Value Engineering in Project Management
Raghav Kapur, Region Head , South India, SILA, shared his exclusive thoughts on value engineering in project management and that value is the ratio of function to cost. Value can therefore be increased by either improving the function or reducing the cost.
Wikipedia defines it as “a systematic method to improve the value” of goods or products and services by using an examination of function. Value, as defined, is the ratio of function to cost. Value can therefore be increased by either improving the function or reducing the cost.
We can talk about its functional analysis, but let’s not make it too technical. In simple words, Value engineering is a tool project managers use to ensure that the client achieves both their vision as well as their budgetary goals for the project. We do this throughout the design of the project – starting at the concept and stopping the process right before construction drawings are issued.We try not to make any changes once the drawings have been issued as there can be adverse cost impacts on the project caused from rework or schedule creep.
Although as project managers we take charge of the value engineering and are the driving force – we understand that it is a team effort that can truly achieves results. Throughout the course of the project and at strategic design junctures we like to hold what we call value engineering workshops.These are brainstorming sessions where we look for solutions for obstacles/hindrances/problems.There is a simple rule – Hear People Out. Discussion should not be limited, even if it appears contrary to the client’s goals and philosophy or your interpretation of the client’s goals and philosophy – hear people out. We create what is called a value engineering log where we document each and every idea along with its cost impact – no matter how small. Then we work with the owner to see which ones are accepted and rejected, at this point we then alsoevaluate how close we are to our goal. It is important to involve the entire design and construction team in this effort in order to get them to buy into responsibility of designing and then redesigning in order to meet the budget.
To help understand Value Engineering better,here are couple of case studies ofthe savings we have been able to make for our clients:
Case Study 01 – For an upcoming hotel property in Gujarat, the geotechnical engineer had recommended going ahead with rock anchors. The structural engineer gave us a design which had 68 rock anchors of a certain diameter. We suggested going ahead with a larger diameter rock anchor which ended up reducing the number to 28. Not only did this save money for the client but also ended up saving a lot of time.
Case Study 02 – A restaurant chain who was interested in lowering their overall CAPEX on each outlet we performed an extensive exercise over the course of 3 months. During this exercise we made simple changes like changing to a cheaper tile with the same technical specifications and nearly the same design as the one they had used in previous outlets. We also suggested changing from a single conveyor type dishwasher (which is always running) to two standalone dishwashers which could greatly lower their electricity consumption and have a net positive effect on OPEX. Other changes we made included reusing RO reject water to rinse large pots used for bulk cooking. Overall we ended up reducing their CAPEX by 12% across each outlet.
To get a better understanding of Value engineering it’s also important to understand what Value Engineering isn’t.
For one of our projects the AC tonnage required was much higher than budgeted for. A cheaper brand of air conditioning was suggested which would deliver the same tonnage at a lower cost. However, this was done at the cost of efficiency which would negatively affect the operating expenditure. In yet another one of our projects – the furniture mock-ups were rejected multiple times by the architect. We went back to the tender and got mock-ups made by a bidder who hadn’t been selected due to a higher cost. Their mock-ups were approved and we handed the contract to them. This made sure that the projects tight timelines could be met and the quality was up to the expected standard.
Value Engineering helps provide competitive edge to for the product in terms of quality, costs and also customer’s satisfaction. It focuses on all the details in respect to the same component or process for different products of the company. This also helps in budgeting of the total cost to be incurred in the whole project.Besides improving quality management, value engineering lowers the operational & maintenance costs (O&M), simplifies procedures by decreasing paperwork, optimizing construction expenditures, lowering the staff costs helping increase the overall procedural efficiency.Through value engineering process, the Project Manager and team can determine the value early in the process, this enhances additional the business value as well overall creating a high demand for the project.
Remember value engineering is not just about budgetary goals – but ensuring that the project is delivered at the expected quality and within the allocated schedule.