Project Management Institute

Stretching dollars

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BY VIRGINIA FAIRWEATHER
ILLUSTRATION BY RAFAEL LOPEZ

ALL MONETARY UNITS ARE IN U.S. DOLLARS, UNLESS OTHERWISE NOTED.

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Baton Rouge, La., USA, had a big problem with sewers overflowing. Before designing an estimated $500 million fix, a value engineering (VE) team looked at the problem and the proposed solution. After just one week, the team cut $30 million from the new facility's cost and $8.7 million from annual operating costs.

What is VE? According to the U.S. Army Corps of Engineers, which oversaw the team at Baton Rouge, VE is “an attempt to identify and accomplish a project or a system function at the lowest life cycle cost.” And Laurie Dennis, the president of SAVE International, VE's Northbrook, Ill., USA-based professional organization, defines VE as a “function-oriented, systematic team approach to add customer value to a program, facility, system or service.” The entire process is a mental discipline that encourages creative ways to look at problems.

The first step in VE is defining functions. Value is the relationship between function and cost, including initial and life cycle costs. Improving value means enhancing the function, reducing the cost or both. VE is the process of identifying function and suggesting improvements. Understanding the function of an object or process is key to creative development of new ideas.

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SAVINGS AT THE U.S. FEDERAL HIGHWAY ADMINISTRATION

VE reduces project or process schedules, cuts long-term operating costs, addresses sustainability and improves the usefulness of the final product. VE participants analyze a project or a process, beginning with its purpose and goals. They examine every element within that context, and brainstorm alternate ways to achieve the same goals.

The U.S. Office of Management and Budget mandates a VE study for any construction project over $1 million in value. While adopting VE recommendations is not mandated for these projects, another federal law states that all federal agencies must have a VE presence—the earlier the better.

Worth Its Weight

“The longer you plan, the more things cost,” says the Corps' Eugene Degenhardt, value engineering officer for the St. Louis District. His colleague, Frank Vicidomina, New Orleans, La., USA-based VE specialist, agrees: A good target for construction is no later than the 35 percent design stage.

The U.S. Corps of Engineers program is quite sophisticated, with 55 individuals who work primarily on VE. They have developed a five-step plan, which typically takes five days to implement. According to Vicidomina, you collect information, then the team speculates, analyzes, develops solutions and makes a presentation. This approach conforms with SAVE International's recommendations, but VE teams may vary in their approach.

The plan involves a team of five (plus outside experts). The team includes representatives from the owner or sponsoring organization, plus those from other groups involved. For example, the Baton Rouge project included the city mayor, engineers, architects and other specialists from the Corps, the city public works department and outside consultants. A facilitator typically oversees the brainstorming process and he or she may invite experts from other organizations to add fresh eyes to the operation. The outside invitees' skills would match those of the main team, such as a hydraulic engineer from both the Corps and from private practice or academia. Vicidomina says he has worked on teams with as many as 50 people, but he thinks five to 10 is a more efficient number.

New York, N.Y., USA, has used VE studies since 1983 and currently uses them for projects estimated at more than $30 million, notably higher than the federal government's threshold. Jill Woller, director of technical services for New York's Office of Management and Budget, harks back to VE's inventor Larry Miles, who asked, “How can I fulfill this function another way?” Functional analysis, she says, forces people to look at why a project is needed, and to avoid “building the wrong thing.” Woller oversees New York City's blockbuster VE agenda for a construction program that could reach more than $6 billion this year.

VE reduces project or process schedules, cuts long-term operating costs, addresses sustainability and improves the usefulness of the final product.

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Reader Service Number 223

Saving Graces

If you apply VE early, you save money on the final product, according to David Christensen, professor at Southern Utah University, Cedar City, Utah, USA, who says that 80 percent of an item's cost is “locked-in” before it goes to production.

Johnson Controls, Milwaukee, Wis., USA, which finances capital retrofits to reduce energy use and cost, employs VE as a tool to guarantee performance and savings. Monte Carlo simulation works well in VE analyses, according to Ron Waller, PMP, former director of government operations for Johnson Controls. Monte Carlo is more subtle as it calculates the “probability of all variables, offering a range of possibilities for cost savings,” he says.

VE also may help reduce maintenance backlogs and improve efficiency. Kenneth Sutton, PMP, of Ontario Power Generation, Toronto, Canada, uses VE for maintenance issues at the utility's Darlington nuclear station. The team asks questions such as “How often does this pump break down?” and “Are overhauls at six-month intervals effective in preventing breakdowns?” The method addresses unit rate maintenance issues in terms of safety, labor and efficiency.

VE Worldwide

Eara Merritt of the Corps of Engineers' Office of the Chief of Engineers Value Engineering Study Team (OVEST) says his team of eight is on the road 75 percent of the time, advising on VE for projects worldwide. Recently, OVEST worked for the U.S. State Department's embassy construction program. As a result of this exposure, other governments have asked OVEST or private consultants for advice and information.

Mary Ann Lewis, of Lewis & Zimmerman (LZA) Associates, Rockville, Md., USA, VE consultants, is helping Edmunton, Alberta, Canada manage the gap between its infrastructure needs and the funding available. The process helps city officials prioritize needs and get more value from taxpayer monies. The VE team is also studying the computer software requirements for an asset management depreciation system, and the development of an Edmonton regional service agreement for transmission and treatment of wastewater.

In such analyses, the VE team includes software experts who approach programs with the same question: Can you fulfill a particular function in another less costly or more efficient way? The programs assess the data on the value and condition of the government's capital assets. The goal is an effective maintenance program and the best use of funds. PM

Virginia Fairweather is a Wyckoff, N.J., USA-based freelance writer specializing in the design and construction industry. She is the former editor-in-chief of Civil Engineering, the monthly magazine of the American Society of Civil Engineers.

PROOF POSITIVE

  • In Sigonella, Sicily, Lewis & Zimmerman Associates, a VE consulting firm, worked with the Naval Facilities Engineering Command on an estimated $40 million naval air station upgrade. The team concluded that building functions could be achieved in less space, and that the construction schedule could be reduced. Their recommendations shaved $3.2 million from the cost.
  • In Seoul, Korea, a VE team generated $1 savings on a $10 part for the Samsung Corp. The VE team simplified an electronic component for televisions, while retaining its function. Since 80,000 units were produced every month for three years, the total savings were $2.88 million.
  • The Superville development project in Seoul, Korea, was working on a $200 million high-tech property that included condominiums, offices, retail space, a hotel and parking garages. A private sector VE consulting firm held a workshop for Hyundai Engineering & Construction of Korea, the developers. The team's recommendations saved $8 million. Hyundai has now initiated a formal in-house VE program.
  • In 2001, the Washington State Department of Transportation saved almost $44 million, or 57 percent of the original estimated cost of changing three high-accident intersections of a state highway. The VE team changed vertical profiles at the early design stages, eliminating the need to relocate business and high-tension power lines.
  • In 2001, the Florida Department of Transportation saved close to $1 million on a $3.2 million project. The VE team achieved the project's function by changing the construction method for a new highway shoulder.
  • In 2001, the Oklahoma Department of Transportation cut 120 days from a 710-day construction schedule for a project that replaced four lanes of interstate highway, two bridges and frontage roads, simply by revising the construction sequence.
  • New York City spends less than 1 percent of its capital budget ($6 billion to $7 billion) on VE studies for its construction projects—and averages about 10 percent savings on the total cost.

SOURCE: THE AMERICAN ASSOCIATION OF STATE HIGHWAY TRANSPORTATION OFFICIALS, WASHINGTON, D.C., USA.

FOR MORE INFORMATION

These Web sites have extensive links to international VE sources in the public and private sectors.

The VE professional society, SAVE International, Northbrook, Ill., USA www.value-eng.org

Consulting firm Systematic Analytic Methods and Innovations (SAMI), Evergreen, Colo., USA value-engineering.com/weblinks.htm

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Reader Service Number 005

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

PM NETWORK | APRIL 2002 | www.pmi.org

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