Value Engineering
Learning Objectives
- Understand the definitions of Value, Function, and Life-Cycle Costing.
- Apply the Value Equation to assess project functions against their costs.
- Implement the Value Engineering Job Plan to systematically improve project value.
- Differentiate formal Value Engineering from standard, reactive cost cutting.
Value
The ratio of function to cost. Value is increased by either improving the function without increasing cost, or by reducing the cost without degrading the function.
Function
The specific purpose or intended use of a project element, typically expressed as a two-word active verb-noun combination (e.g., "Support Weight", "Enclose Space").
Life-Cycle Costing (LCC)
The evaluation of the total cost of ownership of an asset over its entire life, including initial capital costs, operating costs, maintenance, and disposal.
Function Analysis System Technique (FAST) Diagram
A diagrammatic representation of the logical relationships between functions of an item, project, or process, built on "How" and "Why" logic to establish a critical path of functions.
Value Engineering Proposal (VEP)
A value engineering recommendation developed and submitted by the design team or VE consultant during the design phase of a project.
Value Engineering Change Proposal (VECP)
A proposal submitted by the contractor during the construction phase to change the contract requirements, resulting in cost savings that are typically shared between the owner and the contractor.
Introduction to Value Engineering
Value Engineering (VE) is an organized approach to identifying and eliminating unnecessary costs in a project while maintaining or improving its quality, safety, and performance. Unlike simple cost-cutting, which often reduces the scope or quality of a project, Value Engineering focuses on the function of the project components. The core premise is: "How can we achieve the same (or better) function for less cost?"
Life-Cycle Costing in VE
VE heavily relies on Life-Cycle Costing (LCC) rather than just initial construction costs. Evaluating proposals solely on initial capital expenditure is insufficient; operational and maintenance costs must dictate the final decision.
Interactive Simulation
Interact with the Life Cycle Cost Simulator below to see how changes in parameters affect costs.
Life Cycle Cost & Value Engineering
Value Engineering optimizes the total by balancing the Initial Cost () with the Present Value of Maintenance (). Use the sliders to explore how discount rates and maintenance affect long-term value.
Cost Parameters
Interactive Simulation
Compare two project alternatives based on their lifecycle costs. See how a higher initial cost can be offset by lower maintenance expenses over time.
Life-Cycle Cost Alternative Tradeoff
Compare the Present Value Life-Cycle Cost (PV LCC) of two alternatives. Often, an option with a higher initial capital cost provides better long-term value due to lower annual operating and maintenance expenses.
Option A (Lower Initial Cost)
Option B (Higher Initial Cost)
Global Parameters
Net Present Value Savings: $75,684
The Value Equation
The fundamental relationship in Value Engineering determines the overall worth or desirability of an element. Value can be increased by:
- Maintaining the same function, but decreasing the cost.
- Increasing the function, while keeping the cost the same.
- Increasing the function AND decreasing the cost (the ideal scenario).
- Increasing the function significantly with only a marginal increase in cost.
The Value Equation
Quantifies value as the ratio of a component's function to its cost.
Variables
| Symbol | Description | Unit |
|---|---|---|
| The worth or desirability of the project element | - | |
| The performance, quality, or utility provided | - | |
| The life-cycle cost required to achieve the function | - |
Interactive Simulation
Use the Function-Cost Trainer to explore how adjusting the function score or the lifecycle cost impacts the overall Value Index of a project component.
Function, Cost, and Value Index Trainer
The core principle of Value Engineering is to maximize the Value Index by optimizing the ratio of to . Adjust the sliders to see how improving function or reducing cost impacts the overall value.
Parameters
A relative measure of performance, quality, or utility.
The life-cycle cost required to achieve the function.
Higher values indicate a better return on investment for the required function.
The Job Plan (VE Methodology)
Value Engineering is typically conducted through a structured workshop following a standard methodology known as the "Job Plan". This multi-disciplinary process ensures rigorous analysis rather than random brainstorming.
The Value Engineering Job Plan
- Information Phase: Gather all project data, understand the background, costs, and identify the core functions of the project elements.
- Function Analysis Phase: Define the functions using verb-noun pairs. Determine the "worth" of each function (the lowest cost to achieve it) and compare it to the current estimated cost to identify areas of poor value.
- Creative (Brainstorming) Phase: Generate a wide variety of alternative ways to perform the identified functions. Defer judgment—all ideas are welcome at this stage.
- Evaluation (Analysis) Phase: Review and filter the ideas generated in the creative phase. Evaluate them against project constraints, life-cycle costs, and technical feasibility. Select the best alternatives.
- Development Phase: Take the selected alternatives and develop them into fully formulated proposals. This includes detailed cost estimates, life-cycle cost analysis, sketches, and assessing risks.
- Presentation Phase: Present the formal VE proposals to the stakeholders (owner, designer, management) for approval and implementation.
Interactive Simulation
Adjust criteria weights and alternative scores in the matrix below to see how weighted evaluations determine the winning Value Engineering proposal.
Weighted Evaluation Matrix
During the Evaluation Phase of the Job Plan, proposals are often scored using a weighted matrix. Adjust the importance (weight) of each criteria and the raw score of each proposal to see how the overall weighted score changes.
Criteria Weights
Proposal 1 Scores (1-10)
Proposal 2 Scores (1-10)
FAST Diagrams
The Function Analysis System Technique (FAST) Diagram is a key tool in the Function Analysis phase. Moving left to right answers "How?", while moving right to left answers "Why?". This establishes a horizontal sequence of necessary functions.
FAST Diagram Characteristics
- How-Why Logic: Moving left to right answers "How?", right to left answers "Why?".
- Critical Path of Functions: Establishes a horizontal sequence of necessary functions.
When to Apply Value Engineering
The ability to influence cost drops drastically as a project moves from conceptual planning into detailed construction documents. Therefore, VE must occur during schematic or early design development to capture maximum savings without stalling the schedule.
Early Implementation
The potential for savings is highest during the early stages of a project. A common rule of thumb is that 80% of a project's life-cycle costs are locked in during the first 20% of the design process.
Value Engineering vs. Cost Cutting
It is critical to distinguish formal Value Engineering from standard cost-reduction exercises, which often happen in a panic when bids come in over budget. True VE is never synonymous with cheapening a project.
VE vs Cost Cutting
- Cost Cutting: Often reduces the scope or lowers quality. Done reactively late in the design or during construction. Focuses purely on the cost denominator.
- Value Engineering: Never sacrifices required quality or safety. A proactive, creative, and systematic team approach. Focuses on optimizing the ratio of Function to Cost.
- Function over Form: VE explicitly analyzes what an item does (its verb-noun function), separating required performance from the physical object designed to achieve it.
- The Value Equation: Value is the ratio of Function to Cost. True VE seeks to maximize this ratio, evaluating proposals over the entire life-cycle (LCC) rather than just initial capital expenditure.
- Structured Methodology: The VE Job Plan (Information, Function Analysis, Creative, Evaluation, Development, Presentation) separates creative brainstorming from analytical evaluation.
- Early Application: Implementing VE changes becomes exponentially more expensive as design progresses. Maximum savings are captured during the conceptual and schematic phases.