Value Engineering
Introduction
Value Engineering (VE) is an organized approach to identifying and eliminating unnecessary costs in a project while maintaining or improving its quality, safety, and performance. Unlike simple cost-cutting, which often reduces the scope or quality of a project, Value Engineering focuses on the function of the project components. The core premise is: "How can we achieve the same (or better) function for less cost?"
Key Concepts
Value
The ratio of function to cost. Value is increased by either improving the function without increasing cost, or by reducing the cost without degrading the function.
Function
The specific purpose or intended use of a project element. Functions are usually expressed as a two-word active verb-noun combination (e.g., 'Support Weight', 'Enclose Space', 'Transmit Load').
Life-Cycle Costing (LCC)
Evaluating the total cost of ownership of an asset over its entire life, including initial capital costs, operating costs, maintenance, and disposal. VE heavily relies on LCC rather than just initial construction costs.
The Value Equation
The fundamental relationship in Value Engineering is:
The Value Equation
The fundamental ratio used in Value Engineering to assess the worth of a project element.
Variables
| Symbol | Description | Unit |
|---|---|---|
| The overall worth or desirability of an element | - | |
| The performance, reliability, and utility provided | - | |
| The life-cycle cost required to provide the function | - |
From this equation, we can increase Value in several ways:
Ways to Increase Value
- Maintain the same function, but decrease the cost. (Standard cost reduction)
- Increase the function, while keeping the cost the same.
- Increase the function, AND decrease the cost. (The ideal scenario)
- Increase the function significantly, with only a marginal increase in cost.
The Job Plan (VE Methodology)
Value Engineering is typically conducted through a structured workshop following a standard methodology known as the "Job Plan".
Value Engineering Job Plan
- Information Phase: Gather all project data, understand the background, costs, and identify the core functions of the project elements.
- Function Analysis Phase: Define the functions using verb-noun pairs. Determine the "worth" of each function (the lowest cost to achieve it) and compare it to the current estimated cost to identify areas of poor value.
- Creative (Brainstorming) Phase: Generate a wide variety of alternative ways to perform the identified functions. Defer judgment—all ideas are welcome at this stage.
- Evaluation (Analysis) Phase: Review and filter the ideas generated in the creative phase. Evaluate them against project constraints, life-cycle costs, and technical feasibility. Select the best alternatives.
- Development Phase: Take the selected alternatives and develop them into fully formulated proposals. This includes detailed cost estimates, life-cycle cost analysis, sketches, and assessing risks.
- Presentation Phase: Present the formal VE proposals to the stakeholders (owner, designer, management) for approval and implementation.
FAST Diagrams
FAST Diagram Mechanics
- How-Why Logic: The diagram is built on the questions "How?" and "Why?". Moving left to right answers "How?", right to left answers "Why?".
- Critical Path of Functions: Establishes a horizontal sequence of necessary functions.
When to Apply Value Engineering
Timing of VE
The potential for savings is highest during the early stages of a project (Planning and Conceptual Design). As the project progresses into detailed design and construction, the cost of implementing changes increases significantly, reducing the net savings from VE proposals. A common rule of thumb is that 80% of a project's life-cycle costs are locked in during the first 20% of the design process.
Value Engineering vs. Cost Cutting
It is critical to distinguish formal Value Engineering from standard cost-reduction exercises, which often happen in a panic when bids come in over budget.
The Difference
- Cost Cutting: Often reduces the scope (e.g., removing a floor of a building), lowers quality (e.g., swapping stone for vinyl siding), and is usually done reactively late in the design or during construction. It focuses purely on the denominator of the Value equation.
- Value Engineering: Never sacrifices required quality or safety. It is a proactive, creative, and systematic team approach. It challenges the design, not just the price. It focuses on optimizing the ratio of Function to Cost.
Key Takeaways
- Introduction & Concepts: Value Engineering focuses relentlessly on the required function of a component, not just its physical form or initial price tag.
- The Value Equation: Value is explicitly defined as the ratio of Function (or performance) over Cost. True VE seeks to maximize this ratio.
- The Job Plan: The standard VE methodology requires strict separation of the creative brainstorming phase from the analytical evaluation phase.
- Timing of VE: The ability to influence cost drops drastically as a project moves from conceptual planning into detailed construction documents.
- Function over Form: Value Engineering explicitly analyzes what an item does (its verb-noun function), separating the required performance from the physical object currently designed to achieve it.
- Not Just Cheaper: True VE is never synonymous with cheapening a project. It is about maximizing the Value Index. A more expensive initial system can be a successful VE proposal if its performance increase or life-cycle savings are disproportionately high.
- Early Intervention: The cost to implement a design change rises exponentially as a project progresses. VE must occur during schematic or early design development to capture maximum savings without stalling the schedule.
- The Job Plan: VE is not random brainstorming. It is a rigorous, multi-disciplinary process defined by the Job Plan (Information, Function Analysis, Creative, Evaluation, Development, Presentation).
- Life-Cycle Focus: Evaluating VE proposals solely on initial capital expenditure (CapEx) is a failure. Operational expenditure (OpEx), maintenance, and replacement costs must dictate the final decision.