There is generally confusion between the terms ‘value management’ and ‘value engineering’; this article attempts to clarify the distinction between the two concepts as well as suggesting the optimum times to apply each of the concepts and how the most can be achieved out of the process for the benefit of the project.
All clients would like to achieve real value in return for their investment. The specific criteria of value, however, depend upon the client and for a project to be a success, these criteria need to be properly established by a well-defined and recorded process.
John Connaughton and Stuart Green, in their 1996 book Value Management in Construction:
A Client’s Guide, defined value management as: “a structured approach to defining what value means to a client in meeting a perceived need by establishing a clear consensus about the project objectives and how they can be achieved.”
Another general definition of value management is: “a systematic review of essential project functions or performance, focused on achieving the best value for the money. It takes an overall view of the project function including capital and recurrent costs.”
Colin Gray and Will Hughes (Implementing Value through Lean Design Management, 2001) suggest the following approach to value management. The introduction of value management into a project is ideally through a facilitated value management workshop either at the business case stage (feasibility) or at the outline design stage (concept design) or both. Value management provides analytical tools and recording techniques that greatly assist clients and the design team to articulate and prioritise their ideas.
Value management should go through the following three stage process:
- Developing a value hierarchy. The value hierarchy is a method of taking primary project objectives and breaking these down into their own sub-objectives. Each sub-objective is a means to achieving the main objective.
- Develop the value tree. This involves a process of weighting the objectives and sub-objectives of the value hierarchy that produces an ordering of priorities between all the conflicting demands in the project. The weightings are arrived at by group consensus during the workshop.
- Develop a decision matrix. Once the weightings to the various project objectives and sub-objectives have been set then it is necessary to decide which of the options will provide the best value when set against the objectives, that is, how well they meet the targets that have been set.
Many of the assessments resulting from the value management process will be subjective, but the essential characteristic of value management is the fact that the decisions are a consensus view of everyone involved in the process. The analytical techniques used in value management enable the client briefing document to be used throughout the project lifecycle as the clear basis of all judgements on the values of the various issues involved.
Value engineering is defined as: “a systematic approach that seeks to enhance value by eliminating unnecessary cost while maintain function” (Value Engineering by Stuart Green and Peter Popper, 1990).
The greatest return from a value engineering exercise is during the schematic design or design development stage prior to proceeding into the detailed design stage. When value engineering occurs later it simply becomes a cost cutting exercise that is generally then undertaken in a hostile environment thatprevents it from achieving the desired objective.
Value engineering is normally undertaken in a facilitated workshop environment covering typically five stages as follows:
- Information gathering
- Speculation or brainstorming
Subject to the complexity of the project, workshops can vary from the classic 40-hour (5-day) workshop to a one-day intensive workshop.
Value engineering should not be assumed to be what good planners and designers do as a matter of routine; it is in fact not part of the typical design development process. A value engineering exercise is more rigorous than the typical project review: it should seek to bring together an impartial team of professionals with the common purpose of improving the project design.
Similarly, a value engineering exercise is not a cost cutting approach. In a proper value engineering exercise, cost cutting is achieved by making a design more efficient without reducing essential performance, reliability, or maintainability. Conversely, traditional cost cutting exercises will focus on material substitutions, and reducing or eliminating specific elements. This approach frequently results in reduced quality or performance.
Performing a value engineering exercise is also not the same as a typical quality assurance review. The quality assurance review will answer questions such as: does the design meet code and standards requirements? The value engineering exercise will answer questions such as: what else will achieve the same function for a lower cost?
What has been your experience with value engineering in projects?
The above question was recently raised in an online survey to a number of professionals in the construction sector in the context of the following possible responses:
a) Saved significant cost and added value—do again
b) Attended workshop but no real action as a result
c) Not facilitated properly—limited value
d) Done too late in the design process
e) Design team not enthusiastic about process
f) Best undertaken with peer reviewers present
In summary, the responses from these professionals across all sectors of the construction sector indicated that generally the experience with respect to value engineering had been most if not all the above response scenarios.
Understanding the difference between value management and value engineering and when and how to best employ these two principles on projects is essential, along with proper facilitation of workshops and getting buy in and support from all stakeholders and the design team. Preparing formal reports, obtaining approval to incorporate the recommendations and then monitoring implementation of the recommendations into the design will ensure the maximum benefit of both the value management and value engineering exercises is achieved.
Value engineering (VE) is a systematic method to improve the "value" of goods or products and services by using an examination of function. Value, as defined, is the ratio of function to cost. Value can therefore be increased by either improving the function or reducing the cost. It is a primary tenet of value engineering that basic functions be preserved and not be reduced as a consequence of pursuing value improvements.
The reasoning behind value engineering is as follows: if marketers expect a product to become practically or stylistically obsolete within a specific length of time, they can design it to only last for that specific lifetime. The products could be built with higher-grade components, but with value engineering they are not because this would impose an unnecessary cost on the manufacturer, and to a limited extent also an increased cost on the purchaser. Value engineering will reduce these costs. A company will typically use the least expensive components that satisfy the product's lifetime projections.
Due to the very short life spans, however, which is often a result of this "value engineering technique", planned obsolescence has become associated with product deterioration and inferior quality. Vance Packard once claimed this practice gave engineering as a whole a bad name, as it directed creative engineering energies toward short-term market ends. Philosophers such as Herbert Marcuse and Jacque Fresco have also criticized the economic and societal implications of this model.
Value engineering began at General Electric Co. during World War II. Because of the war, there were shortages of skilled labour, 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".
Value engineering is sometimes taught within the project management or industrial engineering body of knowledge as a technique in which the value of a system’s outputs is optimized by crafting a mix of performance (function) and costs. In most cases this practice identifies and removes unnecessary expenditures, thereby increasing the value for the manufacturer and/or their customers.
VE follows a structured thought process that is based exclusively on "function", i.e. what something "does" not what it is. For example a screw driver that is being used to stir a can of paint has a "function" of mixing the contents of a paint can and not the original connotation of securing a screw into a screw-hole. In value engineering "functions" are always described in a two word abridgment consisting of an active verb and measurable noun (what is being done – the verb – and what it is being done to – the noun) and to do so in the most non-prescriptive way possible. In the screw driver and can of paint example, the most basic function would be "blend liquid" which is less prescriptive than "stir paint" which can be seen to limit the action (by stirring) and to limit the application (only considers paint). This is the basis of what value engineering refers to as "function analysis".
Value engineering uses rational logic (a unique "how" - "why" questioning technique) and the analysis of function to identify relationships that increase value. It is considered a quantitative method similar to the scientific method, which focuses on hypothesis-conclusion approaches to test relationships, and operations research, which uses model building to identify predictive relationships.
In the United States, value engineering is specifically mandated for federal agencies by section 4306 of the National Defense Authorization Act for Fiscal Year 1996, which amended the Office of Federal Procurement Policy Act (41 U.S.C. 401 et seq.):
- “Each executive agency shall establish and maintain cost-effective value engineering procedures and processes".
- "As used in this section, the term ‘value engineering’ means an analysis of the functions of a program, project, system, product, item of equipment, building, facility, service, or supply of an executive agency, performed by qualified agency or contractor personnel, directed at improving performance, reliability, quality, safety, and life cycle costs".