Value Management and Value Engineering

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Value management and value engineering are synonymous engineering terms that involve ‘valuing’ construction projects, mostly focusing on the different functions with the aim of minimizing unnecessary costs and maximizing the potential usage of the project. There are slight differences between these two significant engineering terms. One is that value management focuses on the different sections of the project in order to provide maximum usage at a minimum cost, while value engineering is aimed at the technical aspect of the construction. Both however seek simplification without compromising quality. In this context, SBE Innovations Ltd. has asked our services to conduct value management and value engineering on a proposed recreation and commercial center.

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This report will provide an in-depth study of the proposed project. We will focus on the functions of the project, the techniques and tools to be used in the study in order to attain the greatest value for the project.

Our initial job is to form a team of experts to conduct the study. The team will be composed of the following: the different stakeholders of the project, a project manager with a project committee coming from SBE Innovations Ltd., and a team from our own consultancy firm.

Our report will have this essential format.

  • The results of the study focus on the identification of SBE Innovations’ objectives in pursuing the recreation and commercial center. This includes the four stages of the workshop. There are recommendations on the budget constraints of SBE Innovations so that the amount could be maximized while reducing unnecessary costs.
  • The second part will focus on value engineering. Although value management and value engineering are synonymous, they can mean two different things to a project engineer or to a VM study team.

Value engineering focuses on the engineering aspects of the study. However, to gain maximum results, these two should go together, and cannot be separated. Value engineering includes functional analysis which will examine the various stages in the design.

Finally, risk management will form the conclusion for this study. Risk management is somehow linked to value management and value engineering because they form and examine concepts to minimize accidents in the workplace, at the same time reduce unnecessary costs.

Value management is a process that determines how a construction project can be maximized of its objectives and potentials. It means looking for ways to increase the value of a proposed project. This involves better solutions for problems at hand or problems which are still unseen. Value management participants are concerned about project value improvement.

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The team members, who will conduct the ‘valuing’, will participate in a workshop to undertake the different steps in the process of value management. The study becomes a collaborative effort between the different stakeholders who will provide suggestions, including inputs from the different departments of the organization and the client, to provide the greatest value for the project.

The ‘valuing’ process will provide the precise scope, the different stages of the study, the lifecycle, essential data and key milestones in the value management study. The cost, the business case, and the basis for costing are also stated in the value management process. The principle of value management involves maximizing value and minimizing the use of resources, at the same time reducing unnecessary costs. Value management is similar to risk management as it also involves minimizing risk.

Value management will evaluate every aspect and function of the proposed recreation and commercial center. The primary objective is to minimize unnecessary costs and see to it that all functions have an important role in the entire project. This will utilize a structural-functional analysis and other problem-solving tools and techniques that will ensure low cost and great value for the project.

Value Management and Value Engineering

Value Management and Value Engineering Report

Proposed Value Management Methodology

The first point of concern is the objective of SBE Innovations Ltd. The proposed project will be to construct a recreation and commercial center. There are two categorical objectives for the project, which are humanitarian and the business aspect. The local authority is aiming for the humanitarian aspect: to stimulate development and enhance the health and well-being of the population in the community. Additionally, the business partners of SBE Innovations would like a substantial return of investment (ROI) and the expected value for money (VfM).

The VM study team will focus on these two objectives. It will provide assurance to the SBE Innovations that the proposed project will not divert from the goals for which they were set. The team will utilize a workshop as a central part of the study.

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The workshop will have the following stages:

The first stage will ensure that all involved are properly briefed and that adequate preparations are made. This includes the formulation of the design brief and identification of procurement method, procedures, structure, consultants and other stakeholders of the project. The objectives will be set, and the expected benefits for the VM study, including the success factors, criteria for the study, and targets, will be explained to the SBE Innovations management or its representation. The workshop will go through the different phases, for instance, the initiation and information wherein the VM team will agree on the project and study objectives.

Phase 2 will identify constraints and opportunities, strengths and weaknesses. A functional analysis will focus on the functionality of the different stages of the project and speculate on unforeseen problems that may arise in the course of the construction. We will review the project plan and assess the possibility of improving the project value.

Value engineering recommendations and proposals will be formulated, but VE can also be conducted during the construction stage as the group’s practical experience and expertise, innovative construction plan and construction methods, and improved construction logistics management can lead to substantial cost savings, better quality, and earlier project completion.

Composition of the VM study team

The Project Manager and the Project Committee

This is the official representative of SBE Innovations Ltd. The project manager becomes the head of the project committee which will be composed of the different departments and sections of SBE Innovations. All suggestions and recommendations with respect to the different functions of the project will be properly examined and discussed by the group. The project manager and his team should be able to make crucial decisions on behalf of the management of SBE Innovations.

Representatives from our company composed of engineers, architects and consultants who will carry out the plans and objectives of the company

Agenda

  1. A clear, concise, and comprehensive study of the proposed project of a recreation and commercial center
  2. Suggestions and recommendations – through brainstorming and other forms of analysis – to arrive at an agreed functional design for the project.

One very important agendum is finding solutions to problems that are still unseen. Looking for opportunities is an important activity of the study group.

The architectural design is not yet final here and will only be finalized once the value management group has made its recommendation on the different parts and functions of the establishment.

The VM team will ensure that the desired outcomes are achieved, the project committee and members of the team can interact with each other and problems are resolved at the value-goal transformation stage.

Tasks to be undertaken, including time/schedule:

  1. Site inspection
  2. Carry out the workshop
  3. Discussion/forum/brainstorming

This will occur after every inspection. Brainstorming will include different topics in the functional analysis. The study will discuss and brainstorm the different aspects of the project, the initial stages of construction, what portions will first be undertaken, the cost of every portion of the project, the entire costs, the benefits, and the prospective value of the project. Suggestions will include how the design will be made in such a way that maximum usage of the facilities will be acquired but with a minimum cost to the client.

The VM study group will agree on the steps to be undertaken in order to have a smooth flow and transition from the feasibility study to the formal study team that will recommend the necessary steps for the VM. First, the senior management of SBE Innovations will agree to support the project. Experienced facilitators will be provided from our consultancy firm to coordinate with the project committee. The project manager will represent the client and makes decisions, along with the project committee, for SBE Innovations.1

Tasks of the VM team

  • Define the value of the project and its parts, and provide basis for making decisions;
  • Furnish clear briefs that reflect SBE Innovations’ priorities and expectations, and keep an active flow of communication between our company and the different stakeholders;
  • Ensure the most cost-effective way of delivering the benefits, such as the value for money (VfM), and provide a basis for refining the requirements of business;
  • Provide innovative design solutions with improved communications and enhanced team working;
  • Provide a way of measuring value, taking into account non-monetary benefits and demonstrating that value for money has been achieved.2

The VM study will provide analysis of every function and component of the project. All the stages of the project will be meticulously studied and undertaken to ensure that each stage will provide maximum benefits for which the project is to be achieved.3

Discussion

The project will be sited in a suburban location and there are no significant planning restrictions. The site and its amenities will have to be examined and studied by the VM study group. The capital of £9 million will be used for the construction of the buildings to house the recreation and commercial centre. A return of investment will surely be delivered within a few years after the completion of the project, considering that entertainment facilities and commercial activities are an attraction to the community located in the suburban area.

The workshop will be divided into four different stages:

  1. The pre-brief workshop
  2. The brief workshop
  3. The concept design workshop
  4. The detail design workshop

These four stages can correlate well with any project in the design stage, with utmost quality. In the initial stage of valuing, the budget constraints for SBE will be addressed. The £9 million seed capital will be subdivided into several stages to ensure that there will be no unnecessary costs.

The Cost and Value

Total economic management of projects involves considering both cost and value. Value management occurs much earlier in a project’s life-cycle whilst cost management occurs in the later stages.4

The cost aspects of the service can be ascertained by the use of traditional quantity surveying services. The relation of worth and cost can be traced to the client’s views or original concepts of the proposed project. Cost management involves traditional ways of surveying skills, reducing costs, and using proven procedures. The team will employ brainstorming techniques to optimize their insight and expertise in arriving at valuable solutions. Cost management does not mean introducing stages to the project, but will only simplify some of the functions.

Techniques to be used in the study:

  1. Careful analysis and identification of project needs and scope
  2. Effective planning ensures that there is maximum cost efficiency with no unnecessary steps or wasted effort.
  3. Identification of key functions so that opportunities can be enhanced.
  4. Development of alternatives for exploiting the identified opportunities for improving project value.
  5. Evaluation of alternatives, and development of proposals and action plans
  6. The project team must have the means to accurately monitor the project, gain timely and actionable information, and make “online” decisions and choices among alternatives.
  7. Ensure a free flow of communication between the departments and stakeholders

To effectively manage value, a cross-functional mindset must prevail throughout the organization, so that ideas, alternatives, and creative solutions have the widest possible arena for exploitation.5

The team will provide a way of exploring SBE Innovations’ needs by addressing inconsistencies and expressing these in a language that can be easily understood.

Proposal for a follow up Value Engineering study

It has been a traditional practice of our consultancy firm to use value engineering as a definitive tool to improve the value of a particular project system.

Value engineering has some positive results in the project, i.e. without compromising the original functions. We have used value engineering as a construction tool to enhance the best benefits that could be achieved in engineering work. This process of function analysis produced cheaper overall products without reducing quality. It can be used as a means both of removing unnecessary cost from products and of improving design.

The VE study group will be composed of the project manager and the project committee to represent the client, and our own engineering team. Engineers from the project committee and this consultancy firm will see to it that the value engineering will apply value analysis on the project.

Tasks of the VE team

The VE team will conduct a workshop, which will be composed of the pre-workshop and the workshop proper. The pre-workshop will gather information. The workshop proper will have the initial design, modifications, trimming, and evaluation, while the post workshop involves development and presentation to the SBE Innovations project committee and management. The VE study will be applied at a time when construction the entertainment and commercial centre is undergoing. The different areas that should be given focus are the areas where a great number of people are expected to flock. Some slight modifications will be introduced, but it will not affect the entire project. The aim is merely to minimize the costs and maximise the functions.

Activities for value engineering will include:

  1. Problem solving techniques that can trigger one’s imagination and creative abilities on the project life cycle including how and what methods can be used on the structures and objects under construction;
  2. Provide recommendations for substitute particular materials and equipment in use that can provide the maximum benefits at low cost.6

The VE team will conduct

Value analysis

Functional analysis is an approach to lower the costs of the functions involved in the project. This means the job is to reduce the price or monetary consideration for the delivery of the project. Duplications in some areas or parts of the center may occur; with value analysis, this can be avoided.

Quality function deployment (QFD)

This method establishes a particular matrix that defines the value of the different options available. SBE Innovations will select and decide which options can suit best to their needs and budget requirement. Our VE study team will make recommendations and provide the best options for our clients. Our framework can have the ability to provide the requirements of SBE Innovations through the use of the functional analysis technique, design options (which will answer the ‘HOWs’ of the project through the use of QFD, and help SBE select the best alternative). Functional analysis will define the objectives of SBE Innovations.

Recommendations of the VE study team

  • Some value-adding functions can be incorporated in the complex that should include a recreation area that is adjacent to the commercial complex. We have to reduce the cost of construction and add value to the commercial site.
  • There should be active facility management.
  • Construction of a morning-and-afternoon facility for customers should be provided.

Is Risk Management Effective in the UK Construction Industry?

The question is posed in the title above because of the various risks involved in the construction industry. Accidents and different risks occur every now and then in construction projects. Owners and contractors have been instituting measures to minimize the risks, but still, we hear of people injured and workers getting sick because of ineffective management in construction sites.

Humans have been plagued by accidents and calamities. Most of the accidents are outcomes of inventions and innovations, but others are of natural causes. Biblical history relates how our ancestors encountered risks to attain their goals. They started managing risks by making tools and learning to invent new things, and they learned to plan their activities and manage risks through careful planning and examination of the possible areas or problems that could happen in the future. They learned from experience and managed their lives through careful study (no matter how crude) and advanced planning.

Life however has become complicated because of new inventions, technology, and complicated goals. Risk management has become complicated because of the complicated outcomes of modernization. Risk management in the midst of intense globalization has to be well planned and well studied. Experience can help in the process of planning to minimize risks.

Technological inventions provide areas for possible risk encounters, for example, the industrial revolution characterized by major events which introduced a lot of changes in the workplace and organizations. Modern capitalism emerged after a transition period over several centuries, during which the conditions needed for a capitalistic market society were created. Risks account not only in physical terms but also in abstract terms like financial and economic outcomes.

Technological advancement and globalization have further multiplied risks. The construction industry is filled with unavoidable risks. Environmental problems, accidents and deteriorating health of workers are some of the risks associated with the construction industry. Workers who are not provided adequate basic necessities will surely perform poorly and may injure themselves. Although risk management practices have been instituted by construction firms, there is still much to be done.

Risk management involves analyzing risks or surprises that are expected to happen in the course of undertaking a project and the management of the possible outcomes of such a project using laws and theories that have already been tested, for example, the laws of probability which utilize statistical measurement, regression, and the utility theory.

The UK construction industry, aside from being a major generator of wastes, is a creator of risks itself. We can enumerate some of these risks at random: health of the workers and the population, environmental hazards caused by construction and demolition wastes, risks associated with the design of the structure whether it can withstand natural disasters and many others which are said to be artificial like insurance, value for money or the business side of the construction project, etc. Managing risks involves taking care of the safety and security of individuals or organizations.

Workers in construction sites are in danger of serious illnesses like cancer. Some construction firms do not have the proper waste disposal programs as required by law. In Britain alone, the construction industry has a poor record of promoting health and safety. Reports of accidents are among the highest with fatalities ranked the third of all industries.7

Construction activities produce many kinds of pollutants around the atmosphere, and other hazardous material. The Environmental Agency Online reports that the UK produces waste to around 100 million tonnes annually.8

Most construction firms do not have a definite system of risk management; some of them follow the ‘find and eradicate’ technique. They first identify risks and then find some effective and efficient methods to reduce the potential for loss. This system is ineffective and may result to environmental problem. Construction firms can help in environmental care through recycling their waste; or the use of the 3 Rs – recycle, reuse, reduce. This can even help recover some expenses they have incurred in construction.

Despite all the negative news in the UK construction, there have been efforts made by the public and private sectors to help alleviate the plight of construction workers who are exposed to wastes and pollutants in construction.

The UK construction industry has helped those involved in construction projects by way of public-private partnerships (PPP). However, the government has to draw in innovations from the latest technology in the private sector. There is one example of PPP which is the Private Finance Initiative (PFI) and considered to be one of the most successful undertaking in the area of government and private collaboration. This is also an example of public and private activity wherein transparency and accountability are exercised. PFI schemes delivered in this aspect are hospitals, schools, and other public buildings and establishments. In those projects, clear applications of risk management were introduced. The projects were also completed with the required time and budget, reducing unnecessary costs.9

The government has enforced the site waste management plan, which should be implemented by construction firms before construction begins. All construction projects which started after April 2008 and which have a construction value of more than £300,000 should implement the Site Waste Management Plan (SWMP). The regulations are enforced by the Environment Agency and potentially, both the HSE and local authorities. The fines range from £300 (fixed) up to £50,000.10

The implementation of SWMP in the UK is a good example of risk management in the construction industry. This should minimise waste construction and demolition waste which has caused environmental harm and endangered the health and safety of the workers. Stricter laws should be formulated for its strict implementation. The management of construction firms should do their part in health promotions of the workers and in preventing accidents in construction sites.

Construction that starts without the needed consultations between the client and the contractor and careful study of risk management will encounter many risks in the course of construction and after construction, when the building or centre is operational. There could be risks in the design and in the implementations. Further changes that may be applied in mid-construction may cause an irreparable damage.

Value management and value engineering are some of the risk planning methods to avoid accidents. Functional analysis can help manage risks. The client and the value engineering team who conducts the study can confer with each other on some specific functions of the project. All loopholes and problems are discussed and given possible solutions before construction starts. Problems which are still unseen can be figured out, and opportunities for improvement can be implemented beforehand.

Several methods have been applied by construction companies in managing risks, one of which is the technique known as PERT, or Programme Evaluation and Review Technique.

Traditionally, risk management had been handled by insurance companies which took charge of the risks caused by errors, or risks caused by planning and designs made by architects and engineers in the initial stages of the construction. Contractors were required a piece of document known as surety bond by owners of construction project. A surety bond is actually a financial instrument issued by a company to guarantee that the project would be completed by a construction company.11

To manage risks, construction firms would rather focus on what opportunities and outcomes would result of the project rather than danger or alternatives. Firms have used several approaches in managing risks by looking at ways to minimize costs, such as value management, and also by making use of subcontractors.

A study was conducted in the UK in 1992 to determine how contractors and owners of construction projects were aware of risks. The sample was taken from the members of the UK Association of Project Managers. The survey found the significance of optimizing task performance, or what is being practiced in the value management and engineering methodologies, such as functional analysis. However, some project owners have challenged this methodology by requiring contractors’ financing vehicles such as the Private Finance Initiative (PFI). Others have wanted countries to implement legislation requiring more planning and execution preparations on projects.

The public and private sectors should do more to enhance community involvement in the management and proper disposal of construction and home wastes. Value management and value engineering are some of the activities that should help in managing risks in construction projects.

References

Ahmed, S., Risk Management Trends in the Hong Kong Construction Industry: A Comparison of Contractors and Owners Perceptions, Engineering, Construction and Architectural Management, 1999, 6/3, p. 225.

Booty, F., Facilities Management Handbook, Elsevier Ltd., UK, 2009, p. 109.

Cariaga, I., Integrating Value Analysis and Quality Function Deployment for Evaluating Design Alternatives. Journal of Construction Engineering and Management, Vol. 133, No. 2007.

Dallas, M., Value & Risk Management, Blackwell Publishing Ltd., UK, 2006, p. 2.

Environmental Agency, Waste – part two. Web.

Hansen, K. and Millar, J., Constructing reasonably believable edifices: lessons from software, implications for construction, cited in K. Kähkönen and K. A. Artto, eds., Managing risks in projects, Thomson Professional, London, 1997, p. 260.

Kelly, J. and Male, S., Value Management in Design and Construction: The Economic Management of Projects, Taylor & Francis Group, New York, 1993, p. 72.

Kelly, J., Male, S. and Graham, D., Value Management of Construction Projects, Blackwell Publishing Company, UK, 2004, p. 18.

Luff, P., Construction matters, TSO (The Stationery Office) House of Commons Business and Enterprise Committee, UK, 2007, p. 181.

Male, S. and Kelly, J., Organizational Responses of Public Sector Clients in Canada to the Implementation of Value Management: Lessons for the UK Construction Industry. Construction Management and Economics, 1989, 7, 203-216. Web.

Pritchard, C., Building for Health? The Construction Managers of Tomorrow, The Journal of the Royal Society for the Promotion of Health 2004; 124; 171. Web.

Venkataraman, R. and Pinto, J., Cost and Value Management in Projects, John Wiley & Sons, Inc., New Jersey, 2008, p. 9.

Footnotes

  1. J. Kelly, S. Male, and D. Graham, Value Management of Construction Projects, Blackwell Publishing Company, Oxford, UK, 2004, p. 18.
  2. M Dallas, Value & Risk Management, Blackwell Publishing Ltd, London, 2006, p. 2.
  3. Kelly et al, p. 11.
  4. J. Kelly and S. Male, Value Management in Design and Construction: The Economic Management of Project, Taylor & Francis Group, New York, 1993, p. 72.
  5. R. Venkataraman and J. Pinto, Cost and Value Management in Projects, John Wiley & Sons, Inc, United States of America, 2008, p. 9.
  6. S. Male and J. Kelly, Organizational Responses of Public Sector Clients in Canada to the Implementation of Value Management: Lessons for the UK Construction Industry, Construction Management and Economics, 1989, 7, 203-216. Web.
  7. C Pritchard, Building for Health? The Construction Managers of Tomorrow, The Journal of the Royal Society for the Promotion of Health 2004; 124; 171. Web.
  8. Environmental Agency, Waste – part two. Web.
  9. P. Luff, Construction matters, TSO (The Stationery Office) House of Commons Business and Enterprise Committee, UK, 2007, p. 181.
  10. F. Booty, Facilities Management Handbook, Elsevier Ltd., UK, 2009, p. 109.
  11. K. Hansen and J. Millar, Constructing reasonably believable edifices: lessons from software, implications for construction, cited in K. Kähkönen and K. A. Artto, eds., Managing risks in projects, Thomson Professional, London, UK, 1997, p. 260.

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