3.3 Value Engineering Processes

Value Engineering Processes

Value Engineering (VE) is a systematic, organized approach to providing necessary functions in a project at the lowest life cycle cost. VE promotes the substitution of materials and methods with less expensive alternatives, without sacrificing functionality, quality, or reliability.

It is critical for Construction Managers to understand that Value Engineering is not cost cutting. Cost cutting simply reduces the budget, often by eliminating scope, lowering quality, or accepting reduced performance. Value Engineering, conversely, seeks to optimize the balance between cost and performance.

The Concept of Value

In the context of VE, "Value" is defined mathematically:

Value = Function / Cost

Where:

• Function is the specific work that a design/item must perform.
• Cost is the life cycle cost of the item.

Based on this equation, Value can be improved in several ways:

1. Keep the function the same, but reduce the cost (Most common).
2. Improve the function while keeping the cost the same.
3. Improve the function while reducing the cost (The ideal scenario).

The Value Engineering Job Plan

Formal Value Engineering is conducted through a structured workshop process, typically led by a Certified Value Specialist (CVS) and involving a multidisciplinary team of architects, engineers, estimators, and the CM. The process follows the standard VE Job Plan, which consists of several sequential phases:

1. Information Phase

The team gathers all relevant project data, including design drawings, specifications, cost estimates, project constraints, and owner requirements. The goal is to fully understand the project's background, current status, and the owner's definition of success.

2. Function Analysis Phase

This is the core of the VE process. The team analyzes the project components to determine their basic and secondary functions. Functions are described using a strict two-word format: an active verb and a measurable noun.

• Example for a structural column: "Support Weight"
• Example for a window: "Transmit Light" or "Provide View" By defining components by their function rather than their physical name, the team frees themselves from preconceived design solutions.

3. Creative (Speculation) Phase

The team brainstorms alternative ways to achieve the basic functions identified in the previous phase. Quantity of ideas is prioritized over quality at this stage. Judgment and criticism are suspended to encourage innovative thinking. (e.g., "What are 20 different ways we could 'Support Weight'?")

4. Evaluation (Analysis) Phase

The team reviews the ideas generated during the Creative phase. Ideas that are technically unfeasible, violate codes, or do not meet the owner's core requirements are discarded. The surviving ideas are ranked based on their potential for cost savings, constructability, and performance improvement.

5. Development Phase

The best ideas are expanded into workable alternatives. The team develops technical descriptions, sketches, and detailed cost estimates for each alternative. Crucially, the team must calculate the Life Cycle Cost (LCC) of the alternative, not just the initial savings. The team prepares a side-by-side comparison of the original design versus the VE alternative.

6. Presentation Phase

The VE team presents its formal recommendations to the owner and the design team. The presentation includes a written VE report detailing the proposed changes, the technical justification, and the projected cost savings. The owner ultimately decides which VE proposals to accept, reject, or study further.

Life Cycle Costing (LCC)

Value Engineering relies heavily on Life Cycle Costing. LCC is the total cost of owning, operating, maintaining, and eventually disposing of a building or system over its useful life.

A common mistake in construction is selecting a system based solely on its low initial capital cost, only to discover that it requires excessive maintenance or consumes massive amounts of energy. LCC brings all future costs into present-day dollars (using discount rates) to allow for an apples-to-apples comparison of alternatives.

Components of a Life Cycle Cost Analysis:

1. Initial Capital Cost: Design, construction, equipment purchase, and installation.
2. Operating Costs: Energy (electricity, gas, water), staff wages, and utilities.
3. Maintenance Costs: Routine servicing, cleaning, and preventative maintenance.
4. Replacement Costs: Anticipated costs to replace components that have a shorter lifespan than the building (e.g., replacing a roof after 20 years on a 50-year building).
5. Salvage Value: The residual value of the asset at the end of its life (subtracted from the total cost).

LCC Example

Suppose the VE team is evaluating two HVAC systems:

• System A: Initial cost $500,000. Annual energy and maintenance cost $50,000. Lifespan 15 years.
• System B: Initial cost $700,000. Annual energy and maintenance cost $20,000. Lifespan 15 years.

While System A is $200,000 cheaper initially, System B saves $30,000 per year in operating costs. Over 15 years, System B will save $450,000 in operations, making it the better long-term value despite the higher upfront cost. VE formalizes this analysis to ensure owners make informed decisions.