Techniques
Use creative thinking
No rules – no limits
Purposes Forget about scope, speculate on the
To generate a large FUNCTION - not on the item
number of Don’t let regulations or people control your
alternatives that thinking
provide the item’s If you don’t look for the second right answer,
basic function(s) you won’t find it
without considering Eliminate/simplify: modify and/or combine
their practicality. alternatives
Think – get out of the comfort zone and
enjoy it!
Keep talking, keep generating, let the juices
flow!
Its about CHANGE!
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 Creativity
Brainstorming Rules & Objectives…

Criticism/evaluation is prohibited (at this time)

Free-wheeling is welcomed and encouraged – be uninhibited
and think as a child / non expert
Be spontaneous – rapid fire ‘gut feels’
Quantity is desired over quality – cover the walls
Combine and add to ideas
Build upon another person’s ideas
How do others solve similar problems
Record all ideas
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 Analysis Phase
Purposes

To evaluate, criticize, and rank alternatives

Identify advantages and disadvantages as compared to the baseline
project
Which alternatives offer the best combination of:
Design-ability
Construct-ability
Operational ease
Quality assurance
Customer satisfaction
And… low life-cycle cost
To develop alternatives that offer the greatest increase in value
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 Analysis Phase
Purposes

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 Analysis Phase
Techniques

Prior experience

Collective ‘Gut” feels

Stakeholder input

Use cost references

Apply matrix techniques

Define performance measures
Weight and rank measures
Evaluate alternatives
Make sketches
Consult experts
20 Use
July 2023your own judgment 21
 Analysis Phase
Purposes
Techniques
Purpose Recommend specifics, not generalities
To select the best Make sure your report describes the
disadvantages as well as the advantages
alternative(s)
Gather convincing facts
To develop complete Assure technical adequacy
written and oral Spend your client’s money as you would your
proposals own
Complete order-of-magnitude cost estimate
w/LCC
Prepare Proposal
Finalize FAST diagram for proposal
Sell the idea through the justification
You are selling something
uncomfortable to most people – CHANGE!
Mistakes will cast doubt on your validity

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 Presentation Phase
Purposes

Purpose Techniques
To present value
Again, you are selling CHANGE!
engineering study
Your enthusiasm will sell your
proposal(s) to the
decision proposal

makers/stake holders Use FAST diagram as a

To obtain communication tool – Are the most

approval/support important functions satisfied?

To enhance potential Be brief, pertinent and convincing

implementation Keep it simple

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 Presentation Phase
Techniques

Anticipate/remove road blocks – understand their

point of view

Network with people and gain support

BUT – you can’t please everybody

AND – don’t overload the cart with too much

information

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 Thank you so much for your attention

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