Value Engineering

1. Value Engineering (Additional materials)

2. What is value engineering? • A systematic evaluation of project design to obtain the most value for money • The comparison and economic evaluation of alternative construction methods to produce a required result • An effort that is aimed at a careful analysis of each function and elimination or modification anything that adds to the project cost without adding to its functional capabilities

3. Fundamental of value engineering • Function • Specific purpose or use intended for a specific item (e.g. structural support, prevention of corrosion, conduction of current, etc.) • Worth • Least cost required to provide the functions intended by the user of the finished product • Cost • Amount of money required to obtain and use the functions that have been specified • Value • Relationship of worth to cost (thereby utility to cost) • May be increased by • Improving utility with no change in cost • Retaining same utility for less cost • Combining improved utility at less cost

4. Value engineering recommendations • Value Engineering Proposal (VEP) • Relates to changes that are within the terms of the contract and specifications • Does not require a change order to implement • May either be originated by the owner or the contractor • Value Engineering Change Proposal (VECP) • Applies to any change that would require a change in the contract, specifications, the scope of work, or similar limits previously established by contract • Originates from the contractor • Requires owner approval and execution change order

5. Value engineering by contractor • Study the project before bidding and determine the effect of: • Topography • Geology • Climate • Sources of material • Access to the project • Housing facilities, if required • Storage facilities for materials and equipment • Labor supply • Local services

6. Value engineering by contractor • The use of substitute equipment that has greater capacities, higher efficiencies, higher speeds, more maneuverability, and lower operating costs • Payment of bonus to key personnel for production in excess of a specified rate • The practice of holding periodic conferences with key personnel to discuss plans, procedures, and results • The adoption of realistic safety practices on a project as a means of reducing accidents and lost time • Consideration of the desirability of subcontracting specialized operations to other contractors who can do the work more economically than the general contractor • Consideration of the desirability of improving shop and servicing facilities for better maintenance of construction equipment • Consideration of the desirability of improvements in specified construction methods

7. Methodology in generating value engineering change proposals • Develop a job plan that answers • What is the item? • What does it do? • What must it do? • What does it cost? • What is it worth? • What else might to the job? • What does the alternative cost? • What will satisfy all of the owner’s needs? • What is required to put the VE change into effect?

8. Phases of a VE job plan • Information • Objectives • Understand the item or product specified • Determine the essential functions • Estimate the potential value improvement • Both the item itself and general technical area that it represents must be studied to understand the subject of the VE effort • Data accumulated should include • Predicted total cost of ownership • Present configuration • Quality, reliability, and maintainability attributes • Quantity involved • Supporting documentation

10. Phases of a VE job plan • Speculation • Objective • To formulate alternative ways to accomplish the essential functions • Analysis • Objective • To select the most promising alternatives for further refinement • Functional comparison

11. Phases of a VE job plan • Development • Objective • To develop selected alternatives into firm recommendations • Develop detailed economic and technical data for the proposal • Establish that the alternatives meet • Performance requirements • Quality requirements • Reliability requirements • Systems requirements • Safety requirements • Maintenance considerations

12. Phases of a VE job plan • Presentation and follow-up • Objective • To obtain approval • Should include • Item/Project identification • “Before” and “After” descriptions • Original cost • Cost of proposed change • Quantity basis for costs • Cost to put VE proposal into effect • Expected savings to the owner • Actions that are necessary to put the change into effect • Suggested schedule to put change into effect

13. Assurances • VE proposals should contain sufficient information to assure the owner that: • The performance of the overall project is not adversely affected • Supporting technical information is complete and accurate • Potential savings are based upon valid cost analysis • Feasibility of proposed change is adequately demonstrated

14. Precepts of Estimating (Additional information)

15. Purpose • To make a profit by obtaining and performing a work by the most efficient means • To plan and control the work by using information from the estimate • Estimates are not made solely for the purpose of bidding, but also as a means of efficient execution of the work

16. Veracity • All costs of the work should be properly accounted for • Allocate all foreseeable costs to proper items of work, or to overhead items, or to specified contingencies • An estimate should represent the best possible effort to calculate probable costs and to come as close as the possible to the actual costs (not known until the completion of the work) • Must be true to the facts at all times • Assumptions that are substituted for facts should be made clear in the estimate

17. Verification • Estimated costs must be compared to actual costs and data obtained during the course of the work • Enables the estimate and information to be verified and corrected, if necessary • Useful for planning and scheduling the work, controlling costs, and predicting future costs

18. Measurement • All work should be measured as installed according to the contract • Waste should be allowed for in the unit prices of the estimate • Waste should not be confused with laps • Laps are additional materials required by and incorporated into work because of particular needs • Laps should not be measured and included in quantities • No item of work should be measured in place of another work • All work should be measured in an estimate so as to make pricing and its subsequent verification as practical and as accurate as possible

19. Accuracy • All work should be measured and priced as accurately as is practically possible, commensurate with the type of work and units of measurement used • Delusions of accuracy should be avoided by using an appropriate degree of accuracy in estimating and cost accounting