CPD 15 2022: Utilising value engineering

Introduction

Widely used in the construction industry, value engineering (VE) is a conscious and explicit set of disciplined procedures designed to seek out optimum value for both initial and long-term investment.

The system was first developed at General Electric by Larry Miles in 1947 after the Second World War, when shortages in raw materials and labour triggered a search for alternative options which were found to offer product improvement, reduced costs and in many instances both.

Learning objectives:

• Understand the three main stages of value engineering
• Explore the five-step job plan used during a value engineering study
• Learn about the common challenges and how to minimise mistakes
• Be able to highlight the value of value engineering

Early analysis

What started out as a circumstantial necessity – the Second World War created acute shortages of a wide range of raw materials, components and manufacturing labour – quickly turned into a systematic process.

Referred to as ‘value analysis’, General Electric eventually developed the ‘value methodology’ defined as a systematic approach to improve the value of a project by providing the necessary functions to meet the required performance at the lowest overall cost.

This method still holds huge benefits for businesses willing to use an alternative solution to achieve the same performance and aesthetics of a finished project.

VE is not a design/peer review or a cost-cutting exercise, rather it is a creative, organised effort, which analyses the requirements of a project for the purpose of achieving the essential functions at the lowest total costs (capital, staffing, energy, maintenance, etc) over the life of the project.

Through group investigation by experienced, multi-disciplinary teams, value and economy are improved through the study of alternate design concepts, materials, and methods without compromising the functional and value objectives of the client.

VE can be applied at any point in a project, even in the construction phase. However, the earlier it is applied the higher the return on the time and effort invested.

The three main stages of VE are:

• planning
• design
• methodology and approach.

Planning

There are additional benefits to be derived from a VE workshop at the planning stage of development. An independent team can review the programme; perform a functional analysis of the facility; obtain the owner/user’s definition of value; define the key criteria and objectives for the project and verify/validate the proposed programme.

Then there is a review of master plan utility options, while consideration is given to alternative solutions and an assessment is made to see if the budget is adequate. The benefits of VE can be significant and any changes to the programme at this stage have very little if any impact on schedule.

Design

This is the stage where most VE participants get involved, when the design has at least made it to the schematic stage. Most government agencies require at least one VE session at the design stage on projects above a certain monetary value.

The primary tool available to the VE team is the workshop – typically a 40-hour session, although this can be shorter for smaller or less complex projects.

The workshop is an opportunity to bring the design team and client together to review the proposed design solutions, the cost estimate, the proposed implementation schedule and the approach, in order to implement the best value for the money.

The definition of what is good value on any particular project will change from client to client and project to project.

Methodology and approach

During the workshop element of a VE study a five-step job plan is followed. The steps are as follows:

1. Information Phase

At the beginning of the VE study, it is important to understand the background and decisions that have influenced the development of the design through a formal design presentation by the design architect/engineer.

An analysis of the key functional issues governing the project needs to be carried out. The functions of any facility or system are the controlling elements in the overall VE approach and this procedure forces the participants to think in terms of function, and the cost and impacts associated with that function.

The project owner’s objectives and key criteria governing the project should be determined, as does the owner’s definition of ‘value’.

2. Speculation (Creative) Phase

This step in the VE study involves the listing of creative ideas. The VE team thinks of as many ways to provide the necessary function within the project areas at a lesser initial or Life-Cycle Cost which represent improved value to the client.

No judgement is made, instead, the group will look for quantity and association of ideas which will be screened in the next phase of the study.

Many of the ideas brought forward in the creative phase are a result of work done in the function analysis. This list may include ideas that can be further evaluated and used in the design.

3. Evaluation (Analysis) Phase

In this phase the VE team, together with the client and/or users, define the criteria to be used for evaluation. The ideas resulting from the creative session are then judged.

Ideas found to be impractical or not worthy of additional study are discarded. Those ideas that represent the greatest potential for cost savings and value improvement are developed further.

A weighted evaluation is applied in some cases to account for impacts other than costs (such as schedule impacts, aesthetics, etc).

4. Development Phase

During the development phase of the VE study, many of the ideas are expanded into workable solutions. The development consists of a description of the recommended design change; a descriptive evaluation of the advantages and disadvantages of the proposed recommendation; a cost comparison, and Life Cycle Cost (LCC) calculations.

Each recommendation is presented with a brief narrative to compare the original design method to the proposed change. Sketches and design calculations, where appropriate, are also included in this part of the study.

5. Presentation Phase

The last phase of the VE study is the presentation of the recommendations in the form of a written report. A briefing/oral presentation of results is made to the client and users, as well as design team representatives.

The recommendations, the rationale that went into the development of each proposal and a summary of key cost impacts are presented at this time so a decision can be made as to which value management proposals will be accepted for implementation and incorporation into the design documents.

Avoiding mistakes

There are mistakes that can be made in the process of VE a project, usually the result of project management habits and time constraints. There are five things that can be done to limit the possibility of mistakes and make the most of VE in a project.

Do not sacrifice quality – when the project budget calls for cuts to be made and VE hits the table, a lesser quality product can often be selected to save money. However, initially specified products are usually not selected with price as the main focus but aesthetics and functionality. With this in mind, there are often alternatives that can be provided that match the initial aesthetic of the product and still provide considerable savings.

Be open to alternatives – VE can provide an opportunity to re-evaluate the selections and see if there are better alternatives. There are often advancements made in construction products and there may be additional products now available that weren’t initially an option. A possible scenario could be a project where hardwood flooring was originally specified, but now that advancements have been made in luxury vinyl flooring (offering the same design aesthetic for a lower product and maintenance cost), it may be a better fit.

Stay ahead of the problem – VE often comes in the 11th hour of a project to keep things on budget. When this happens, it can limit product options, due in part to limited available stock, production time, or extended importing timeframes. When VE is discussed months in advance of the installation, it is possible to have products imported or even custom-made.

Expand your product network – if VE is a need for a project, it is essential to expand the reach outside of the initial network of manufacturers and distributors that were considered. If you expand out of the initial manufacturers that were specified, it is possible to find an equal (or better) product at a more competitive price. This can be done by sourcing directly from manufacturing mills and allowing other manufacturers to compete for the project.

Make it an opportunity – VE provides a unique opportunity for the architect, client and contractor to re-evaluate the project and the finishes. It can be a time to shift focus and make sure the client is getting the best results possible.

Challenges

When VE becomes a reality in a project there will inevitably be challenges. However, bear in mind the following and these can be addressed:

Maintain the production schedule – since VE usually comes late into a project schedule, it is essential that changes that are made do not slow down the project. When searching for new products one that is more economical may be selected, but it could have extended lead times that would slow down the completion schedule.

Maintain product quality – one of the easiest ways to save money on a project is by changing to a lower quality product. This will help the budget immediately, but it will not produce the highest quality project.

Getting everyone on board – the first thing to communicate is the reason for VE. If everyone recognises and understands the need to make changes, it will be an easier process. It should also be presented as an opportunity to re-evaluate the initial selections to see if there are changes that could benefit the project, regardless of the budget.

Protecting margins – staying as involved as possible when making changes to products is essential for decision-makers. Ensure the project is getting maximum benefit from the process of VE, and that the best result is being created for the client.

Value

Incorporating VE into the design and construction process results in greater added value and reduced costs for clients. Considering all aspects of the construction project when making VE proposals to the client is crucial. Areas for consideration will include cost reduction; value added; life-cycle analysis and maintainability.

During the construction phase, VE is still possible through the use of VE change proposals (VECP). Contractors can be provided with monetary incentives to propose solutions that offer enhanced value to the client and share in any financial benefits realised. The client must consider contractor-generated proposals very carefully, both from a life-cycle perspective and a liability perspective.

The architect/engineering team must be brought into the decision-making process to agree that the proposed change does not have any negative impact on the overall design and building function. The evaluation of a VECP is treated similarly to any change order during construction, with issues such as schedule and productivity impacts being considered along with the perceived cost savings generated.

A ‘second look’ at the design produced by the architect and engineers gives the assurance that all reasonable alternatives have been explored. Cost estimates and scope statements are checked thoroughly, ensuring – and consequently re-assuring clients – that nothing has been omitted or underestimated. It also reassures that the best value will be obtained over the life of the building.

In the recent past, many construction professionals have viewed VE as a way to keep projects on budget, but the full meaning of the term has been diluted.

In recent years, however, the construction industry has been forced to re-evaluate its approach to VE and look to bring true value back into the process. With the rising popularity of design-build lump sum or best-value contracts, contractors have an opportunity to act as project champions for their clients. They can seek out efficiencies between building systems, instead of squeezing each system to the detriment of the whole project.

The introduction of more VE workshops has had a big impact on the industry, allowing construction professionals to examine the functionality sought for a project and identify any mismatches between functions, project goals and the budget. Such workshops have helped to demonstrate the opportunities to improve the project through VE and how to price out those improvements while considering operational costs and any synergies between them.

Clients can now confidently discuss with their design teams where additional costs might deliver added value and which capital cost reductions would likely cost them more money over time. While forecasts of lifecycle costs aren’t always perfect, the analysis still produces a relative idea of which strategies would be worth the investment over time.

Software

Software to support VE has seen a huge advancement, which now has access to a sophisticated set of economic software tools, which can conduct triple bottom line cost benefit analysis in real-time to determine who benefits and by how much in monetary terms from a given design scenario.

These advances in technology allow the construction industry to put to work the data from numerous studies of building projects. And by using life cycle cost analysis, it is possible to develop a more complete cost picture than traditional cost estimates, which can often give a skewed view of costs including upfront labour and materials costs instead of the total cost of ownership.

By quantifying costs and benefits across the triple bottom line (financial, social and environmental), the software calculates not only the financial ROI of incremental monetary spent factors such as super-insulating walls and windows but also the social improvement in tenant productivity and health from better thermal comfort. Plus it can determine the environmental improvements from factors such as avoiding local air pollution.

By localising the analysis using data from the project’s market, climate, economy, wage rates and more, it avoids the need to artificially apply cost and benefit values from past projects, which can be misleading and result in poor design decisions.

Although leading designers and contractors know this already, it is key project stakeholders that are demanding better than the ‘so-called’ VE of yesterday. Instead, they are demanding that value is brought back into VE by looking at alternatives holistically and using powerful analytical tools to show the improvements that can be made.

Cost savings of using PVC-U

On some projects, standard PVC-U windows were as much as 35% cheaper than the aluminium alternative already specified. These cost benefits increase dramatically where windows are being specified with particularly low U-Values.

A study on a 0.8 U-value project showed a cost saving of up to 60% over aluminium. An energy-efficient alternative to timber and aluminium frames with superior thermal efficiency, they offer considerably better value with no compromise on aesthetics or performance and virtually no maintenance.

Slim rebate sash casement windows replicate the aesthetic of aluminium windows offering clean sight lines with an internally flush sash and slim external rebate, allowing a variety of window configurations. They offer better thermal performance than equivalent aluminium systems.

The best-performing PVC-U windows on the market have a unique 75mm six-chamber profile, offering superior thermal efficiency, enabling A++ Window Energy Rating and a 0.7 U-value which exceeds Passive House standards.

Even without going down to this level of thermal performance, PVC-U systems still massively out-perform both timber and aluminium systems. Standard PVC-U windows can achieve a 1.2 U-value double glazed and a 0.8 U-value triple glazed.

Case study: Bloor Homes

A key reason for housebuilder Bloor Homes’ decision to look to change the specification from timber was down to weather tightness, window performance and the ease of maintenance for the homeowners.

The properties were being built just outside Bath city centre in a strict planning control area so there was a lot of negotiation between the council planners, Bloor Homes and Eurocell in order to demonstrate the benefits of the PVC-U window system and the replicated timber aesthetic that Modus would be able to offer.

The planners agreed that although these properties are in a conservation area the PVC-U alternative was a much better option than the originally specified timber windows and approved the more cost-effective PVC-U alternative.

The planners were so happy with the Modus finished solution that they insisted Linden Homes, who built a development on the plot across the road, used the same PVC-U specification.

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