Cost & Value Engineering

In today’s competitive environment, maximising the efficiency and effectiveness of resources is crucial. Value Engineering and Cost Engineering offer robust strategies to achieve this goal. As systematic methodologies, they focus on analysing and enhancing the value and cost-efficiency of products, services, or projects.

Essentially, Value Engineering seeks to deliver the required functionality at the most advantageous cost. At the same time, Cost Engineering ensures these costs are accurately estimated and controlled through detailed cost estimating and profitability analysis.

Core Principles of Value Engineering

In the context of Value Engineering, “value” is often defined as the ratio of function to cost. In simpler terms, a high-value product or service delivers the necessary features at a reasonable price. Value engineering can improve this ratio in three principal ways:

1. Enhancing Functionality: This approach focuses on improving the capabilities of a product or service without significantly increasing the cost. Enhancements could involve adding new features, improving performance, or enhancing the user experience.

2. Accurate Cost Estimates: A key component of value engineering is the development of precise cost estimates. This ensures that decisions are made based on reliable data, which helps in identifying cost-saving opportunities and avoiding budget overruns. Cost engineering plays a crucial role here, providing a clear understanding of where money is spent and highlighting areas for potential savings.

3. Reducing Cost: This strategy aims to achieve the desired functionality at a lower cost. Methods might include using alternative materials, simplifying designs, or streamlining processes.

Value engineering is not merely about cost-cutting, it is a creative problem-solving process that seeks smarter and more efficient ways to solve problems and achieve the desired outcomes.

Benefits of Value Engineering

Implementing value engineering offers numerous advantages, including:

• Reduced Project and Business Costs: By identifying and eliminating unnecessary costs, value engineering helps support total cost management. Cost engineering ensures these savings are systematically achieved.

• Improved Functionality and Performance: Value engineering can lead to better-performing products and services, even within budgetary constraints.

• Enhanced Product Quality: The process often results in a more critical review of materials and components, potentially leading to a higher-quality end product.

• Increased Efficiency and Productivity: Streamlining processes and eliminating unnecessary steps can significantly improve overall efficiency and productivity.

• Reduced Environmental Impact: By optimising materials and processes, value engineering can contribute to a more sustainable approach.

Examples of Value Engineering in Action

Value engineering can be applied across various industries. Here are a few examples:

Construction

A complex architectural design might be simplified to reduce construction costs without compromising functionality. The redesign of the Transbay Transit Center in San Francisco incorporated value engineering to cut $1 billion from the project’s budget while maintaining core functions. Cost engineering was vital in ensuring the revised budget was accurate and achievable.

Manufacturing

A company could seek to substitute a hard-to-source high-priced material with a readily available, cost-effective alternative that offers a lower cost and similar performance. For example, Toyota uses value engineering to continually improve its production processes, resulting in significant cost savings and efficiency improvements.

Software Development

A software development team might streamline their coding process to reduce development time and associated costs. Agile methodologies often incorporate value engineering principles to enhance project value by iterating and refining functionality.

When to Use Value Engineering

Optimal Timing for Value Engineering

Technically speaking, value engineering can be undertaken at any stage of a project or product life cycle. However, the earlier it is integrated into the process, particularly during the schematic stage, the more advantageous it is. Program planning and design are the two critical phases in the building lifecycle where value analysis can create the most significant benefits. If value engineering turns into rework or causes project delays, it ceases to be beneficial. The following graph illustrates the point in the life cycle at which value engineering shifts from yielding financial gains to incurring financial losses.

Value Engineering During the Building Lifecycle

One area where the design and project management team must never compromise is safety. Any change that would result in a violation of building codes or otherwise jeopardise the health and well-being of the facility’s users should be immediately rejected.

It is important to understand that value engineering is not merely a reactionary measure to avoid budget overruns. The objective is not simply to cut costs but to maximise functionality at the lowest possible expense. Value engineering is a methodology that ensures the owner is not overpaying for quality when an equally effective, less expensive option is available. Ultimately, product quality remains the paramount goal.

Role of the Value Engineering Team

The success of value engineering relies heavily on the collaboration and expertise of a diverse team. Each member of the value engineering team plays a crucial role in ensuring that the project meets its objectives in terms of functionality, cost-efficiency and quality.

Project Manager

The project manager oversees the entire value engineering process and programme planning, ensuring that all activities align with the project’s objectives and timelines. They coordinate between different team members, manage resources, and ensure that the value engineering activities integrate smoothly into the overall project management framework.

Cost Engineer

The cost engineer is responsible for developing accurate cost estimates and analysing cost data throughout the project. Cost engineers support cost estimating, identifying cost-saving opportunities, and ensuring that cost-efficiency is achieved without compromising functionality or quality.

Design Engineer

The design engineer focuses on the technical aspects of the project, ensuring that the proposed value engineering solutions are feasible and meet the required specifications. They work on modifying designs to enhance functionality and reduce costs, often suggesting alternative materials or design simplifications.

Procurement Specialist

The procurement specialist ensures that the materials and components needed for the project are sourced cost-effectively without compromising quality. They explore alternative suppliers, negotiate contracts, and ensure that raw materials meet the project’s specifications.

Quality Assurance Engineer

The quality assurance (QA) engineer ensures that the value engineering solutions do not compromise the quality and safety of the final product. They conduct rigorous testing and validation of proposed changes, ensuring compliance with industry standards and regulations.

Sustainability Expert

A sustainability expert may be included in the value engineering team. Their role is to ensure that the proposed solutions align with environmental goals, such as reducing the carbon footprint, using sustainable raw materials, and minimising waste.

Implementing Value Engineering: A Step-by-Step Guide

Implementing value engineering involves a structured and systematic approach. Here is a step-by-step guide:

1. Information Gathering: Understand the project scope, objectives, and constraints. Gather data on costs, functions, and performance requirements. Cost engineering tools can be invaluable during this phase.

2. Function Analysis: Identify and prioritise the functions of the product or service. This involves determining which functions are essential and which can be modified or eliminated.

3. Creative Phase: Generate ideas for improving value. This phase encourages brainstorming and innovative thinking to explore different ways to enhance functionality or reduce costs.

4. Evaluation: Assess the feasibility and impact of the ideas generated. This involves detailed analysis to select the most promising solutions. Cost engineering ensures the financial viability of these ideas.

5. Development: Develop the selected ideas into workable solutions. This phase includes creating detailed designs, models, or prototypes.

6. Implementation: Execute the developed solutions. This involves coordinating with stakeholders, managing resources, and ensuring the changes are integrated smoothly into the project.

7. Review: Monitor the implemented changes to ensure they achieve the desired outcomes. This phase includes collecting feedback, measuring performance, and making necessary adjustments. Cost engineering continues to track and manage costs throughout this phase.

Conclusion

Value engineering, supported by cost engineering, is an invaluable tool for businesses and organisations of all sizes. It is a continuous process that can be applied throughout various components of a project’s lifecycle, from initial design to ongoing maintenance. By embracing value engineering, organisations can achieve optimal performance while ensuring cost-effectiveness.

For further reading, resources and practical examples, consider exploring the following resources:

• “Value Engineering: Practical Applications…for Design, Construction, Maintenance & Operations” by Larry W. Zimmerman and Glen D. Hart: This book provides comprehensive insights into value engineering principles and their application in various industries.

• American Society of Mechanical Engineers (ASME): Their website offers articles and case studies on value engineering applications.