AACE International Chapter 22 Value Engineering
Value Engineering
Neil D. Opfer, CCP CEP PSP FAACE
Abstract
Value engineering techniques came about from the problem with wartime shortages encountered during World War II. In order to
meet the all-consuming demand for military hardware and supplies, industries with non-military production needs were placed on
allocation, or simply could not procure needed items. Because of this dilemma, the techniques of value engineering were born of
necessity. If a needed item could not be procured, then what could take its place? An example might be the lack of a pump to fill an
industrial storage tank. If a pump was not available, would gravity flow or some other method solve the problem? After World War
II, these techniques migrated into other areas of endeavor, including government, construction, and retail, along with spreading to
other countries around the world. Now many owners, including government agencies, mandate the application of value engineering
procedures as part of the procurement practices.
Keywords
Cost Value, Esteem Value,
INTRODUCTION
some people, value engineering refers to only design concepts, whereas the other similar terms, such as value analysis or value
management, are in the business and management areas. However, in this chapter, value engineering is considered synonymous
with value analysis or value management. This chapter offers a definition for value engineering, describes the benefits of
implementing value engineering concepts by different organizations, discusses the different types of values as it relates to
engineering, and provides an overview of the value engineering job plan.
Learning Objectives
After completing this chapter, the reader should be able to:
Express a more detailed understanding of value management.
Identify the detailed steps of the value management process.
Conduct a value management workshop.
Conduct a value management review process.
Identify the practical steps for implementation of the value management process.
Understand value management implementation and its impact on the budget and schedule.
VALUE ENGINEERING DEFINED
Some use the term value engineering as shorthand for a cheapening process. Instead, value engineering has the goal of lowest life
cycle costs. The benefits of value engineering accrue to a variety of parties, including the producer and owner. Constructability is
considered by some as synonymous with value engineering, and in limited respects it is, but actually it is more focused on only the
field construction process in reducing overall construction costs. Value engineering is broader in scope than just constructability,
wherein this could instead be viewed as a subset.
For these purposes, value engineering is best defined as an organized systematic approach that delineates the essential functions
required by the user of the project, product or service,
vice, while establishing appropriate function costs based on a life-cycle analysis.
Value Engineering Benefits
If an organization engages in value engineering, what is the expected return on this investment? As a general rule, the more complex
the project, product, or service, then there will be more opportunity for value engineering to prove successful. Evidence has shown
that simple projects, such as warehouse construction, benefit much less from value engineering as opposed to a more complex
building type.
Optimality, which states that 80 percent of the costs come from 20 percent of the items, is an important caution given limited
resources. Therefore, to achieve maximum benefit in value engineering, focus on those high-cost areas. Over the years, studies by
private sector and public sector owners have found typical returns of 300 percent to 400 percent or more, as compared to the value
engineering costs. That is to say that for every dollar spent on value engineering, a return of from three to four dollars can be
expected from this activity. Therefore, value engineering can prove to be a powerful tool in an increasingly-competitive world
market.
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Why is There Poor Value?
The goal of improved value from a production, construction, or service process, would seem to be just common sense. It would be
thought that improved value is a key goal that is at the forefront of all efforts. If this is the case, then why would organizations find
that value engineering can return significant benefits? It has been found that poor value can result from one or a number of factors.
Consider the following:
Poor Attitudes ions become locked into certain poor attitudes, and thus are not
receptive to better ideas. People may reject an idea out of hand, that was successfully used in another field of endeavor,
no
Poor Habits re of habit. Some habits are good and some are poor. Automatically specifying a high
level of concrete finish everywhere on a project, may be appropriate in many circumstances, but unnecessarily drives up
costs when significant areas of that concrete work will be backfilled or covered up with other finishes anyway.
Poor Ideas
come up with a better concept. Creative and organized analysis applied to the issue should result in a better idea than the
existing situation.
Poor Information An optimal solution yesterday may be obsolete or supplanted by a
better method today. For example, in consumer electronics, VHS tapes have been supplanted by DVD formats that in turn
will be supplanted tomorrow by new advances. The DVD format offers higher quality, more durability, faster production
and enhanced navigation characteristics.
Time Constraints As a consequence, the first solution thought of
becomes implemented and work progresses onto other areas. Even though the solution may not be optimal, this then
may act as a template in the future.
Temporary Circumstances At the time it may be
recognized as non-optimal, but it is done on a temporary basis. Those responsible move on, or are re-assigned, and later
Mistaken Beliefs the basis of facts, but because someone wrongly believes
something that is not true. One designer had summarily dismissed plastic piping for an application, in lieu of a more
expensive metal alternative, in the belief that the metal pipe was superior. In fact, for the particular application in a
corrosive soils environment, the plastic pipe was actually superior to the metal alternative on a life-cycle basis.
VALUE TYPES
In considering value engineering techniques, practitioners must be cognizant of the four types of value. These four value types are
cost value, exchange value, use value, and esteem value.
Cost Value , and overhead costs, involved in actually producing
and bringing to market the project, product, or service.
Exchange Value
something of value, such as currency.
Use Value ervice which enable it to accomplish its intended
purpose.
Esteem Value
While some involved with value engineering would only focus on cost value, the other three characteristics have proven to be
important metrics for success in an increasingly competitive marketplace. For illustrative purposes, some products such as autos,
esteem value allows one vehicle to be sold for a significant premium above its actual cost. Moreover, manufacturers can damage the
esteem value of an auto product, such as by poorly-chosen substitutes of plastic for chrome or plastic for leather, in this area.
Several manufacturers have sought on a world-wide basis to differentiate their luxury auto products by creating entirely separate
brands for this category: such as Honda (Acura), Toyota (Lexus), GM (Cadillac), and Ford (Lincoln). For example, BMW differentiates
product classes by the three-series, five-series, and seven-series monikers. The seven-series has more esteem value than the five-
series. Some equipment manufacturers, such as CAT and Komatsu, note that their construction equipment has a higher value at
trade- -in values, as seen in equipment auction results (exchange value comparison).
Level of Influence Curve
The Level of Influence Curve makes one of the strongest arguments for involving value engineering techniques at the start of a
project, during the early design concept stage. This Curve was originally conceptualized by the U.S. General Services Administration,
in the early 1970s time frame. While it is intended to apply to construction projects, the concept can be successfully applied to a
variety of products and services with concept, production, and use/maintenance phases.
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For the purposes of this discussion, the focus will be on a typical building construction project. At the start of a project, there is 100
percent influence over the project cost. The decision is to build the building or not to build it. As decisions proceed in the design
phase, certain cost elements of the project will be set for the building. Will the building be steel frame or reinforced concrete frame?
How many floors will be in the building? What type of cooling and heating system will be in the building? While the design phase in
itself is low cost, in terms of the expenditure of design funds, most of the high cost decisions are made in this phase. Hence, the
categorization at the top of the graph, wherein the design phase is categorized as high influence but low expenditure. Perhaps 65
percent of the expenditure of funds is set at this point, but less than ten percent of the project cost is spent in this phase. The
procure/construct phase is obviously heavily influenced by the design phase decisions. While 60 percent of the total project costs
are spent in this procure/construct phase, the level of influence is approximately 35 percent over the expenditures. Finally, in the
utilization phase, a significant amount of funds will be expended for building maintenance and utilities, but there is a comparatively
low level of influence as to these costs. In utilization, if a high-energy cost HVAC system or high-energy cost lighting system is
selected, this decision made in the design phase is not readily subject to change.
The key point of the Level of Influence Curve is that early application of value engineering techniques in the design phase makes the
most sense. VE application during the construction process can be problematic. Numerous design decisions have already been
reached and the construction process can see significant delays if value engineering changes require time-consuming design
changes. In addition, designs have bo Therefore, VE changes made
after final design are expensive and resisted by designers for these reasons. The impact of one design change can result in The Law
of Unintended Consequences where it triggers additional design changes and problems. Early-on design changes, at the
schematic/conceptual phases, have a much less traumatic impact on the project.
Project Schedule
Figure 22.2 illustrates the relationship between project duration and project cost. What does this have to do with value engineering?
Usually, value engineering is concerned with the cost relationships of physical items as to lowest life cycle cost.
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At the lowest point, on the total project
roject duration.
. Similarly,
if reduced project duration is required, costs will also be seen to increase as a move up on the total cost curve. Ultimately, there is
One example was a 91-
high-rise office building project in Chicago, Illinois. This
strike resulted in an extra $10 million of costs having to be incorporated into the office project through higher rents. This extra rent
tariff resulted in a decreased overall value for the office building project. During the strike, direct on-site costs were almost non-
existent, except for security staff. However, the indirect costs of the financing, along with the lost profits of months of lost office
rent, continued to increase for the developer. However, this subject strike was an unpredictable event and took place near the end
of the project when substantial funds had been expended in construction. How could value engineering provide a solution in this
instance? -
The Functional Analysis Systems Technique (FAST) diagram was developed in the early 1960s by Charles Bytheway. The FAST
diagram is designed to show the specific relationships of the various functions in relation to each other. In value engineering, the
FAST Diagram acts to define, clarify, and simplify value engineering problems. The FAST diagram lies at the heart of value
engineering which is that of a functional approach. In the functional approach, FAST effectively identifies unnecessary costs. In
normal VE studies, sticky-backed large-size notes would be placed up on a room wall with design objectives, secondary functions,
and other functions to provide communication benefits for the VE team. This is an iterative process, with numerous changes taking
place, as the team continues to study the problem.
A function in the FAST diagram methodology would be defined by a verb-noun combination. To be more specific, there should be an
active verb and a measurable noun. A secondary
function is one that depends on another higher order function for its existence. The basic functions make the product work or
accomplish the task. The supporting functions make the product sell. As an example, in one value engineering study, a refrigerator
was broken down into one task with seven functions and 26 supporting functions. The FAST d
Other functions that happen at the
function areas.
be as to why are we doing something? The
The failure of some lies in just asking the
improved
mousetrap. iminate the mice population. This
opens up possibilities, including the utilization of natural predators such as cats, poisons, or other means to interfere with their
breeding cycle. Anyone of these solutions may be more effective than just the narrow focus on an improved mousetrap. The same
could apply to the invention of the grass trimmer with a string line. The older method was to shear grass. The string-line grass
trimmer whacks grass which provides a significant improvement in productivity and flexibility.
An example of a value engineering problem to be diagrammed, using a FAST diagram, could be a water meter. The higher order
However, there are various required design objectives including: to support the meter, admit
water, expel water, be convenient, attract user, and be dependable. Secondary functions under a heading, such as be convenient,
would include: install meter, understand meter, service meter, and read meter. For a task, such as install meter, one has to connect
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the meter to the inbound and outbound pipe sections. One would also want the meter to be relatively light weight to aid in ease of
the installation process. By the use of the FAST Diagram, communication is enhanced to all those specialists participating in the value
engineering process.
the
costs. Given this, the FAST Diagram should focus most attention of these 20 percent high-cost elements. As time permits, other
functions can be included, but the high-cost areas are an obvious priority.
Value Engineering Study Team
Rather than having one person focus on a value problem, it has been found that value engineering efforts are more successful via a
team approach. The team should be diversified, representing a variety of relevant specializations for the particular scope of study. As
an example, the VE study of a light-rail transit project with trackage, bridges, stations and a maintenance facility should include
representative specialists. These specialists could include experts from geotechnical, civil/structural, electrical, mechanical,
architectural, facilities, construction, estimating, operational, and end-user areas. The blend of specialists should be broad enough to
cover the key areas of the value engineering study subject.
THE VALUE ENGINEERING JOB PLAN
The systematic approach to value engineering dictates the implementation of a value engineering job plan. The heart of the value
engineering job plan is the study phase, whereby specialists are convened together for a concentrated 40- to 50-hour study period.
It has been found over the years, from trial-and-error experience, that this 40- to 50hour window produces the best results in an
optimal time frame for the typical study. A simpler analysis, on one part or a more complex analysis, on a large project, by necessity,
may shorten or widen this time frame.
Prior to this study phase is the pre-study portion of the job plan, whereby team members and a facilitator are selected for the study
phase.
information as part of the pre-study work. This pre-study also defines the scope limits for the VE effort. Since once the VE team
starts the study phase, they will be limited to the selected time frame, every effort must be extended to have this necessary pre-
study data available for the team. Ideally, this data will be provided prior to convening the team, so that they can gain familiarity
prior to the study period. If this data is not available, the effectiveness of the team is compromised in its efforts. The actual study
phase of the VE job plan includes six phases, which are:
Information Phase
Speculation Phase
Analysis Phase
Development Phase
Presentation Phase
Follow-up and Implementation Phase.
The fundamental aspects of these phases are listed in Table 22.1.
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Phase 1: Phase 2: Phase 3: Phase 4: Phase 5: Phase 6:
Information Speculation Analysis Development Presentation Follow-up/
Implementation
What is it? What else will What does each Will it work? Make the Follow-up to
perform the feature cost? presentation with facilitate the
What does it basic functions? Will it meet written and verbal implementation
do? Will each requirements? information
perform the Offer assistance to
What does it basic functions? What are the Present the problem the decision maker
cost? problems?
Explain before and Note potential
What is the What are the after roadblocks
worth of the costs?
basic functions? Realistically list Suggest an action
What are the advantages and plan
savings? disadvantages
Remove roadblocks
Secure commitments
Use sound human
relations
Phase One provides the foundational basis for the value engineering study. This phase investigates the purpose of the element or
project or sub-project. From this point, costs and methods are then analyzed for the purposes of the study. While questions such as:
(a) What is it? (b) What does it do? (c) What does it cost? and (d) What is the worth of the basic functions? seem to be easy
questions; answering them can often take a considerable research effort. Answers to these questions can be gained from a variety of
sources such as design, production, and manufacturing, purchasing, and marketing areas. There is no limit to the amount of
information that can be gathered in Phase One. Sometimes even seemingly irrelevant data may ultimately prove to be helpful to the
VE study effort. Costing information, while critical, has various levels of required accuracy. On a major construction project, a five-
dollar cost item may be viewed as trivial. However, on a manufactured part that sells for 20 dollars with hundreds of thousands of
pieces produced, a one-dollar cost item is crucial. For the construction situation, the five-dollar cost is akin to a rounding error in an
accounting statement; whereas, in the manufacturing situation, the one-dollar cost represents 10 percent of the production price.
To help sort these issues out, a FAST Diagram is developed and accompanied by relevant functional cost information. The FAST
Diagram then serves to highlight cost visibility.
Phase Two is the creative section of the analysis work. The key question is what
else could do the job? The strength of the VE study effort is the diversified team that aggregates a variety of specialists from
different areas. All involved should be free to and encouraged to propose alternate ideas. The overarching principle in this phase is
that there are no bad ideas. . In fact, historically, what at the time may
seem an outlandish idea has, through later refinement, proved to be part of the overall solution on many value engineering efforts.
Team members must learn to be creative and free their minds in the search for potential solutions. Team members cannot be critical
and creative at the same time. The mantra is to try everything. Create by function, eliminate functions, and simplify are all
techniques used in this phase. What can substitute for something else, or can there be a combination of functions. All of the ideas
generated are recorded during this speculation phase.
Phase Three looks at what something will cost and if it will work? Dollar signs are placed on every decision. A common technique is
to group ideas by similarity, such as all ideas that deal with the mechanical areas of a construction project, would be grouped into
piping, HVAC, fire protection, and other relevant categories. Ideas generated in the speculation phase are now looked at with the
determination to eliminate nonsense. The goal is to determine if something is feasible, along with suitability for the intended
purpose.
This is the phase where the development of final ideas takes place. The team selects the best ideas in each category along with the
best alternates to those ideas. In order to create change, those in charge must be convinced that the new idea represents a better
concept than the existing situation. In order to do this, decision makers must be confronted with convincing facts. Roadblocks must
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also be anticipated by the VE study team members. These roadblocks include well-worn res
The
team needs to overcome these common objections in order to be able to implement the value engineering changes. It may be that
something in the past was tried and did not work, but it may be because of improper application, lack of real change effort, or
inadequate commitment of necessary resources. Teams must be realistic in the development phase and avoid overstating benefits.
Material is prepared and presented to the decision maker(s) in this phase. The groundwork for success was laid in the work involved
with the development phase. The presentation phase is where the results of the value engineeri
responsible for accepting the change. The emphasis has to be on realistic benefits. Decision makers will demand proof of life cycle
benefits, and exaggerated claims in this phase are spectacularly unsuccessful. Moreover, in some instances, exaggerated claims and
Ratios of
return to investment must be grounded in reality.
The presentation phase is most effectively accomplished with a verbal presentation, accompanied by written documentation. The
best spokesperson should make the presentation and the other members of the team should be present to answer technical
questions. Benefits require strong backup and documentation. The spokesperson and team members need to avoid being
argumentative, to yield a successful overall VE effort.
-Up/Implementation Stage
Sometimes value engineering efforts have succeeded through the above five phases and then are never implemented by the
organization. Top and middle management may be overloaded by existing work demands, or for some other reason, suggested
changes have not been made to the existing project, product, or service.
Value Engineering Success Steps
Organizations have found that for value engineering efforts to be successful, value engineering must provide the following:
An organized creative approach to cost reduction.
Targets function versus technique.
Targets areas of unneeded costs.
Enhance the value of the product or service.
The same level, or improved performance level, at reduced cost.
Does not harm quality or reliability.
CONCLUSION
Value engineering techniques have been a proven technique for achieving optimum value and lowest life cycle costs for well over
half a century. The techniques have been successful in a wide variety of both public and private sector efforts in varied fields from
service, manufacturing, and construction industries across the globe. Often, investments in value engineering efforts have yielded
returns of four to eight times each dollar spent. Value engineering efforts have proven most successful, when using an organized
approach with FAST diagrams, in a team setting with a multi-disciplinary effort. In addition, value engineering efforts have proven
most successful with new products, projects, or services, when initiated at the early design/concept stages.
RECOMMENDED READING
1. Value Engineering: Practical Applications for Design, Construction, Maintenance, and Operations.
Norwell, MA: R.S. Means.
2. Sato, Y. & Kaufman, J. (2005). Value Analysis Tear-Down: A New Process for Product Development and Innovation. New
York, NY: Industrial Press.
3. U.S. Department of Defense (2015). Value Engineering: A Guidebook of Best Practices and Tools.
4. Younker, D.L. (2003). Value Engineering: Analysis and Methodology. New York, NY: Marcel Dekker.
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