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Value Engineering (VE) for Cost Management

¿Are you thinking that in a procedure or any components or parts of your equipment or in a service exists elements that could be removed because significantly increases costs, does not add substantial value and does not affect the core functionality? If yes, you are thinking in Value Engineering!

What is Value Engineering?

“Value engineering began at General Electric Co. during World War II. Because of the war, there were shortages of skilled labor, raw materials, and component parts. Lawrence Miles, Jerry Leftow, and Harry Erlicher at G.E. looked for acceptable substitutes. They noticed that these substitutions often reduced costs, improved the product, or both. What started out as an accident of necessity was turned into a systematic process. They called their technique “value analysis”.” [1]

Value engineering is a systematic, structured and organized effort to discuss the main functions of a system, equipment, process or installation in order to significantly reduce costs without compromising its essential function and quality.

The value of a good, product or service can improve increasing its function or reducing its cost. Therefore, value engineering seeks to analyze the function using the technique of questioning how-why to identify relationships that increase value.

What are some benefits?

  • Lowering O & M costs
  • Improving quality management
  • Improving resource efficiency
  • Simplifying procedures
  • Minimizing paperwork
  • Lowering staff costs
  • Increasing procedural efficiency
  • Optimizing construction expenditures
  • Developing value attitudes in staff
  • Competing more successfully in marketplace

How does it work?

Implement Value Engineering (VE) involves running steps to go to fulfill objectives. Currently the implementation of VE is divided into 8 stages: Selection, Investigation, Speculation, Evaluation, Development, Presentation, Implementation and Audit. Finally, depending on what you want to analyze and the objectives to be achieved may reduce the number of stages.

VE PhaseDescription
Selection The objective of the Selection Phase is to identify projects for VE study and to select specific projects to achieve maximum monetary savings, energy savings, or other benefits, such as a shorter construction schedule.
InvestigationThe objective of the Investigation Phase of the Value Engineering Job Plan is to acquire knowledge of the design to be studied and to assess its major functions, cost, and relative worth.
SpeculationThe objective of the Speculation Phase of the Value Engineering Job Plan is to “brainstorm” the functions of the design elements isolated by the investigation Phase, and to develop a number of alternatives to each.
EvaluationThe objective of the Evaluation Phase of the Value Engineering Job Plan is to analyze the results of the Speculation Phase, review of the various alternatives, and select the best ideas for further expansion.
DevelopmentThe objective of the Development Phase of the Value Engineering Job Plan is to collect additional data thoroughly analyze the best alternatives selected during the evaluation phase, and prepare cost estimates and initial designs that will ensure acceptability and ultimate project implementation.
PresentationThe objective of the Presentation Phase of the Value Engineering Job Plan is to put the recommended alternatives before the decision-makers in such convincing terms that they will accept them.
ImplementationTo rapidly and properly put approved proposals into action to achieve the proposed savings or project improvements.
AuditThe objective of the Audit Phase of the Value Engineering Job Plan is to check that desired results have been attained, documented, and reported.

 

Mapping Value Engineering to the Project Management Life Cycle

Process GroupApproach to Value Engineering
Initiating·         Clarify the Project Vision

·         Improve Return on Investment calculations

·         Enhance creativity in defining project solutions

·         Eliminate unnecessary product components and scope features

·         Function analysis enhances the cost evaluation and product value definition

Planning·         Clarifies the Product and Project Scopes using function analysis techniques

·         Enhances the solution definition process

·         Improves Work Breakdown Structures (WBS) by defining measurable deliverables or “nouns”

·         Enhances activity definitions by more clearly defining “verbs”

·         Validates the business case

·         Enhances the planning processes through tools & techniques such as FAST, Value Job Planning, Facilitation, and more.

Executing·         Validates the business case

·         Implements value alternatives

·         Provides coordination with other organizations or client quality improvement programs.

Monitoring and Controlling·         Scope control

·         Application of VE techniques to scope changes

·         Avoidance of unnecessary scope additions

·         Innovative problem solving

Closing·         Track value achievement resulting from implemented alternatives

·         Validate benefits of implemented change

·         Integrate Value Study results into organization’s lessons learned or program reporting

 

Value Engineering Tools and Techniques

Function Analysis

This technique defines product components and functions using an active verb and measurable noun approach. The project team conducts an analysis of each component and function to determine which can be enhanced, eliminated or combined or if new functions need to be developed.

Cost-to-Worth Relationships

By analyzing and determining cost-to-worth relationships, this technique helps narrow scope and refines value definitions in terms that stakeholders would understand.

Cost-to-Function Allocation

By allocating costs to function, the project team can refine the Return on Investment and make informed scope decisions.

Managing Divergent Thinking

This technique enhances creativity and promotes innovation by providing team and bottom-up alternatives and solutions. This technique promotes out of the box thinking and encourages agility when required.

Idea Evaluation Techniques

These techniques provide for the evaluation of ideas, alternatives, and proposed solutions to ensure that the optimal ideas are selected. Convergent thinking is employed to help reduce alternatives.

Life Cycle Cost Analysis

This technique provide for the analysis of costs beyond the project timeframe and throughout the life of the products or assets resulting from the project. Performed early enough in the project life cycle, this analysis may determine that a project may not be viable.

TRIZ

TRIZ (Teoriya Resheniya Izobretatelskikh Zadatch) is a Russian acronym for a structured creativity approach created by Genrich Altshuller (1994). This technique can be especially beneficial in the development of a new product or process but can also be used to creatively solve problems.

 

Reference

[1] Value Engineering, https://en.wikipedia.org/wiki/Value_engineering

[2] Value engineering in building design and construction, http://www.designingbuildings.co.uk/wiki/Value_engineering_in_building_design_and_construction

[3] Value Analysis/Value Engineering, http://creatingminds.org/tools/value_engineering.htm

[4] Cost Reduction of a product through Value Analysis and Value Engineering, http://es.slideshare.net/QuESTGlobal/cost-reduction-of-a-product-through-value-analysis-value-engineering

[5] Using Value Engineering to reduce life cycle cost, http://www.dau.mil/pubscats/ATL%20Docs/Jan-Feb11/Haraburda_jan-feb.pdf

[Section 2] Indean Value Engineeering Society, http://www.invest-in.org/invest/ve/index.php

[Section 3] Value Engineering, https://www.udot.utah.gov/main/uconowner.gf?n=94557621849667574

[Sections 4 & 5] Engineering Success Project By Project, http://www.pmi.org/learning/value-engineering-benefits-techniques-refining-6777?id=6777