Value Engineering (VE) for Construction, often demonized as
De-Value Engineering, should function as a holistic value review of
a project, including design, program, site placement, materials,
constructability, life-cycle costing, and environmental
sustainability. If project teams do not use all the tools that VE
makes available, they miss out on current analysis opportunities as
well as the body of knowledge that VE represents.
Using Active Value Engineering for Quality Management
By Cliff Moser, AIA, MSQA
What is Value Engineering?
Value Engineering was conceived as a cost and value tool during
World War II by Lawrence Miles and Harry Erlicher while working at
General Electric (GE). Facing wartime shortages, they developed a
process for resourcing substitutes. They examined what could be
used by identifying what was available, which had the unintended
consequence of recommending substitutes that reduced costs and
improved the product. What began as an “accident of
necessity” for substitution was developed into a systematic
procedure that GE soon applied to all of its products. GE described
the procedure as Value Analysis (VA). As other manufacturers and
industries (including the Army Corps of Engineers) adopted VA, the
more active verb, engineering, became associated with it.
Value Engineering’s History in Construction
Value Engineering within construction was pioneered by
Mr. Alphonse Dell’ Isola in the 1960s. He focused on the same
goals as Miles and Erlicher in developing a value analysis process
for construction. The Federal Government Construction Value
Engineering Law (Public Law 104-106) can be credited to Mr.
Dell’ Isola. During his career, he conducted more than 1,000
VE workshops for various organizations that resulted in savings of
$2.5 billion.
Dell’ Isola identifies “improving project value” as
the main objective of VE. In addition to improving project value,
he states that the project team should utilize VE to overcome poor
project value and quality, including,
1) Lack of shared project information—insufficient data on the
function of stakeholder requirements. This includes building
materials and processes.
2) Lack of ideas, or failure to develop alternate solutions and
then making choices based on economics and performance.
3) Temporary circumstances—urgent delivery, design, or
schedule circumstances can force decisions that, while quick, are
often incomplete without regard to value.
4) Honest but wrong beliefs—decisions based on what is
believed to be correct rather than on facts.
5) Habits and attitudes –response to doing the same thing, the
same way, under the same circumstances.
6) Changes in stakeholder requirements—new requirements may
cause costs to increase without awareness.
7) Lack of communication and coordination—issues of
communication and coordination have been determined to be reasons
for unnecessary costs.
8) Outdated standards and specifications—VE helps isolate and
focus new technologies and standards in areas where high costs with
poor value may incur based on wrong or legacy information. Active
VE can provide a framework for a rigorous review of project
specifications (Dell’Isola, 1997).
Construction VE Today
Many VE workshops are performed as contractor-driven scope removal.
In this abbreviated process, the contractor focuses only on cost
removal, rather than using VE to re-evaluate and re-establish a
project’s goals by way of a value function review and
analysis.
Design to Cost.
Architects resist an active role in costing. The fungible
nature of building costs challenges designers who, in the past,
have typically requested that the owner retain an estimator to cost
the project at appropriate stages of design and documentation. If
the estimate was found to be at variance with the owner’s
budget, the estimate was challenged, or additional monies obtained,
or areas of the project shelled or removed. Once a decision was
made, the design team marched-on, grumbling but immune to the
coarser details of budgets. However, AIA B141-1997 fundamentally
changed the design team’s role in costs and budgeting. The
last sentence of Section 2.1.7.1 states “if at any time the
Architect’s estimate of the Costs of Work exceeds the
Owner’s budget, the Architect shall make appropriate
recommendations to the Owner to adjust the Project’s size,
quality or budget, and the Owner shall cooperate with the Architect
in making such adjustments.” The issues raised with this
statement is that any 1) adjustments may be open ended, and 2) the
architect may be bound to provide re-design services for free, even
if the budget impacts were beyond the control of the
architect.
Case for Proactive Cost Management
2.1.7.1 demands an integrated approach to project cost
and design. By neglecting cost (and value) as one of the
requirements of design, the architect runs the risk of attempting
to defend the cost and value of the design after the project is
complete. To mitigate this risk, the architect must identify and
manage project value and cost.
Target Cost Modeling
Target Cost Modeling (TCM) is a process that is
integrated into the project during its early phases. It matches the
construction costs to design by creating a target model. As used in
manufacturing, TCM is a structured approach to determine the
lifecycle cost at which a product with specified functionality and
quality must be produced to generate the desired level of
profitability when sold at its anticipated selling price.
By estimating the built cost of a project, then subtracting its
soft costs, the cost at which the project must be
constructed—its target cost—can be identified. In
manufacturing, successful target costing is to design the product
so that it satisfies the customer and is manufactured at its target
cost. In construction, successful target costing is to design and
build the project so that it satisfies all customers and is built
to its target cost.
Although it sounds impossible, each project should start with a
target cost. In one successful hospital project in which successful
TCM was employed, a project cost model was established and endorsed
by all parties at the end of schematic design. Ongoing biweekly
costing review and reconciliation workshops were iterated during
the remaining phases to maintain the project within an endorsed
cost model. If a reviewed system was shown to be designed out of
variance with the cost model, the contracting, design and owner
team, met to bring the system back into project scope, either
by
1) re-analyzing the material, system, or component, as part of
function analysis
2) reducing the product or system scope, as a result of the
function analysis, or
3) increasing the budget available for the material, system, or
component and agreeing to the added value.
This integrated model helped empower the design team as part of the
costing process. Formally spectators to an arcane exercise, the TCM
program integrated design as a full team member, providing a design
voice to counter the construction voice. It also allowed the team,
as an integrated group of designers, constructors, and owners to
determine, identify and control project cost and value.
In Part 2 we’ll look at new tools that can be used for value
analysis of project systems and components to ensure that the best
value to function is obtained.
Cliff
Moser, AIA, MSQA is a principal at RTKL Associates
Inc. in Los Angeles.