Application of Value Engineering within the Construction Industry

Introduction

Value Engineering (VE) within the construction industry is an organized process of reviewing a project with the goal of eliminating unnecessary costs within the project.  Dell’Isola (1974) defines unnecessary cost within the project as any item that does not provide quality, use, life, appearance or customer features to the project.  While the elimination of unnecessary costs through the performance of formal value engineering studies has been proved to be successful in government funded construction projects, the owners of small-scale private construction projects appear reluctant to embrace the value engineering process. Although the various team members of private construction projects often claim that they performed value engineering, simply because a material substitution or a design change was made that resulted in a cost savings.

This paper will review and compare the true concept of value engineering with the Philadelphia regional construction industry’s perception of value engineering to determine if the construction industry is implementing the concepts of value engineering correctly and eliminating unnecessary costs within projects. This comparison was developed through the research of various books, technical papers and publications for determining and outlining the formal concept of value engineering.  The current perception of value engineering within the Philadelphia construction industry was determined through a survey questionnaire developed by the authors and distributed among one hundred various members of the Philadelphia construction industry.  These members consisted of design professionals, construction managers, contractors and owners.

Literature Review

The process of value engineering was developed during World War II by Lawrence Miles (Thiry 1997), an electrical engineer for General Electric Company, in response to material shortages created by the war.  The war production effort still required products to be manufactured but the material shortages forced the specification of different materials. Lawrence Miles discovered that many of the products being produced with the substituted materials performed the equivalent function of the original product and at a reduced cost.  In reviewing these cost reductions, Miles determined that if an organized team approach was established to review product designs and specifications, unnecessary costs within the production of a product could be eliminated.  In the 1950’s, Miles developed the organized team approach known as the job plan which has become the framework to any formal value engineering study.  There are several job plan formats depending on which agency’s format is followed (see Figure 1).  The individual steps in the various job plan formats may vary in the number of steps and title of each step.  However, the process of the job plan is the same concept no matter which format is followed.

Figure 1:  Value Engineering Job Plan Formats

Value engineering in the construction industry is a process in which a project is reviewed by a qualified study team with the goal of eliminating unnecessary costs while maintaining the project’s function, quality and owner’s vision.  Furthermore, it is important for everyone participating on the study team to understand that this process is not an unorganized critique of the designer’s plans, but an organized system in which the team approach is used to provide creative solutions and alternatives to the project that will eliminate unnecessary costs.

Methodology

As a pilot study, the questionnaire was initially distributed among a small sample of the distribution database to provide feedback to the various questions.  The questionnaire was modified to eliminate wordings that were confusing or provided dual definitions prior to the full study.   The final version of the survey questionnaire was distributed to one hundred (100) members of the Philadelphia regional construction industry in a distribution database that was created to provide an equal distribution among the various members of the construction industry.  This distribution ensured that the responses to the questionnaire would consider the various perspectives of the different project team members, thus providing a general overall results; not a biased view from one or two perspectives.

The survey questionnaire was established to obtain four sets of information.  The first part defined the respondents’ job description within the construction industry and the sizes and types of projects in which they are a team member of.  The second part of the questionnaire established the respondents’ general knowledge of the concept of value engineering by asking various questions concerning their experiences with the value engineering process.  Furthermore, the questionnaire also dealt with respondents’ concept of a successful value engineering review by asking specific questions relative to their experiences with success and failure in the elimination of unnecessary costs within a project.  The fourth section of the questionnaire was designed to establish the respondents’ opinions on what they felt were the various obstructions to implementing a successful value engineering process.

Results and Analysis

Respondents’ Job and Project Classification

Fifty-five (55) questionnaires where completed for a return rate of fifty-five (55) percent.  While the return rate was not 100 percent, the distribution of members who returned the questionnaire was spread relatively equal among their job classifications within a project (see Table 1).   

(Note:  Some respondents classified themselves within two categories.)

Since the questionnaire was developed to establish an overall, but limited view of the implementation of the value engineering process in the Philadelphia construction industry, it was important to establish an equal representation of the various types of construction projects to prevent a bias review.  This was achieved through responses to question #2, which asked respondents to classify the type of construction projects in which they are typically members of.   The results showed equally distributed responses (see Table 2). 

(Note:  Most respondents indicated that they work on various types of projects and selected two or more project types which results in the total percentages to be greater then 100.)

With the responses for question #1 and #2 generally distributed equally for job classification and project classification along with a typical project size (construction dollar amount) range from $50,000 to $200,000,000, the authors feel that the responses to the specific questions on the value engineering process provide for a relatively accurate representation of the Philadelphia construction industry’s interpretation of value engineering.  The following sections will detail the questions and responses to make a comparison on whether or not the Philadelphia construction industry’s interpretation of value engineering is accurate as in relation to the true concept of value engineering.

Respondents’ Value Engineering Experience

The questionnaire asked the respondents specific questions about their individual experience with the value engineering process in order to develop a comparison of the respondents experience and perception of value engineering. 

Forty-six (46) respondents (84%) stated that value engineering is performed on their projects.  This information leads the authors to expound that eighty-four (84) percent of all projects in the Philadelphia construction industry perform value engineering to some extent.  Of the forty-six respondents who verified that value engineering was performed on their projects, sixty-five (65) percent of the respondents stated that the value engineering study was performed during the preliminary design phase (see Table 3 below).

These results are in line with the information obtained from Dell’Isola (1974) which references a survey in which most respondents suggested that the value engineering study should be undertaken when the project is at 35% design and not at the conceptual phase of the project.  They also noted that the use of a value engineering review on a project at 35% design was popular since preliminary cost estimates could be made available which could be used to identify real savings and therefore, justify the value engineering study fees.  They believed that value engineering review at 35% design focused more on the potential cost savings in lieu of analyzing the overall concept and function of the project which is what is established in the conceptual phase.

(Note:  The above question was based on the individual experience.  Therefore, some respondents chose more then one stage, resulting in total percentages greater then 100.)

In addition, the survey results showed that the second most popular phase in which to perform a value engineering study is during the bidding/contracting phase.  The authors believe that this response is in line with the Dell’Isola (1974) comment concerning the study being more cost focused than concept and function focused.   During the bidding / contracting phase, budgets and costs are being verified by the current market along with a new project team member (the contractor) being introduced into the process.  The contractor brings a fresh look at the project along with the ability to reduce costs.

Of the eighty-four (84) percent who verified that they participated in a value engineering study only fifty-four (54) percent of the respondents stated that the value engineering study was performed as a separate process while forty-six (46) percent of the respondents stated that the value engineering study was not performed as a separate process.   With only fifty-four (54) percent of the respondents verifying that they had participated in a value engineering study which was conducted as a separate process, the authors opined that the other forty-six (46) percent did not participate in a formal value engineering study but probably participated in a review of the plans for cost savings.  Therefore, from this study, it can be concluded that only fifty-four (54) percent of the questionnaire respondents participated in a value engineering study while eighty-four (84) percent claim they participated in a value engineering study.

The survey also concluded that only eight (8) of the forty-six (46) respondents who claimed they participated in a formal value engineering study participated in a study that was conducted by an independent facilitator.  The other thirty-eight (38) respondents verified that their study was conducted by a project team member.   The results to the question of which team member led the value engineering study is indicated in Table 4 shown below.

These results indicating that the majority of the value engineering studies are led by the Construction Manager or Contractor along with the results from table 3 which indicated that fifty-seven (57) percent of the studies are performed during the bidding / contracting phase of the project is more representative of experience construction personnel reviewing final plans and making material or method changes in order to reduce costs as opposed to value engineering the project.    The line within this comparison can be blurred since individual cost reductions can be performed on projects without reducing the value.  Therefore, creating an illusion that the project went through a formal value engineering study and all unnecessary costs where eliminated.

(Note:  The above question was based on the individual experience.  Therefore, some respondents chose more then one team member, resulting in total percentages greater then 100.)

The survey continued to establish the participant’s knowledge of value engineering by asking general questions about value engineering and their understanding of the formal process. 

The results to the question asking the respondents to rate on a scale of one to ten the various project team members’ importance to the value engineering process is shown in Table 5 below.  Survey participants indicated that the Construction Manager’s participation in the value engineering study is most important among all the project team members.

While the Construction Manager is only slightly ahead of the Engineer, the Contractor is also considered an important member of the value engineering process.  This supports the authors prediction that the respondents have not participated in value engineering studies but rather participated in cost reduction meetings where the Construction Manager and Contractor provided input on cost saving materials and methods.

Respondents’ Perception of Successful Value Engineering

At this point in the questionnaire, the responses have established that eighty-four (84) percent of the respondents work on projects in which value engineering is performed and the respondents believe that value engineering will reduce costs.

Now the questionnaire asks the respondents of which eighty-four (84) percent stated that they work on projects in which value engineering is performed, to provide two examples in which value engineering was applied to their project.  Below are a few examples of the individual responses.  These responses are categorized by the authors into three groups depending on whether the example is considered to be value engineering, cost reduction or poor design work that was identified and changed.

Responses considered as value engineering:

1.        Crushed concrete roadway sub-base in lieu of quarry stone

2.        Flow fill of abandoned utilities in lieu of removal

3.        Ground improvements to eliminate the need for pile foundations

4.        Reviewing alternative bridge options led to specifying a timber/steel bridge in lieu of a concrete culvert, saving substantial dollars and improving appearance

5.        Flooring structural system redesigned to provide same performance with simpler, cheaper design

6.        Changed 1 big building to 2 smaller buildings eliminating pump station and major structural work – same quality

Responses considered as cost reductions:

1. Replacing pavers with standard concrete pavement

2. Decorative corrugated metal walls and awnings changed to stucco and canvas awnings

Responses considered as poor design work:

1. Minimized pipe depth

2. Rock probes led to raising pipe work and roads, solving rock and dirt problems on job and substantially reducing costs

3. Eliminated/substituted more commonly available items for hard to find items.

4. Job was raised due to overage of earth on site

5. Reduced footer and frost wall depth from 6’-0” to 4’-0”

Of all the responses, the authors believe that forty (40) of the seventy-three (73) responses are examples that where developed as a result of value engineering (whether formal or informal) by project team members. 

However, the results to the question asking for value engineering examples provided the authors with a new perspective about how the construction industry is confusing value engineering with the correction of poor design work.   The authors concluded this new perspective since twenty-five (25) of the seventy-three (73) individual value engineering examples are, in the opinion of the authors, corrections of poor design work which was identified and corrected by a team member.   For example, it is standard industry practice that any earthwork project has a design goal to create a grading plan which will balance the cut-and-fills in order to prevent the requirement of importing or exporting fill which will cost additional money and time.  Therefore, it is the authors’ opinion that if during the design process a team member performs a review of an earthwork analysis and determines that the site can be adjusted to create a balanced site, then this is an example of correcting a poor engineering design and not value engineering since a balance site should have been originally designed by the engineer who was designing the grading plan. 

After providing examples of value engineering, the questionnaire asks the respondents to provide their definition of value engineering.  This was to ascertain if the eighty-four (84) percent of respondents, who stated that they worked on projects in which value engineering was performed, understood what formal value engineering is. 

Examples of the most accurate responses to the definition of “value engineering” include:

1. A systematic and structured approach to identify and eliminate unnecessary costs in a project using a multi-disciplined team approach

2. Value engineering is a process to examine all facets of a project to determine where capital and O&M costs can be reduced, while still delivering a project that produces the outputs desired by the Owner.  The process should always include life cycle cost analysis, and should not sacrifice quality for cost reduction.

3. Value engineering is a review process which addresses all aspects of a given project: functional, economic, constructability, life cycle and aesthetic.

4. VE process identifies opportunities to remove unnecessary costs while assuring the quality, reliability, performance and other critical factors will meet or exceed customer’s expectations.  Teams representing all parties are involved.  VE is also a process that improves and optimizes life cycle costs of a facility.

While the majority of the responses define “value engineering” as a process in which the project is reviewed for cost saving ideas which should not affect the quality of the final project, only one respondent clearly defined “value engineering” as a systematic and structured approach.  As stated in this paper, it is important for everyone participating on the study team to understand that this process is not an unorganized critique of the designer’s plans, but an organized system in which the team approach is used to provide creative solutions and alternatives to the project that will eliminate unnecessary costs.  After reading the fifty-two (52) responses defining “value engineering”, the authors concluded that the majority of the respondents have never participated in a formal value engineering study, but they instead participated in a review/critique of the project plans with the goal to reduce cost for budget purposes.   This conclusion is validated when the participants were asked the specific question, have you ever participated in a formal value engineering analysis conducted by an independent facilitator, only twenty-four (24) percent responded positively. 

The authors’ conclusion that the majority of the respondents have never participated in a formal value engineering study, but the respondents instead participated in a review/critique of the project plans is further established in the responses to the question asking for the respondents to provide what they believe is the greatest cause of unnecessary costs within a project that value engineering will eliminate. 

The results indicated that a majority of the respondents believe that the greatest cause of unnecessary costs within the project is the result of design issues associated with the plan and the lack of the technical ability of the design professionals.  Examples of the responses include:

While the respondents seem to indicate that value engineering will correct design problems which are resulting in unnecessary costs, the authors believe that the respondents are referring to mostly completed design plans which are reviewed for accuracy by the design team.  Furthermore, the responses did not refer to the review of a projects function or concept and how the function of the project can be achieved with the minimal dollars.  The responses focused on poor design work and that accurate design work will eliminate construction extras, which is being confused with unnecessary costs. 

Respondents’ Perception of Obstructions to Value Engineering

The next section of survey asked the respondents what they believe are obstructions to the value engineering process and to the elimination of unnecessary costs within the project.  The respondents had nine (9) possible choices and could choose more than one (see Table 6 below).

The responses shown in Table 6 are relatively even with the exception of item ‘i’, which was chosen by ninety-one (91) percent of the respondents and is generally consistent with the responses to the following questions concerning which team members are critical to the value engineering study as it relates to the Contractor:

·         Who do you believe should participate in a formal value engineering analysis, which would be conducted by an independent facilitator?

·         Who do you believe has the most impact on the elimination of unnecessary costs within the project?

The results of these two questions along with the previous question, which asked the participants to rate the various team members’ importance to the value engineering study, are shown below.

* The number of responses each team member received

The authors’ interpretation of the data in Table 7 is that the Construction Manager is looked upon by the team members as a facilitator in the process.  That is why the Construction Manager was chosen as the most important team member to participate in the value engineering study.  However, the team does not look to the Construction Manager for eliminating costs since he/she is not an engineer or contractor.   

Respondents consistently chose the Contractor as a valued member in the value engineering study for participation and reducing costs.  Again, this supports the authors’ conclusion that the respondents to the survey are confusing cost reduction with value engineering.  This opinion is established because the Contractor, while an important member of a project team with expertise in construction and costs, is not a designer who is establishing the vision of the project.  Instead, the Contractor is merely providing budgets (cost data) based on the design team’s concepts and plans and he should be used as a tool in the process because of his experience and expertise in the construction industry.

Conclusion

This study questionnaire established that eighty-four percent of the respondents recognized that they participated in value engineering studies.  However, as the questionnaire continued, it was concluded that the actual number of respondents who participated in value engineering studies was well below the eighty-four percent.  Only fifteen percent of the respondents confirmed that they participated in a value engineering study conducted by an independent facilitator.  The independent facilitator is a critical part of successful value engineering since the facilitator has no previous agenda concerning the project and maintains the focus of the group.  Therefore, it was concluded that only fifteen percent of the respondents have truly participated in a value engineering study.  Furthermore, it was concluded that the respondents who stated that they participated in value engineering studies actually participated in reviews of the design plans for cost saving alternatives which where established to meet a project budget.

The respondents understood that the early stages of a project (conceptual or 35% design) were the critical time in which a value engineering study should take place.  The early stages of the project permit changes to the individual functions of the project without having to redesign, which will result in additional costs and time.  However, the respondents’ experience with value engineering studies indicated that value engineering studies are performed farther into the design process.  Therefore, the participants seemed to be more into the cost savings thought process in which they are reviewing completed designs and making suggestions on how to perform a function in a more cost effective way.  This was further established when the respondents provided examples in which value engineering was applied to their projects along with what they believed to be the greatest cause of unnecessary costs within a project that value engineering will eliminate.

While the term value engineering is often used, the true concept of value engineering is not understood by the majority of today’s construction industry members.  Furthermore, the performance of value engineering studies with an independent facilitator in the private construction industry is rare and the industry is confusing cost saving measures with value engineering.

References

Miles, Lawrence D. (1961).  Techniques of Value Analysis and Engineering.  McGraw-Hill, New York

O’Brien, James J. (1976).  Value Analysis in Design and Construction.  McGraw-Hill, New York

Fowler, Theodore C. (1990).  Value Analysis in Design.  Van Norstrand Reinhold, New York

Dell’Isola, Alphonse J. (1974).  Value Engineering in the Construction Industry.  Construction Publishing Company, New York

Thiry Michel (1997).  Value Management Practice.  Project Management Institute, Sylva, NC

McKew, Howard (1999). “Why Doesn’t Value Engineering Work?”  Engineered Systems, Vol. 16 Issue 5, p86.

Acharya, Prakash and Pfrommer, Charles & Zirbel, Charles (date unknown) “Think Value Engineering” Publication Unknown