DEFENCE WORKS FUNCTIONAL STANDARDS

TECHNICAL 96/03

BULLETIN

Issued by Defence Estate Organisation (Works) - Sutton Coldfield - February 1996

VALUE ENGINEERING

Subiect Contact Point:

Technical Support Group TS7 Sutton Coldfield Mil Extn 3863

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VALUE ENGINEERING

CONTENTS

Serial Item

1-5 FOREWORD

6-10 INTRODUCTION

11-22 VALUE ENGINEERING

11-21 Definition and Objectives

22 The Relationship Between Value Engineering and Through Life Costing

Page

3

3-4

4-5

4-5

5

23-27 METHOD

23 Timing of Value Engineering Revews

24 Participants in Value Engineering Reviews

25 Value Engineering Techniques

26

27 Design Liability

Implementation of Value Engineering Proposals

Annexes

A

B

Value Engineering in the Context of Project Workstages

Typical Extract fiom a Value Engineering Report

5-9

5-6

6

6-9

9

9

10

11-13

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VALUE ENGINEERING

FOREWORD

1. The purpose of this Technical Bulletin (IB) is to provide guidance on Value Engineering (vE> to those concerned with the design and construction of property related facilities.

2. It should be read by all Project Sponsors, Desk Officers and Property Managers and brought to the attention of all consultants and contractors engaged in any capacity to design, procure andor construct new facilities, alterations to, or refurbishment of, existing facilities, or maintenance andor repair to existing facilities.

3. This TB reflects and amplifies the Central Unit on Procurement (CUP) Guidance Note Number 35 on Life Cycle Costing and the forthcoming CUP Guidance Note on "Value Management/Engineering" and shall be read in conjunction with the following TBs issued by the DEO(W):-

a. Works Investment Appraisal - No 95/04

b. Through Life Costing - NO 96/04

4. Terms used in this TB are definedexplained as they occur.

5 . This document has been written for direct application to works projects. However, the methodology is equally applicable to Property Management works services, though it is recognised that formal procedures may need modification to suit.

INTRODUCTION

6. The requirement to incorporate VE reviews into the design development phases of all construction works follows the conclusions of a report by the National Audit Office on the Management of the Capital Works Programme of the MOD published in 1995.

7. The report states that the MOD "should place emphasis on:

b greater use of techniques to provide cost savings - including value engineering, space planning and life cycle costing:"

8. VE studies take place after the appointment of the Project Manager and form part of his responsibilities. It is intended that formal VE studies are carried out at the following points in the design stages of a project:-

a. During the P r e h m r y Design stage (Work Stage 4), prior to the Peer Review, and once potential design solutions have been developed to a sufficient level to allow meaningfil analysis and generation of alternatives where appropriate.

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b. During the Detail Design stage, prior to the Peer Review. This applies to Contracts with Authontyk Design (Work Stage 5 ) only.

9. This TB sets out the MOD'S objectives in terms of VE and is intended to provide a basic introduction to VE methods, implementation techniques and minimum reporting requirements for all MOD construction projects. It is assumed that Project Managers already have a good understanding of the concepts involved.

10. The TB amplifies the requirements contained within the Project Manager's Terms of Reference and Specifications for Establishment Works Consultants (EWCs) and Works Services Managers (WSMs).

VALUE ENGINEERING

1 1. Definition and Obiectives

"A systematic approach to enhancing the value of a project by seeking optimal design solutions, thereby reducing unnecessary cost, whilst maintaining and enhancing all aspects of quality and function".

12. The premise behind VE is that the design process of construction projects is inherently complex and an optimal solution to each aspect of design is not always found. This potentially gives rise to unnecessary cost (comprising all aspects of cost, including time), which may be defined as the differential cost between an existing design solution and an optimal design solution.

13. VI3 seeks to idenhfy the optimal design solution in terms of the Project Brief and to seek out and eliminate any unnecessary cost, without in any way diminishing function and quality aspects, thereby increasing its value.

14. Costs released by VE can then be re-allocated to optimise other areas of design, thereby M e r enhancing value. In these respects, VE differs form traditional methods of cost control, which seek only to reduce cost, rather than focusing on achieving better value.

1 5. Unnecessary cost can be considered under five general headings:-

a. Unnecessary Costs of Design.

b. Unnecessary Cost of a Component.

c. Unnecessary Cost of a Material.

d. Unnecessary Cost of Poor Buildability.

e. Unnecessary Life Cycle Cost.

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16. VE is implemented through a structured analpcal system carried out by a VE Team. The team may be formed from key members of the Design Team or be a completely new third party team or a combination of the two. In practical terms, the combined team is generally the most workable, combining a good project knowledge base with a fresh unencumbered overview of the project.

I

17. This team is formed for a strictly limited period to reassess key design decisions in relation to key objectives and the technical requirements of the Project Brief, using both creative and analpcal techniques.

18. The MOD is involved in the procurement of buildings and installations specifically designed to meet their own requirements in the first instance, but it is also a fundamental requirement of the MOD that, in the hture, such buildings and installations must also be considered in terms of commercial assets that may be offered for lease or sale on the open market.

19. As such, private sector commercial criteria related to Property Development and Property Management need to be recognised for the future and applied by the MOD and its Agents to all future MOD developments.

20. VE techniques need to be applied to projects with the above in mind. Furthermore, the scope, participation and duration of VE workshops which need to be undertaken should be at a level commensurate with the nature, size, complexity and value of the development. A cost versus benefit approach must be maintained by the Project Manager when establishing the parameters for a VE workshop and the overall VE strategy.

2 1. Whilst the formal VE workshops and resultant reviews may be considered to be the main, f o d VE tool, it is the intention of the MOD that a VE perspective be adopted and maintained by the Project Manager throughout all the project stages. The identification of design solutions which offer the closest alignment with the value requirements of the Project Brief and the resultant elimination of unnecessary cost is a primary constituent of the MOD'S objective of maximising "value for money".

22. The Relationship Between Value Engineering and Through Life Costing

a. Both VE and Through Life Costing (TLC) seek to provide a philosophy and method to achieve this primary "value for money" objective, and share a similar technique. Both VE and TLC are subsets of the Quality Plan, and both aim to achieve value enhancements during the design process of a building or facility.

b. Whilst VE focuses on the realisation of benefits by reviewing existing design solutions fiom the perspective of value, TLC focuses on the total cost of ownership, from initial purchase through to final disposal and replacement.

c. In this sense TLC can be considered a subset of the VE process, albeit a rather major one.

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METHOD

23. Timing of Value Engineering Reviews

a. The majority of building cost is committed during the early stages of the design process. It follows, therefore, that VE can derive the greatest benefits if it is applied early in the design process. Similarly, the recommendations of a VE review should be readily accommodated in the design development of a project without incuning large amounts of abortive work in changing existing design solutions. At the same time, however, since VE methodology relies on the analysis of design solutions, it is necessary for the design to have progressed sufficiently for a number of key decisions to be analysed.

b.

c. In this respect, VE reviews should concentrate upon:-

(1) The basic philosophy underlying the preliminary design, and any decisions which have been made in working up the Project Brief.

Individual elements of the detailed design which make up the building or facility. (2)

24. Participants in Value Engineering Analysis

a. The VE team should be of a multi-disciphnary nature, combining skills and expertise appropriate to the project being considered. The size of the VE team will be determined by the scope and complexity of the project, and the existence of specialist areas where specific expertise may be required. In the interests of efficiency, it is recommended that the team be kept as small as is feasible without losing any possible skill benefits.

b. The VE team shall be appointed by the Project Manager, and may include the Project Manager and those sub-consultants deemed to be appropriate, and should ideally also include individuals who are not part of the Project Manager's Design Team, such as advisors with specialist expertise, or other design consultants.

25. Value Enpineering Techniques

a. The accepted industry method takes the form of two separate but interrelated stages:-

(1) Creative.

(2) Analytical.

b. These two stages can be subdivided into five phases as below:-

1. Information Phase Creative I 2. Speculation Phase Stage

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3. Evaluation Phase

4. Development Phase

5. Presentation Phase

Analytical Stage

c. It is intended that the five phase VE technique described is carried out in the form of a VE workshop. The scope and length of such a workshop will inevitably depend on the scale and complexity of the design under analysis. The tasks to be undertaken under each phase are summarised below:-

(1) Information Phase. It will be necessary for a hierarchy of value objectives (eg in the form of a weighted "Value Tree", as shown in the example at Annex B), to be established for the project as part of the Project Brief. The primary task for the VE team at this stage is to review the design in relation to these value objectives, and to identifi and concentrate on those features of the design which will derive most benefit h m the study. The VE team must very quickly idenw and Concentrate on those areas offering the greatest potential for value enhancement.

(2) Having identified the main areas of analysis, it is necessary to classifjr each part of the design. This can be done by analysing features of the design, according to the 'prompt' questions below:-

(a) What is it?

(b) What does it do?

(c) What does it cost?

(d) What else could it do?

(e) What else would it cost?

( f ) What is its value?

(3) This procedure will result in the identification of the main cost drivers of the project design by their description, primary and secondary functions, capital costs and value to the completed facility.

(4) Speculation Phase. This phase is concerned with the generation of creative design ideas, usually through a 'brainstorming' process, which lead to the formulation of alternative design solutions which fulfil the value objectives. It is

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the aim of this phase to generate a large number of new ideas in a conceptual form. It is important that ideas are generated on an uncritical basis at this stage, and it should not become simply a review of the existing design.

( 5 ) Whoever is in charge of the "brainstorming" process, ie the Chairperson or 'Facilitator', should encourage members of the VE team to propose spontaneous alternative solutions. The success of this phase is dependent on the adoption of a he-thinking 'lateral' approach by all members of the VE team. The suggestions generated during the speculation phase are recorded before proceeding to the next phase.

(6) Evaluation Phase. This is the first phase of the analflcal stage of the review. The objective of the phase is to critically appraise the proposals of the previous phase. Each suggestion is evaluated against its ability to conform to the value objectives required, and its advantages and disadvantages are considered. When evaluating individual design elements, it is important for the VE team to maintain a holistic perspective to the project and not analyse elements in isolation, but consider their interaction with one another, and the consequential impacts of a change in one element upon others.

(7) The evaluation process will reduce the original list into a much shorter list of possible alternative solutions which should be ranked in order of merit. In order to instill a degree of objectivity this can best be done by scoring each alternative against predetermined weighted criteria. The options are ranked according to their total score. A typical extract from a VE report is included at Annex B.

(8) Development Phase. The favoured alternative solutions to emerge h m the previous phase are then developed to a level of detail sufficient to enable cost studies to be undertaken for each option, in terms of both Capital and Through Life Costs. Clearly the number of options which are developed and costed will depend on the nature and complexity of the project under analysis. Given the limited time and relatively high costs of the VE exercise, rigorous control must be maintained throughout the process to ensure that the available time is being used most effectively. This is particularly important in the development and presentation phases, which account for the majority of time spent on a VE study. The efforts of the team must be directed to those areas where maximum benefits in terms of enhanced value are achievable.

(9) This phase will be considered complete when a number of alternative solutions have been identified, which meet all aspects of a required fiction, at an enhanced value to the existing solution.

(10) Presentation Phase. The presentation phase of the VE review occurs after the development phase, and is concerned with the production of a report by the VE team, detailing the conclusions of the VE study and presentation of the recommendations arising out of the review.

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(1 1) The VE exercise is intended to serve as an integral part of the design process, and as such, its purpose is as a tool to assist the designers in evolving solutions which maximise 'Value for Money'. It should not be considered as a criticism of the existing design, nor as a report to third parties detailing design inadequacies. The VE report is primarily a document for use within the Project Manager's Team. It is also used by the Peer Review Team to ensure that recognised VE procedures have been undertaken, that the evaluation is correct and conclusive and consistent with their own findings and that the recommendations have been incorporated into the design, where considered appropriate by the Project Manager.

(12) Where the VE team is independent of the design team, it will be necessary for the VE team to communicate their proposals to the design team in a considered fashion. To achieve the 111 benefits of the VE study, it is necessary for the existing design team to 'buy-in' to the proposed alternatives and accept them as enhancements to the design. An insensitive presentation of ideas to the design team will alienate them and the possible advantages of the exercise will very quickly be lost.

26. Implementation of Value Engineering Proposals

a. The Project Manager shall respond to the VE recommendations in writing, indicating where recommendations will be incorporated into the design, and detailing cost and time implications. The Project Manager may challenge the recommendations of the VE study and substantiate his reasons in the report.

b. Where the recommendations of the VE review would require revision of the Project Brief to achieve the identified benefits, the Project Manager shall inform the Project Sponsor in writing. The Project Manager shall detail the 111 implications of the changes on the project in terms of cost and time, and the possible benefits in terms of enhanced value, and shall indicate the revisions to the Project Brief which would be required.

c. A typical extract fiom a VE report is included at Annex B.

27. Design Liability. The VE review is assumed to be part of the design process for the project, and as such the incorporation of any recommendations arising fiom a VE study into an ongoing design shall not in any way absolve the Project Manager of his 111 responsibilities for the design of the project, or for meeting the requirements of the Project Brief in U.

Bulletin Authorised By:-

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