1. KING FAHD UNIVERSITY OF PETROLEUM AND MINERALS CEM-512 Value Engineering Think Value Engineering Prakash Acharya Charles Pfrommer Charles Zirbel JOURNAL OF MANAGEMENT IN ENGINEERING Nov/Dec 1995 Vol.11 No.6

2. TABLE OF CONTENTS 1.Introduction 2.VE – Requirements 3.VE – Policies & Procedures 4.VE – Clauses 5.VE – Process 6.Case Studies 7.Summary & Conclusions

3. INTRODUCTION Value Engineering (VE) is a Proven Management Technique used to: Identify Alternative Approaches for Satisfying Project Requirements Identify Alternative Approaches for Satisfying Project Requirements Lower Costs & Ensure Technical Competence in Performance Lower Costs & Ensure Technical Competence in Performance

4. INTRODUCTION.. Both Govt. agencies/Clients & Contractors are equally rewarded by VE methods Govt./Clients Life-Cycle Cost SavingsContractors Higher Profit Margins Reputation as Low-Cost Provider of Quality Goods & Services

5. VE REQUIREMENTS A Clear Scope, coupled with continuous interaction with Client, from preliminary budget values through completion of the Contract A Clear Scope, coupled with continuous interaction with Client, from preliminary budget values through completion of the Contract Take into account both the necessary resources and the reasons that the project, and each individual phase of it, is required Take into account both the necessary resources and the reasons that the project, and each individual phase of it, is required

6. VE REQUIREMENTS.. The significance of VE must be addressed at an early stage of the project The significance of VE must be addressed at an early stage of the project The better engineers understand the issues of value (as perceived by Client’s decision makers), the better they can evaluate whether a decision is ultimately good or bad The better engineers understand the issues of value (as perceived by Client’s decision makers), the better they can evaluate whether a decision is ultimately good or bad

7. VE POLICIES & PROCEDURES Policies & Procedures governing VE are presented in the Federal Acquisition Regulations (FAR) Parts 48 & 52 Policies & Procedures governing VE are presented in the Federal Acquisition Regulations (FAR) Parts 48 & 52 FAR instructs the general use of a VE clause in supply or service, construction and AE contracts FAR instructs the general use of a VE clause in supply or service, construction and AE contracts

8. VE POLICIES & PROCEDURES.. FAR identifies the information that should be included in the Value Engineering Change Proposal (VECP), the definitions of various contractual terminologies used and the Govt./Contractor sharing arrangements FAR identifies the information that should be included in the Value Engineering Change Proposal (VECP), the definitions of various contractual terminologies used and the Govt./Contractor sharing arrangements

9. VE CLAUSES 1.INCENTIVE CLAUSE Contractor is encouraged to develop, prepare and submit VECPs voluntarily Contractor’s return is a relatively large share of the savings and recovery of development & implementation costs if the VECP is accepted

10. VE CLAUSES.. 2.MANDATORY CLAUSE Govt. requires and pays for a specific VE program effort Contractor gets smaller share of savings because VE activities are priced into the contract This clause is used in contracts whose specifications are broad and the Govt. anticipates cost savings during performance

11. VE PROCESS While implementing VE, an organized, multi-disciplined approach should be used to create alternatives for client’s considerationWhile implementing VE, an organized, multi-disciplined approach should be used to create alternatives for client’s consideration This process involves seven phasesThis process involves seven phases

12. VE PROCESS.. 1.Team Selection 2.Information Gathering 3.Brainstorming 4.Evaluating Alternatives 5.Developing Alternatives 6.Making Recommendations 7.Implementing

13. VE PROCESS.. Acceptance of New Idea and Savings Sharing CLIENT CONTRACTOR New Idea/ Alternative (VE) DirectCommunication Only

14. VE PROCESS.. 1.TEAM SELECTION Consists of a Leader who supervises Team members, who are trained and have the expertise to develop VE ideas Team should consist of generalists and specialists who are free-thinking and flexible

15. VE PROCESS.. 2.INFORMATION GATHERING Gather Technical & Cost-related information from Client, Vendors & Internal material from previous similar projects Sources of information also include Request for Proposal (RFP), Contractor’s proposal to Client, process and detail design documents

16. VE PROCESS.. 3.BRAINSTORMING Based on the info. gathered, several cost-saving alternatives are discussed and documented in this creative phase Original design serves as a baseline to which alternatives are compared from a Technical & Cost viewpoint Innovative ideas develop out of experience, necessity & accident

17. VE PROCESS.. 4.EVALUATING ALTERNATIVES Select alternatives that have a high likelihood of providing cost savings and being implemented in the project’s design Each alternative should be ranked according to its potential to save money and be accepted by Client

18. VE PROCESS.. 5.DEVELOPING ALTERNATIVES Each selected alternative is studied in detail to determine if it will yield the cost savings first aniticipated A detailed Life-cycle Cost Analyisis including capital, O&M cost, is developed for each alternative

19. VE PROCESS.. 6.MAKING RECOMMENDATION The full developed alternatives are presented to the Team by the Team Leader The Team selects one or more recommendations to be reported to the Client

20. VE PROCESS.. 7.IMPLEMENTING The Client may choose to implement one or more alternatives If VECP is accepted, the changes are implemented by the Contractor and the cost savings are shared by both parties

21. VE CASE STUDIES 1.Bayou Bonfouca Project in Louisiana, involving U.S. Army Corps of Engineers and International Technology Corp. (IT), Knoxville, Tenn. IT decided to approach Client with VE ideas after contract was awarded IT decided to approach Client with VE ideas after contract was awarded Significant changes were made in the design of wastewater treatment plant, resulting in reducing both capital costs & O&M costs by $4.4 million Significant changes were made in the design of wastewater treatment plant, resulting in reducing both capital costs & O&M costs by $4.4 million

22. VE CASE STUDIES.. 2.A Propellant & Explosives (P&A) incineration project for an Army facility IT proved that the system cost could be greatly reduced by an alternate design, without compromising on performance or safety IT proved that the system cost could be greatly reduced by an alternate design, without compromising on performance or safety However, due to time constraints, the VE concept could not be implemented in the current project, but approved for future However, due to time constraints, the VE concept could not be implemented in the current project, but approved for future

23. SUMMARY & CONCLUSIONS VE is a technique in which alternative technical & commercial means are identified and implemented for complying with required specifications at reduced costVE is a technique in which alternative technical & commercial means are identified and implemented for complying with required specifications at reduced cost VE is a proven concept that can be applied on both Govt. & Commercial projectsVE is a proven concept that can be applied on both Govt. & Commercial projects Savings realized by VE concept can be in the range of 5-30% of original total project costsSavings realized by VE concept can be in the range of 5-30% of original total project costs