ICE - Creating Value in Engineering

Creating value in engineering
ICE design and practice guides

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ICE desg
i n and practice guide
Creating value in
engineering
^1 Thomas Telford
Published by Thomas Telford Publishing, Thomas Telford Services Ltd,
1 Heron Quay, London E14 4JD
First published 1996
Distributors for Thomas Telford books are

USA: American Society of Civil Engineers, Publications Sales Department,
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Classification
Availability: Unrestricted
Content: Recommendations based on current practice
Status: Refereed
User: Practising civil engineers and designers
ISBN : 978-0-7277-2050-4
© Institution of Civil Engineers, 1996
All rights, including translation reserved. Except for fair copying, no part of
this publication may be reproduced, stored in a retrieval system or transmitted
in any form or by any means, electronic, mechanical, photocopying or
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Publishing Division, Thomas Telford Services Ltd, Thomas Telford House,
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This book is published on the understanding that the authors are solely respon
sible for the statements made and opinions expressed in it and that its publica
tion does not necessarily imply that such statements and/or opinions are or
reflect the views or opinions of the publishers. Every effort has been made to
ensure that the statements made and the opinions expressed in this publication
provide a safe and accurate guide; however, no liability or responsibility of any
kind can be accepted in this respect by the publishers or the authors.
Preface
Value for money is a prerequisite in all commercial transactions. Project

owners are demanding that those responsible for design and implementation
provide them with value. The government's private finance initiative (PFI)
targets value and the 1994 report Constructing the Team* aims to create the
collaborative team environment to deliver such value.
Completed projects are as successful as their perceived value. Acceptable risk,

reasonable cost, timely and safe completion to a specified quality are normal
requirements. If the end result lacks function, costs too much, is too risky, late
or otherwise fails to satisfy, then potential value has been wasted and the team
will have failed to meet the expectations. Capital projects are increasingly
subject to global economic pressures, so it is ever more important that teams
look beyond their project in developing solutions.
Value management provides a practical and workable set of systematic and

logical procedures and techniques developed to enhance value. It thus assists
project teams to orchestrate their activities to deliver full value for the owner's
investment while meeting his or her expectations (such as performance,
aesthetics and environmental acceptability).
The benefit to the owner can be an overall saving typically between 5 and 25%
of project cost. Benefits to the designer include a collaborative agreement,
a more satisfying professional service and fees to be earned from the value
work. To the constructor, benefits include a non-confrontational contractual
and working environment and the possibility of gaining substantially from
sharing the saving arising from value improvement. Viewed in the context of
over £40 billion aggregate annual turnover of the UK construction industry,
the opportunities for savings are enormous.
On many projects world-wide, this process has delivered improved value. In

the UK examples in civil engineering and building include: Limehouse Link,
Cardiff Bay Barrage, Jubilee Line, Broadgate, Heathrow Terminal Five and the
PFI prisons. More and more public and private sector clients demand its
application as a matter of course and these owners include London
Underground Limited, the Lord Chancellor's Department and British Airports
Authority PLC.
Industry cannot afford to ignore the power of value management.

Acknowledgements
Membership of the Working Party

Professor Albert Hamilton Centre for Project Management, University
of Limerick
Mr David Howard Management-NewStyle
Mr Alan Osbourne (Chairman) Tarmac Construction
Mr Robert Osbourne Tarmac Construction
Mr Charles Penny Balfour Beatty
Mr Alan Powderham Mott MacDonald
The assistance of Adele Stach-Kevitz, Nigel Standing and Branko Bajatovic is

also gratefully acknowledged.
Contents
1 Introducing value management 1

About this guide 1
Origins of value engineering 2
What is value management? 2
Terminology 3
Stakeholders 4
When to apply VM 5
Essentials of VM 6
All designs include unnecessary costs 8
Potential for cost saving 9
2 The team and teamwork 10
The value team 10
Attitudes and influences 11
3 Value planning 13
Model sequence 13
VP1 14
VP2 20
4 Value engineering 23
VE exercises 23
VE workshop preparation 24
VE workshop agenda 25
5 Value reviewing 29
Purpose of VR 29
Questions for, and outcome, of VR 29
6 Agreements and contracts 31
Support for, and constraints on, the value process 31
Overcoming constraints on the value process 32
Consultant/designer agreements 33
Constructor/subcontractor agreements 33
vii
Contents
7 Procedures and techniques 36

Information gathering 36
Cost analysis 37
Pareto's rule 39
Basic and secondary functions 40
Cost and worth 40
FAST diagramming 42
Creative thinking and brainstorming 43
Life-cycle costing 44
Criteria weighting 46
Analysing and ranking alternatives 48
8 Conclusion 51
Glossary 52
Bibliography 54
viii
I. Introducing value
management
A b o u t this guide This Institution of Civil Engineers practice guide has been prepared primarily
for those who are entering, or have recently entered the civil engineering
profession, but it will also be of interest to owners, designers, constructors and
others involved in the built environment.
It is not intended to be prescriptive, but rather to set out some of the key
approaches and techniques which may be used to improve value.
The guide has been structured so that it can be read from cover to cover or as a
point of reference for specific information on some aspect of value management.
The guide is organized as follows:

— Chapter 1—Introducing value management: describes the logical,
systematic nature of the value process and outlines the aspects that are
significant and necessary in achieving the owner's requirements.
— Chapter 2—The team and teamwork: deals with the crucial human aspect.
It introduces the value team, describes the importance of teamwork and
outlines the role of each participant.
— Chapter 3—Value planning: describes the value process during the
conceptual phase; and how value is planned into the project from the
initiation of the project life-cycle.
— Chapter 4—Value engineering: describes the process of value management
during the design and construction phases. Until recently the whole value
,
process has been known as Value engineering and most of what is used
today has its lineage in value engineering.
— Chapter 5—Value reviewing: assesses the effectiveness of the value
process.
— Chapter 6—Agreements and contracts: addresses the need for incentives
in agreements and contracts. It describes how to create a collaborative
environment between the owner, designer, constructor and other
contracted parties.
— Chapter 7—Procedures and techniques: describes the methods and tools
at the core of value management for value planning and value engineering.
— Chapter 8—Conclusion: offers brief concluding remarks on key features
of the value process, factors to ensure success and top management
commitment.
I
— Glossary: provides a definition of the terms used in this book.

— Bibliography: lists a wide range of publications providing important
background.
Origins of value The value process originated during World War II within the General Electric
engineering Company in the USA. During this period US industry was running at
maximum capacity to supply the allied war effort. General Electric were faced
with a significant increase in demand but with a shortage of key materials.
This forced the company to use substitute materials for many of its products.
It found that through careful and informed use of substitute materials the cost
of a product was often reduced, but surprisingly the product was also
improved.
How superior value was achieved, when intuition suggested the opposite,
revealed that the overall improvement came about by virtue of the underlying
functional requirements of the product that had to be produced. Care and
attention to function manifested itself at the end of the production line
through improved quality and lower costs—hence providing 'better value for
1
money .
This approach resulted in a method which identified the function of a scarce

component or element and then sought its replacement with an alternative
component or element whilst maintaining function. A spin-off from this
basic philosophy, which was then known as Value analysis' was the elimina
tion of cost which did not contribute to the performance of the required
function.
The value analysis concept was further developed by General Electric and
others over the next ten years and became known as value engineering. Value
engineering gradually became more refined as it started to spread throughout
US manufacturing industry. Value management developed from value
engineering is now a requirement of many public and private construction
projects in the US and increasingly in the UK.
W h a t is value Value management addresses the value process during the concept, definition,
management? implementation and operation phases of a project. It encompasses a set of
systematic and logical procedures and techniques to enhance project value
throughout the life of the facility. Value management embraces the whole value
process and includes value planning, value engineering and value reviewing.
The basic steps followed at several stages in the development of a project are:
(a) to determine the functional requirements of the project or any of its
constituent parts, (project objective, information/criteria and function
analysis) then
(b) to identify alternatives (speculation) and
(c) to examine the cost and value of each alternative to enable the 'best value
selection' (evaluation and recommendation).
Figure 1 is a simplified diagrammatic representation of these steps. Each of the
three main applications of value management, namely value planning, value
engineering and value reviewing can be applied independently or be fully inte
grated, on a given project.
2
Introducing value management
The feedback loops relate to utilizing lessons learned' being fed back into
subsequent phases of the process.
Terminology Confusion has arisen in the use of the word Value' and its derivatives due to
lack of received definitions. The variation in the use of terms depends upon
timing, geographical location, industry sector, organization and when, in the
project life-cycle, the processes are used, For example, value management,
value planning, value engineering and value auditing are used, sometimes inter
changeably, to describe specific phases of the value process or the entire field.
The definitions used in this guide are (see Fig. 1):

— value is the level of importance that is placed upon a function, item or
solution. Value can be considered as the ratio of function achieved to its
life-cycle cost (LCC), i.e.:
value = function/cost (LCC)
— value process relates to the overall sequence of actions that lead to the
achievement of value (see Fig. 1)
— value management (VM) is a systematic and creative procedure operating
on the relevant aspects of the value process through the life of the project
or facility. VM ensures that the right techniques get used in the right
manner at the right time in order to define, deliver and enhance value
— value planning (VP) is applied during the concept phase of a project. VP
is used during the development of the brief to ensure that value is planned
into the whole project from its inception. This is achieved by addressing
the function and ranking the owner's requirements in order of importance
for guidance of the design. Several outline designs will be assessed to select
a preferred option which best meets the functional and other
requirements. VP establishes 'what' are the necessary value objectives and
criteria. The financial viability of the project is also confirmed during the
VP stage
— value engineering (VE) is applied during definition and, as required, in the
implementation phases of a project. VE investigates, analyses, compares
and selects amongst the various options to produce the required function
and the owner's project requirements. VE produces a range of'how' design
options for the whole project or for defined parts of it, which are tested
Value management
Feedback
^Value planning^;
Feedback
Value Feedback
engineering
Client's briefing
Brainstorming
Evaluation Value reviewing
Weighted value criteria Confirmation of project
Preferred scheme objectives
Monitoring the value
Information gathering
process
Function analysis
Correction of defects
Speculation
Feedback into subsequent
Evaluation
areas of work
Figure I VE proposal & final report
Value management Implementation/follow up
3
against the owner's value objectives and criteria to remove unnecessary

cost without sacrificing function, reliability, quality, etc., required aesthetics
— value reviewing (VR) is applied at planned stages to check and record the
effectiveness of the value process and its management.
VP and VE are pro-active in that function (what a scheme, project, compon

ent or element does) is planned into the project in the concept and definition
phases respectively. VR, on the other hand, is reactive and is used to analyse
and compare a completed, or nearly completed, design or project against pre
determined expectations.
Stakeholders There are two main types of stakeholder: direct and indirect. Direct
stakeholders include the promoter, owner, financier, supervisor, planner,
engineer, architect, surveyor, constructor, operator, user and others—for
example, the owner's marketing, finance or technical development teams or
vendors. Indirect stakeholders include the public and other non-contracted
parties.
All stakeholders should be represented or considered (e.g. the public) in

the value process, some to a greater extent than others. What is needed
in the early stages is lateral rather than vertical thinking. It is essential
that everybody involved maintains an open mind and welcomes creative
challenge.
The key to VM is to involve all the appropriate stakeholders in structured

team thinking so that the needs of the four main parties to a project can be
accommodated where possible.
Owner VM is performed principally for the owner and he or she must see the direct
benefit. The owner's role is to define his or her project objectives and value
criteria, be committed to and support the value process.
Designer The designers, engineer, architect and other professionals, need to recog
nize and use the power of VM and participate actively to help produce
the most cost-effective design solution commensurate with required
safety, quality, function, aesthetics and other value objectives and value
criteria.
Constructor To maximize overall benefit and facilitate team building the constructor
should contribute to the value process as soon as practicable. There is much
to be gained from making a robust and creative integration between design
and construction.
User Users of the planned facility should participate to assist in establishing

the functional requirements. In some civil engineering, and particularly
transportation, projects securing user views may not be realistic, but if
there is to be a facility operator or facilities manager then they should be
involved.
4
W h e n t o apply Timing is of the essence. Figure 2 illustrates the substantial scope to reduce
VM cost, and hence improve value, in the project definition and early design
phases. This scope diminishes to a point when the cost of change exceeds the
saving. The figure also indicates which stakeholders generally have the great
est influence on project cost. From this we can conclude that VM should be
started as early as possible, ideally no later than when the owner's require
ments are being developed.
At the concept phase, information will tend to be unstructured and expressed

in terms of a broad project requirement, for example, 'the need to build a
power station'. At this time the project is not yet defined; probably a number
of schemes or options that might satisfy the requirements may be considered
as 'possibles'.
During the definition phase there should be a close linkage between an

owner's corporate strategy and the project requirements. Recognition of a
need will occur within the owner's organization where factors, such as the
economy, political influences, demand forecasts and the financial strength of
the stakeholders have a direct impact on the development of initial project
requirements. These influences should be considerations in developing the
project requirements and may also lead to a stakeholders' 'wish list'.
In these formative phases of the project, insufficient attention is often given

to identifying and understanding true project objectives, their interactions,
and the inherent ambiguities, resulting in under-achievement of the require
ments. Conversely, effort invested at this time can contribute greatly to
eventual success.
The relative timings of VP and VE in the project life-cycle are indicated in

Figure 2. These are applied mainly in the concept, and definition phases and
5
generally end when the design is complete and construction started. However,
VE can also be very effectively applied during construction to address pror>
lems or opportunities which may arise. The latter typically derive from feed
back from the site relating to specific conditions, performance and methods.
Ideally, all stakeholders will contribute to the definition phase of the project
Whereas it is preferable to start VM in the concept phase, not every owner

will do this. Some owners do not initiate the process until the project is at the
definition stage and design is well under way. Although this is not ideal it is
better than no application at all.
At a later stage a tendering constructor may be expected to bring other value

improvement ideas and techniques for consideration by the owner and his or
her value team.
Finally, the project may run into practical, cost or time difficulties during
construction, and here again the stakeholders have the opportunity to
approach problems and develop solutions using VM.
Essentials o f V M Chapters 3-5 of this guide describe the detail of VR VE and VR, respectively
and Chapter 7 explain some of the procedures and techniques of the value
process. What follows is a brief introduction to the essentials of the process.
VM requires full stakeholder/project team involvement including the owner,

designers, specialists and, if available, the constructor, all of whom participate
in workshop settings as the value team facilitated by an experienced and inde
pendent value manager. The user should be represented where appropriate.
Important benefits of having a value manager include:

— team management by someone who has an impartial view
— experience to be able to establish the owner's value objectives and value
criteria
— taking the overall responsibility, on behalf of the owner, for the enhance
ment of project value.
Notwithstanding the value manager's role, in all value exercises the indepen
dent free-thinking, experience, and judgement of the team are essential.
The sequence of stages for VP and VE is generally as follows:

— information gathering
— function analysis
— speculation
— evaluation
— proposals and final report
— implementation/follow-up.
Figure 3 illustrates these typical value stages, their respective objectives and
key questions.
Although VP does not necessarily have these six stages, the procedure and
sequence will be similar to that shown in Figure 3. The processes and the
techniques are more fully described in Chapters 3, 4 and 7, respectively.
6
(a) Information gathering VP, VE

Objectives
Provide and information base and project understanding
Select areas for detailed study
Questions
What is it? What amounts are used? What does it cost?
Techniques
Information gathering, get all fact, determine cost and/or
quantities, cost/energy models, brief by client, value tree
(b) Function analysis VE

Objectives
Define functions
Questions
What is its function? What is the function's value? What are the
isolated areas for study?
Techniques
Cost histograms, cost-worth charts, FAST diagrams
(c) Speculation VP, VE

Objectives
General alternatives
Questions
What else will perform the function?
Techniques
Creative thinking processes, e.g. brainstorming
(d) Evaluation VP, VE

Objectives
Evaluation and selection of best function or cost saving
alternatives
Questions
Will the alternatives meet the required functions? What will the
alternative cost? What proposals have the best cost/worth ratio?
Techniques
Life-cycle costings, risk assessment, weighted attribute
evaluation, cost-worth/cost model, idea ratings, decision matrix
(e) Proposals VP, VE

Objectives
Presentation of the best alternatives to the decision maker
Summary and recommendation
Questions
Recommended alternatives for implementation? Trade off within
proposals,risksidentified, how best to present proposals?
Techniques
Narrative reports containing: cost/worth comparisons, risk
evaluation, compare with baseline scheme, cost validation,
graphs, scheme overlay
(f) Implementation VP. VE

Objectives
Implementation of VP/VE proposals
Questions
What is the timing of the proposals? What are the time schedule
effects? Design/construction What effects on the parties involved
in construction?
Techniques
Team building, resource management feedback
Figure 3 Value stages
7
As the project develops through the concept phase this same sequence is
employed but the agenda progresses from broad VP requirements to detailed
technical VE solutions.
The structured methodology VP set out in Chapter 3, is concerned with

defining what value means to an owner within a particular context. This is
achieved by bringing the project stakeholders together with the objective of
producing a clear statement of the project requirements. This value team
identifies what is needed to satisfy these by considering the importance and
inter-relationship of different functions.
The value team is required to agree these project requirements (needs) and
then, in relative terms, agree how important each requirement is. On estab
lishing the value objectives and criteria the ensuing task of defining the
project can start and proceed on a basis that has had the input of all stake
holders and, equally importantly, has been agreed by consensus. By costing
and applying the project objectives and criteria to each alternative the best
design option can be identified.
Based on the chosen scheme established in the VP stage, the sequence is again
followed in the VE stage and the questions move from the 'scope' (what) to
the 'technical' (how). A similar sequence is used to determine which
alternative technical solution to choose by comparing value through analysing
function and cost.
As the design proceeds during the definition phase, the same approach is
applied to the individual components of the project. As not everything can be
analysed, it is necessary to be selective in what to investigate by judging the
potential for improvement in value. The process of selection is helped by:
(a) identifying cost elements that have large differences between the target
and the actual cost
(b) focusing on the high cost elements. This can be achieved by picking the
20% of the elements which contain 80% of the cost (Pareto's rule) or
(c) judging the 'worth' against the cost of each element or component and
looking closer at those parts where the cost to worth ratio is greater than,
say, 1.5:1.
The techniques which facilitate these processes are to be found in Chapter 7.
The choice or use of a technique at any point is for the team to decide. There
will be situations where time or circumstances do not permit full imple
mentation, but the principles of this structured approach can be applied with
great benefit, subjectively or intuitively using informed estimates of value and
cost, and judgement of function. The principle of analysing basic and
secondary functions, and then how best to provide for these functions is
central to VM.
All designs Unnecessary cost provides neither required use, durability, quality, appear
include ance, nor customer features. Generally, the removal, or reduction, of unneces
sary cost has the largest effect in enhancing value. Designs of construction
unnecessary
projects are complex, requiring investment in experienced and talented
cost people. Regardless of how capable a designer is, there will always be unneces
sary cost hidden in the design for reasons set out in Chapter 2.
8
Potential for The costs associated with using VM should be far outweighed by the savings
COStsaving generated. The additional investment above normal services could typically be
in the range 0.5-1% of the project cost while savings can typically be achieved
between 5 and 25%. Figure 2 indicates the various stakeholders influence on
cost.
9
2. T h e t e a m and
teamwork
T h e value t e a m The value team approach produces a collective drive for enhanced value. This
promotes deeper understanding, wider thinking and a more rigorous testing of
possible solutions against the functional requirements of the project and the
owner's project objectives and criteria. Important benefits include team
building, teamwork and shared ownership of solutions.
Value teams must include all relevant disciplines at an experienced free-

thinking level and be company authorized decision makers as it will be the
adopted innovative solution, whether complex or simple, which will provide
the enhanced value. Specialist workshop subgroupings can be used to improve
focus and to keep down workshop numbers.
The composition of the value team should be flexible to take account of the
different value applications. The team lead by the value manager will be
typically drawn from the following as appropriate:
— owner including as appropriate, marketing, finance or technical repre
sentation
— operating staff, user, facilities manager
— project and construction managers
— design disciplines: architect, civil, structural and services
— specialist consultants
— quantity surveyor/cost engineer
— constructors
— specialist subcontractors/suppliers.
Team members must keep their roles and responsibilities clear, yet be prepared
to reach consensus to promote the best overall team solution.
The roles of the key team members are considered below.
The value manager The value manager controls, facilitates and may participate in all stages of the
value process. Usually appointed by the owner, the value manager can be
selected from one of the direct stakeholders (in-house) but should preferably
be independent (external), appointed for the specific purpose, and provide the
benefit of an unbiased view. He or she should be appropriately experienced,
10
The team and teamwork
with a successful record of running value exercises and involved from the
outset. Such a manager may be a professional facilitator, value specialist,
professional construction manager or project manager.
The owner For VM to be successful it is best to have a proactive owner who will lend
support, authority and feedback to the process and bring in the operator/user.
The owner's representative should be appointed on their ability to make

decisions and have the commitment and support of their corporate organiza
tion. It is important to introduce a cost specialist into the team with knowl
edge of pricing of complete systems.
Designers The designers appointed by the owner should be required actively to

participate in VM bringing key staff to the value team with direct project
knowledge.
Constructors Often, the constructor is not under contract during the design phase. It is,
however, beneficial if a constructor (or construction manager) is appointed as
a construction consultant to join the team for the value workshops. This
ensures that all design matters will be examined from both design and
construction perspectives.
In design and construct contracts, the tendering constructor may undertake

his or her own value studies, the result of which will be considered by the
owner and project designers, indeed all the value team, if his or her bid is
successful.
Specialist suppliers If possible it is recommended that specialist suppliers/subcontractors partici

and subcontractors pate in value management during design since they may have expertise in a
particular technical field, including construction methods, sequences and
programmes, and be able to offer efficiencies and savings. The value manager
must ensure that such participants do not persuade the designers to imple
ment a proprietary system without taking account of the cost impact on other
systems.
Operator/user Where practical, the operating staff, facility manager and user should be
involved in the value process and associated exercises.
Attitudes and Attitudes can support the continuation of existing habits, may cause mind-
influences blocks in the individual and play a large part in the decision-making process.
Mind blocks are quite often expressions of personal attitudes and cloud the
facts, colouring reality and killing off good ideas before they have a chance to
develop.
It was stated earlier in the guide that all designs include unnecessary cost,
often caused by non-technical reasons which must be recognized and
II
challenged by the value team. Reasons for unnecessary cost in projects are
many; some are considered below.
Inadequate Planning may take years to evolve and progress, but when design starts a quick
available time result is expected. Every engineer, architect and other professional has target
dates by which the design documentation must be delivered. Concern about
meeting deadlines means that limited time may be devoted to make cost
comparisons to achieve maximum value.
Restricted design An inadequate budget to complete a design properly or cost cutting against
fee the design budget can adversely affect the completed facility as well as
shortcuts taken during design to stay within the design budget.
Lack of If time is short, lack of communication between members of the design team
information/ and specialists may contribute further to lack of information or collaborative
communication thinking.
Lack of In these times of rapid growth in technical developments it is difficult

ideas/expertise and for designers to keep abreast of all the new materials, products and
appropriate techniques.
experience
Lack of relationship No one person can think of everything. Designers often find that a better idea
between design and on tackling a design issue emerges after the design is completed and in the
construction construction phase. Lack of construction knowledge can also be a reason why
methods unnecessary costs become part of designs.
Misconceptions There is a need to ensure that the chosen design is both functional and
reliable. Nevertheless, our best efforts can end up being incorrect. Relying on
experience will sometimes lead to an honest misconception; because if not
exposed to subsequent developments, one can be led to believe that the
original judgements were correct.
Temporary On many occasions designers are pressed for a decision. A temporary decision
decisions that may be made with the intention of returning to it later. However, it is not
become permanent reassessed and so it becomes permanent.
9
Stakeholders habits Habits usually enable us to build skills and do things quickly and responsively.
and attitudes However, suboptimal or outdated practice may be habitually followed. 'It
worked on the last job so let's use it again' is a typically ominous phrase.
12
3. Value planning
Model sequence The structure of VP and the number of value team workshops needed
during the concept phase varies from project to project and has much to do
with the experience of the owner and/or the value team. Typically, VP is
based on two workshops attended by the whole value team, although there
can be three or more. This guide will take as its model two workshops: VP1
and VP2.
VP1 usually takes place early in the concept phase when the possible develop
ment of a new facility is first suggested as a likely solution to an identified need
and will conclude with a range of two or more possible schemes that could
satisfy the need.
VP2 will take place at the end of the concept phase, and when the owner
needs to decide whether to proceed with further investment on the design of
a preferred scheme.
VP can be seen as part of the early strategic inputs in developing the project
concept and design brief. Therefore, VP in the formative stages of a project,
helps to identify, clearly, the reason for the project's existence in the first place
and to determine the project requirements, the basic functions of the project
and also the owner's preferences.
As construction projects invariably have to satisfy more than one stakeholder,

it is essential that the decision-makers from each stakeholder attend VP1.
In addition to the owner and users this may include other disciplines such
as sales and marketing, finance or product development interests, all of
which are essential for a proper understanding of the requirements and
constraints.
It should be stressed that all parties, would under a more traditional approach,
have to be consulted in any case. The advantage of the formal VP exercises is
that it provides a structured framework for discussion. It ensures that the need
is considered from all points of view leading to consensus or shared percep
tions of value and the design objectives. Above all, it ensures that the need is
subjected to careful assessment and all views taken into account before a
conclusion is reached.
13
VP I The objectives of VP1 include to provide:

— an established range of owner's project objectives and value criteria from
the stakeholders
— a value tree developed to two or three levels (Figs 4 and 5)
— a design brief
— two or three outline design options
— a programme of follow-up work.
The potential project is introduced by the project owner who outlines his or
VP stage I:
her perception of the requirements; the stated 'needs and wishes'.
information
gathering
Each participant is then invited to discuss their understanding of the
requirements together with their perception of the project objectives. The end
product of this stage should be a list of agreed key objectives. An example of
such a list in its early stages is set out in Box 1.
The participants working as a group are then required to structure the

objectives and subobjectives into a value tree diagram. The value tree in
Figure 4 is similar in concept to the functional analysis system technique
(FAST) diagram (Fig. 11) in that it asks 'how?-why?' questions. It is dissimilar
in that a value tree is used primarily during VP as a means of helping the team
to assess the purpose of the project.
The top (left-hand side) of the tree is characterized by the overriding purpose
of the entire project. This purpose is then progressively broken down
into subobjectives which are in turn broken down again and again. It will
be recognized that these are qualitative objectives rather than technical
criteria. This technique will be used again later as the project proceeds
through the definition stage when the how-why process becomes more
technical.
Figure 4 shows a value tree for a project whose overriding objective is to

'provide a power station'. What that objective will address is shown by the two
limbs to the tree, namely, 'create viable and profitable facility' and 'politically
acceptable/environmentally friendly'. The 'create viable and profitable
facility' limb is further subdivided into 'establish low capital cost' and
Box I Sample key value objectives (project needs and owner's wants)
Viable and profitable Low fumes

High-operating efficiency/reliability Low noise
Low maintenance cost Low labour cost
Expandability/flexibility of output Low cooling-water temperature
Low waste Optimum life-cycle cost
Efficient layout Access to skilled labour pool
Low fuel cost Close to market
Low-risk design Pleasant working environment
Aesthetically pleasing Politically acceptable
Environmentally friendly Quick completion
14
Value planning
How Why
Attract low
interest cost
Establish Control Attract a quick
low capital escalation build solution
cost costs
Produce
Induce low effective design
capital solutions
expenditure
Introduce
competitive
Create viable procurement
,— & profitable Control project
facility activities
Flexibility/
expandability
of output
High durability
Low & protection
Provide a maintenance -
power station cost Minimum of
to produce - moving parts
electricity
competitively Establish high Resale of waste
Low waste
operating costs Low waste
efficiency output
Efficient Low labour
layout costs
Cheap
purchase price
Low Low fuel
fuel costs consumption
Low waste
transport cost
Unobtrusive
Aesthetically (low height)
pleasing Pleasing colour
and texture
I Politically Environmentally Low fumes
acceptable friendly Low noise
'— Low pollution •
Low
cooling-water
Figure 4 Value tree temperature
'establish high operating efficiency'. 'Establish low capital cost' has been
further subdivided. The subobjectives are at the third level of breakdown of
the project. The fourth and last level in this example value tree shows
'produce effective design solutions', 'introduce competitive procurement', and
'control project activities' as being how 'inducing low capital expenditure' will
be addressed.
As in FAST diagrams the response developed in moving from left to right

(asking the 'how?' question) is checked by asking the 'why?' question by
moving in the opposite direction. Value trees are not usually taken beyond
about the sixth or seventh level of detail within a hierarchy.
15
Once a value tree acceptable to the team has been developed the next step is
to simplify it by retaining only 'needs'.
The team discusses and agrees in placing relative values (importance

weights) on each of the tree limbs and branches. The branches or lowest
levels (on the right-hand side) of the value tree are called the Value criteria'.
Figure 5 shows a value tree with importance weights against each of the
functions. It can be discerned that some of Figure 4's functions have been
discarded and the weighting has been carried out at each level of the tree
hierarchy.
The factors from each node add up to one and the team agrees on the
proportional importance value of each branch springing from that node. This
can be an iterative process and is repeated for each node. By 'multiplying
through the tree' it can be seen that the overall importance weight 0.08 of
'quick completion' is the product of'low capital cost' 0.26 x 'quick completion'
0.31.
Using the similar process the ability to utilize low cost fuel with an importance
weight of 0.20 is regarded as the most important factor for the success of the
project.
The value criteria used for design guidance and assessment are those shown at
the extreme right-hand side of the diagram, such as, quick completion (0.08),
flexibility of output (0.05), etc.
It should be recognized that an 'aesthetically pleasing' requirement can be

equally important, if not more so than a basic functional requirement, because
How Why
(0.31) r — Quick (0.08)
completion
(0.19) Competitive (0.05)
Establish procurement
low capital
0.26 Low risk
0 0 8 1
(0.50) (0.13)
design
1.00
(0.22) Low maintenance (0.10)

cost
(0.11) Reliability (0.05)
Establish high (0.11) Output flexibility (0.05)
Provide a 0.45
viable power operating
efficiency (0.11) Low labour cost (0.05)
station
(0.45) Low fuel cost (0.20)
Too 1.00
(0.43) Aesthetically (0.12)
pleasing
0.29 (0.34) Low fume (0.10)
Politically emission
acceptable (0.23) L— Low noise (0.07)
Figure 5 Simplified and levels
1.00
weighted value tree 1.00 1.00
16
Value planning
in such a case the owner has taken into account crucial environmental,
political, commercial and other interests.
The weighted value tree, once the speculation stage has been completed, is
used to guide the design and in conjunction with criteria weighting Figure 13
(page 47), and the analysis matrix Figure 14 (page 49), to evaluate various
alternatives that might satisfy the purpose of the project.
VP I stage 2: In the speculation stage the criteria generated from the weighted value tree
speculation are used as the stimuli for a brainstorming session when all possible ways to
achieve these criteria will be thought about. The success of this depends upon
creative thinking to generate ideas which are logged but not yet criticized or
evaluated. Figure 6(d) shows, in part, the layout of a typical brainstorming log.
The value team must recognize that negative phrases such as those listed in
Box 2 are not acceptable.
Box 2 Killer phrases frequently used as 'roadblocks*
Time and timing We don't have the time.

It's too late to do anything like this.
We'd have to do all that again.
Practicality The risk is too great.
Let's be practical!
Face saving It's too simple.
It's too complex.
Ridicule It looks like hell.
Let's get back to reality.
It will only confuse everyone.
Implementation and It would be too hard to administer.
effort We'll never get it approved.
We can't waste all that design effort.
Quality It's not good enough.
The client hasn't paid us for a Rolls-Royce job!
Information and You don't understand our problem.
communication It isn't detailed enough.
Not your (or our) Why waste time on that instead of doing your job?
problem That's not our problem.
Degree of newness It's too old-fashioned.
Has anyone else ever tried it?
Sugar-coated 'but' It's a good idea, but ...
Precedents: resistance We've never done it before.
to change We tried something like that before and it didn't work.
Stalls It needs more study.
Let's think it over for a while.
Policies, procedures It's not in accordance with our policy/procedures.
and rules It doesn't meet the specification.
Resources Anyway there's no budget.
Mind set But we've always done it like this so why change now
17
(a) Cost worksheet

Original estimate New estimate
Item Unit No. units Cost/unit Total Cost/unit Total
(b) Cost validation

Item Original estimate New estimate
Function analysis
Item Function Cost Worth Comments
Verb Noun Kind*
*B = basic, S = secondary
Speculation phase
Idea Basic function Other functions
* List all ideas, evaluate later (brainstorming log)
System/component Fast diagram

How — • <—Why
Idea evaluation
System/component Basic function
Idea Advantages Disadvantages Rank*
*Rank: 1 = excellent (develop), 2 = good (hold), 3 = fair (discard)
(g) J Analysis matrix

List best ideas from ranking and comparison techniques
Judge the performance against the criteria
Decision criteria Total
Criteria reference B attribute
Criteria importance rating*
) = excellent, 7 = good, 3 = fair, 1 = poor
<h) Summary and recommendation

System/component
Proposed change
Cost summary
Original - proposed Savings
Total cost (orig.)
Figure 6 Typical charts Total cost (prop.)
for the control of the value Savings
process Present worth - saving
I8
Value planning
Brainstorming is deliberately aimed to focus the combined intellect and wide

experience of the team to achieve the spontaneous generation of ideas in the
absence of criticism or evaluation. The quality of the ideas produced is not
initially important; the objective is to produce a large number of ideas. Even
wild, or seemingly facetious, ideas are of benefit in that they may act as
stepping stones, or triggers for other ideas which would not otherwise have
been identified.
The success of the brainstorming session is heavily dependent upon the ability
of the value manager to establish and maintain an appropriate environment.
He or she must provide the momentum of the exercise and ensure that this is
maintained. All ideas must be recorded as they are voiced; there is no such
thing as a bad idea. There may be as many as 500 ideas emerging from one,
two-hour brainstorming session.
After identifying possible solutions during the speculation stage, analytical

thinking is then required to evaluate the practicality and the comparative
merits of the identified solutions (Fig. 6(f)).
The broad technical and cost implications of ideas produced by brainstorming

are now filtered and then evaluated by inspection and team agreement. They
may use a scale of 'develop', 'hold' or 'discard'. Those 'develop' ideas being
taken forward are valued and costed by estimation. The costs used in this
stage are broad estimated values and costs drawn from the experience of the
team. It is often possible to combine ideas to overcome obvious shortcomings.
Possible solutions should be subjected to careful consideration, and not be
rejected prematurely.
The result of this process should be a small number of alternative schemes

worthy of further consideration. It is also possible to consider alternatives for
different sections of the whole scheme such as individual structures or
electrical and mechanical service systems.
The 'worth' (page 41) defined as the recognized minimum cost to achieve a
particular basic function (s) and required secondary function (s), is then
compared with the estimated total costs of the proposed solution under
consideration. Both are established by team experience or the cost engineer
and the aim is to find a solution whose cost is not considerably greater than
its worth.
VP I stage 4: Each of the alternative schemes developed in the previous stage will need
proposals further development before their true merit can be assessed. It is important
that the extent of the necessary follow-up work is agreed before the VP1 team
disperse.
Between the end of VP1 and the start of the next value exercise, VP2, the
concept design team will be expected to produce two or three schemes,
or options, that embody the value criteria set out in VP1. The design team
using broad cost and value estimates will also review the technical
and financial feasibility of the project in the light of the value exercise
findings.
19
VP2 VP2 normally takes place at the end of the concept phase. By this time more
facts will be available and the team is better informed. It has time to reflect on
possible modifications to the conclusions of the VP1 exercise The project
requirements elicited in VP1 will have determined the work of the design
team who will have produced a number of costed outline design schemes.
The objectives of VP2, are to:
— verify that the previously established project objectives are still valid
— ensure that the choice of outline design proposal is made in accordance
with the owner's value criteria established in VP1
— secure marginal value improvements in the chosen design option.
The nature of VP2 is different from VP1, but is still focused on the need for
careful analysis. This is again achieved by following the staged methodology,
but probably involving more design professionals and fewer of the owner's
corporate personnel in the value team.
VP2 stage I: Normally there are more stages in VP2 than VP1. In this guide seven stages
information are dealt with; each summarized below.
gathering
The project is reintroduced by the project owner or value manager to the

stakeholder team and others associated, at this stage, with the project. Discus
sion is directed towards the extent to which the value criteria established
during VP1 (Figure 5) is still valid.
VP2 stage 2: The alternative design proposals that have been worked on since VP1 will also
speculation be introduced, probably by the design team leader.
The purpose of this stage is for the team to speculate on the relative values
thus far and to reach consensus on the simplified value tree.
The current project objectives, which could be different from those decided
upon at the start of the definition phase, are then restructured into a value
tree. The team will recognize and be able to review the relative importance of
the project requirements and the criteria. It is likely that in the light of further
knowledge, or consideration, the VP2 value tree in Figure 5 can be/will be dif
ferent from that which was developed during VP1 (Figure 4) but its format will
be the same.
It is also now necessary to simplify the hierarchy so that the lower-order crit
eria can be used for the purposes of evaluating the alternative design propos
als. The number of criteria can usually be reduced by eliminating those which
do not directly influence the choice of scheme design. Here again it is possible
to consider sections of the project by structure or system using the same value
tree technique.
It is important that the value tree diagrams are produced by group consensus
and that each participant feels involved. Judgement is required with respect to
how far the criteria should usefully be subdivided.
20
Value planning
During VP1, the object of the exercise is primarily one of definition and
understanding. However, in VP2 the lower-order criteria are carried forward
to the definition phase. It is these criteria which provide the baseline against
which all design options will be evaluated. The required level of breakdown is,
therefore, dictated by the need to compromise between the ease with which
criteria can be measured and the number of criteria which the team can cope
with.
It is often convenient to omit the objective which relates to capital cost from
the hierarchy. This can then be reintroduced at a subsequent stage of the VP2
process.
VP2 stage 3: Assignment of importance weights. Having achieved a value tree (similar to
evaluation Fig. 4) the next step is to allocate an importance weight to each of the lower-
order criteria.
Importance weights provide a system based on subjective team consensus or

objective information which indicate how important a particular criteria is to
the function of the project in relation to other criteria so that trade-offs can
be achieved. This technique is described later in the guide. The final outcome
is a value tree with importance weights (similar to Fig. 5) which, as before,
represents the required criteria and the relative importance attached to each.
Evaluation. By now there may be, say, three outline design options, each of
which will have different qualitative characteristics or attributes. It is
necessary to compare how each design option with its attributes satisfies the
required value criteria of the project. A decision analysis matrix, such as
Figure 14, page 49, is used to obtain a 'total attribute rating* being the score
for each design option. Each design option is scored against each criteria and
the product of this score and the criteria weighting gives the attribute rating
for this criteria within a particular design. The attributes of each design option
are aggregated to obtain the total attribute rating.
In the model example shown in Figure 14 on page 49, design solution Y is

judged on total attribute rating (score 6.80) to be better than the other outline
design schemes.
Sensitivity analysis. The next step is to perform a sensitivity analysis whose

purpose is to test how sensitive the outcome of the rating process is to mar
ginal changes in the key criteria. Particular attention should be given to any
importance weights about which members of the group had expressed dis
comfort. It may well be thought necessary to adjust the weight of a value
criteria or, perhaps, the structure of the value tree. The value tree model
would continue to be revised until the value team felt that it was reflective of
their values for the project.
This opportunity to reflect on the decision analysis matrix outcome is

particularly important as the mechanism of the process should not overrule
engineering, architectural, design experience or common sense. Above all it is
important to appreciate that the objective of the exercise is to provide a
structured framework for thinking and communication.
21
Costing the proposals.Each design proposal is then costed and the estimated
capital or life-cycle cost of each is compared to the total attribute rating and
the decision is made as to which design option represents the greatest value
for money. At this stage the owner may prefer to choose the better option
presented by a more expensive scheme which may still be within his or her
budget and provide what is considered to be best value. On the other hand, if
the minimum cost envisaged remains above acceptable budget levels the
scheme may have to be abandoned or radically amended.
Marginal value improvement. The team then focuses attention on the chosen
option and identifies areas of concern. Another brainstorming session is used
to generate ideas as to how these concerns can be overcome. The workshop is
concluded by a summary of what has been agreed together with the identi
fication of any follow-up work or actions.
VP2 stage 4: The second VP stage is then concluded with the agreed information that will
proposal be passed in the form of a proposal on to the design development stage. This
information will comprise full documentation explaining:
— the owner's weighted project value criteria
— the scheme design which best conforms to the owner's value criteria
— outline cost estimate of the best scheme.
4. Value engineering
VE follows VP and is aimed at:

— finding the engineering, architectural, technical solution to help translate
the VP selected scheme design into a detailed design which provides best
value
— analysing, evaluating and recommending constructor proposals
— addressing problems that may emerge during construction.
VE is typically undertaken on the basis of one or more discrete exercises
performed over the course of the design and, possibly, during part of the
construction phase involving all relevant stakeholders (chosen or approved by
the value manager).
Function 'the purpose or use of something' is a key aspect of value engineering.

The team will seek answers to the following to help determine function and
its value:
— what is the purpose of the project (or element) ?
— what does it do?
— what does it cost?
— what is it worth?
— what else could do the job?
The objective of a VE workshop exercise is to:
— examine all, or certain, aspects of the design
— brainstorm the options for value improvement
— provide the project team with an opportunity to review the cost estimate
and investigate the potential for cost savings
— make recommendations for improving value
— engender a high level of motivation and cooperation within the project
team.
V E exercises VE workshop exercises must be appropriate to the project and may be one of
three types:
— continuous application (by internal value and design team)
— expert review workshops (by internal value and design team supplemented
by experts)
— external review workshops (by external value and design team).
23
Under continuous application regular formal short (one-day) workshops, led
by the value manager ensure the continuous embodiment of value thinking as
a conscious integrated part of the design culture.
The process begins with the review and confirmation or redefinition of the
owner's project objectives and value criteria and outline design, preferably
derived through the VP stage. Thereafter the project team aims to maximize
the achievement of these criteria by testing every design decision against alter
natives measured against the owner's requirements.
The process will be iterative, particularly for such fundamental design

decisions as selection of layout, design principles, structural systems, cladding
or services systems. Choices can be made on the basis of relative value criteria;
initial cost or total (life-cycle) cost estimates.
Secondly, VE is also applied to those engineering projects, where, because of

inadequate information or other uncertainty, it is more difficult to undertake
a detailed cost or value investigation. In this type of workshop the brain
storming technique produces wide possibilities followed by an evaluation of
the options and uncertainties, using the broad experience of the team
members and appropriate experts. This is followed by detailed engineering and
risk assessments of the possible design solutions.
The essence is flexibility, a high degree of experience, personal judgement,

appropriate expert input, integration of specialist designers and constructors,
and above all, creativity among the workshop team.
This third VE approach has been the traditional vehicle for VE exercises.
Such workshops typically known as '40-hour workshops' take place at four
possible times during the design and construction phases:
— a first workshop at the early 30% stage of detailed design
— a second workshop at a later 70% design stage
— third, after contract award to consider ideas presented by the constructor
— finally, during the contract to deal with serious practical, cost or time
problems.
The external review workshop is led by the value manager normally supported
by senior designers, architects or engineers independent of the project design
team, together with the owner and appropriate stakeholders.
There is no set way of organizing these workshops but a normal format is to

have three stages; 'preparation', 'workshop' and 'post-workshop'.
The value manager will agree with the owner:

— the value manager's terms of reference and authority
— the objectives of the project, components or elements
— the time scale for the workshop (s)
— the budget available for the workshop (s)
— the workshop resources required and their availability
Value engineering
— the date and appropriate location for the workshop (s)

— the owner's value criteria (if available).
It will also be the value manager's responsibility to:
— establish the value team
— gather, list, copy and distribute pertinent information for the study
— prepare a work plan which identifies the agenda for the workshop.
V E workshop A VE workshop study can be aimed at the design for the whole project or
agenda individual parts. Several workshop studies involving different team specialists
may be required to cover a complete project. Depending upon the size of the
project and the level of detail addressed by the workshop, different team
specialists may be brought in.
VE stage I: The value manager opens the workshop, introduces the participants, describes
information the value process and particular objectives, and outlines the workshop 'job
gathering plan' and study procedure.
The owner briefs the value team on his or her project requirements, objectives
and value criteria established in the VP stage. This provides the starting point for
the generation of alternative design options during the VE exercise and also an
opportunity for the team to consider any requirements which have been modif
ied or introduced since the brief was first prepared or last reviewed. The value
team is also provided with full details on the current state of design progress.
The information-gathering process focuses attention upon either the whole proj
ect, or selected parts of it. Particular importance is given to the use of such quest
ioning as: What is it? What does it do? What does it cost? What is it worth (see
Fig. 3(a))? At this stage the team will use broad functional and cost estimates.
The aim of the information-gathering stage is to obtain a thorough under

standing of the project by rigorous questioning. It is necessary to collect all the
pertinent facts, opinions and data and to consider:
— the owner's requirements and value criteria and criteria weightings
— the list of essential functions of the project/ components/elements
— scheme drawings and specifications.
VE stage 2: function The next stage is the function analysis stage (see Fig. 3(b)), the aim of which
analysis is to define the function and value of project elements by means of a number
of tools and techniques:
— FAST diagramming
— the cost histogram
— cost-worth diagram
— value tree.
VE stage 3: The aim of the speculation/creative stage (see Fig. 3(c)) is to look at functions,
speculation possible areas of high cost or low value and attempt to generate alternative
solutions and ways to perform the needed project function(s).
25
The techniques employed centre around problem-solving skills, creativity and

decision making. This also includes a value team review of the current budget
estimate, identifying high-cost or low-value items and comparison of budget
estimates with similar, recently completed, projects from which:
— the highest cost items are selected for value improvement
— the low-value items become candidates for early value improvement or
removal
— opportunities are identified which can create significant time savings or
improve other value criteria
— a preliminary list of value improving/cost saving ideas is generated.
The activities associated with these techniques demand a wide knowledge of

engineering, architecture and good knowledge of current costs and values.
During this stage, the following questions are typically addressed:

— can alternative/better solutions be generated to meet the owner's
requirements?
— can we simplify the present shape and/or size?
— can specifications be relaxed or modified?
— are the codes being interpreted in the most efficient way?
— can we use different, newly developed or less expensive materials or
techniques?
— can construction methods or procedures be simplified?
— is there a totally different approach for the whole project or part-project?
— can this function or design element be eliminated?
— can two or more parts be combined into one?
The value team holds a brainstorming session using the information supplied
and generated from their initial studies and thoughts. This would ideally be
based on information developed during VP1 and VP2. In a large project, if the
time for value study is limited, the team may be split into subgroups with each
subgroup speculating on a particular section of the work.
Mixed discipline groups are very effective for analysing general arrangements
and design philosophy. For some highly specific parts of the project, single
discipline sub groups may be necessary. A so-called 'wild card', an expert from
another discipline, frequently helps to bring an additional dimension to sub
group consideration.
This stage, as in earlier sessions, relies on the free interchange of ideas and
alternative solutions, and the value manager must act as a catalyst to foster a
climate for optimum generation of new ideas.
The brainstorming log (Fig. 6(d)) is used to list brainstorming ideas for detail
ed consideration. The ideas generated during the VE stage will tend to be
technical 'how-to-do-it-ideas\
From speculation, the team moves to evaluation.
VE stage 4: This stage will focus on the ideas that were generated during speculation (see
evaluation Fig. 3(d)), namely:
26
Value engineering
— identification of a preliminary list of options for further investigation

achieved by reviewing the advantages and disadvantages of each of the
ideas generated during the brainstorming session (see Fig. 6(f))
— risk identification, allocation and assessment of likelihood (frequency) and
severity (consequences) for each of the ideas
— evaluation of preliminary ideas measured against the owner's value criteria
and agreement on a short-list for further study by assigning ratings to each
option
— agreement to a final, prioritized, list of options warranting full evaluation
— allocation of study options to teams comprising the appropriate design
discipline.
Each of the possible solutions is evaluated to confirm that it is practical,

without adverse impact, consistent with the value criteria, and that it can
deliver real value improvements. The analysis matrix, Figure 14 on page 49, is
a helpful technique in this evaluation.
Some solutions may not be viable. On others, subgroups are set up to derive
alternative solutions.
The possible solutions are now passed on to the estimator and planner/
scheduler who, using techniques such as cost models, life-cycle costing and
cost-worth and alternative evaluation matrices:
— determines an order of cost and the time schedule implications for each
— performs capital and life-cycle costing
— evaluates the options using criteria weighting and alternative evaluation
matrices
— provides estimates of potential cost savings and programme impacts.
VE stage 5: On completion of the evaluation stage and review and analysis of risk the
proposals and final team:
report
— prepares a summary of all these options along with appropriate sketches
and supporting documents
— collates risks and risk management options
— assembles potential cost and time savings of the short-listed options
— decides on its recommendation (s) having regard to all the value and risk
factors
— recommends further work necessary to complete the proposals.
After the workshop closes the agreed actions are completed and the proposals
are submitted to the owner and design teams in a report (see Fig. 3 (e)) that:
— provides a systematic review of their work
— details the original and proposed design and the basis for the changes
— describes the value proposals and explains the advantages and disadvan
tages of each in terms of estimated savings, capital, operating and life-
cycle costs and improvements in reliability, maintenance or operation
— predicts the potential costs and savings and the redesign fee and time
associated with the recommended changes
— lays out the timetable for owner decisions, implementation costs, proced
ures and any problems (such as delays) which may reduce benefits.
27
The value proposals and change recommendations will be supported by draw

ings, specifications, cost data and other necessary information summarized as
shown in Figure 6(h).
After the design team and the owner have reviewed the report, a meeting is
normally convened between the owner, project designer and value manager
for the latter to present the value report and recommendations. This ensures
that no value recommendations are rejected due to lack of communication
and that the owner has an opportunity to hear and understand differences of
opinion.
Following the report, the owner or designer are likely to have queries and
comments which are answered by the value manager/team. Before the owner's
approval is achieved, 'selling' may be necessary to persuade the designers to
change specifications and standards, and revisit established ideas.
The owner responding to all recommendations in the report is expected to

accept, accept if modified, or reject each of the proposals. He or she may be
drawn between the implications of each change and the cost savings or value
improvements to be gained. Often it will need a good understanding of his or
her position to encourage authorization of the change. He or she should
provide detailed justification for those he or she rejects to enable the team to
review and to resubmit where significant, further improvement is achievable.
On formal approval by the owner, the value team brief the project designers
who adopt the change and continue with the detailed design which becomes
their responsibility and subject to their public indemnity (PI) cover. The
difficulty of persuading the project designers to change their design must not
be underestimated.
After the workshop, the value manager with the project designer prepares a
final value report describing the recommendations accepted and rejected. A
post-presentation meeting is held to review the actions. Any proposals for
further value exercises are also discussed at this time. Responsibility for
implementation and method to be used are also dealt with at this stage.
VE stage 6: The owner's professional team has the responsibility for implementing the
implementation value changes (see Fig. 3(f))- It is essential to set up a reporting system so that
implementation of such changes can be tracked and verified and indeed to
ensure that agreed changes do happen.
In the long term it is desirable to have a value review from the operators/users
to provide a feedback loop for future designs and value exercises.
28
5. Value reviewing
Purpose of V R An essential feature of VM is the requirement from time to time to stop,

reflect and to evaluate the success of the process to date. The owner, or value
manager should evaluate the cost benefit of the VP and VE exercises with
particular reference to whether the expected benefits have been realized.
When this is not the case he or she will want to identify shortfalls and
appropriate corrective actions. Corrections may be then fed back into later
value exercises on the current or future projects. However, an organization
can also determine its areas of maximum success. VR may then be used to help
to target business development to provide maximum added value as an
organization.
For VR to be effective, it is essential to have retained an 'audit trail* during VP

and VE which keeps track of the brainstorming ideas, design changes or
developments and logs the reasons for acceptance or rejection. Several comp
anies have introduced value review as part of the project debriefing record.
It is prudent to audit the effect during operation of the changes that result
from value management to ensure that the anticipated benefit has been
realized and that no secondary negative factors have arisen to erode the
expected value. Of the VE exercises that do not deliver the anticipated value
many fail due to the lack of perseverance in execution of the agreed changes.
This defect can be caught in time by the value review. VR has to be carried
out early enough to influence results.
Questions for, Questions to be raised which check the technical and innovative capabilities
and outcome, of of the team and the ability to successfully apply VM include:
VR — have good ideas emerged?
— were any adopted?
— were they implemented?
— did the expected value improvement result?
— if not why not?
Factors which will be assessed include:
— stakeholders: judgement, involvement, support, application, dedication,
foot-dragging, approval process
— systems appropriateness, use, effectiveness
— management of the change process.
29
Actions that can emerge from the review include:

— change of personnel
— change of approach
— change of system
— rerun of the exercise.
VR is best carried out by an independent expert or team.
30
6. Agreements and
contracts
This chapter emphasizes the need for collaboration in the industry and to
create a win-win-win situation for the owner, designer and constructor.
If the value process is to be successful it must offer an opportunity for the

owner to improve value and for the designer, and the constructor to increase
their return from the project by sharing with the owner the savings gained
from the ideas that have been introduced. It is, therefore, desirable to create
a collaborative climate between all parties fostered by appropriate clauses in
professional appointments, and for the constructor, in tender and contract
agreements. These will set out the basis for the project organization, how any
costs and savings are to be calculated and shared, the allocation of
responsibilities, and deal with design copyright.
Whilst such contracts as the New Engineering Contract family of contracts

encourage positive collaboration and teamwork the inclusion of an appropriate
value clause to any contract is often significant to the win-win-win potential.
Support for, and It must be recognized that until VM is generally adopted, there may be mixed
constraints on, views, axes to grind or positions to defend by the owner, designer or
the value constructor requiring maximum tact and skill from the value manager.
process
The motivation for the owner to support or promote VM may include but not
be limited to:
— improvement in value
— reduction in risk
— improvement in delivery dates
— reduction of the capital, operation or maintenance costs.
But the owner may:
— consider that (at least) the principles of VM are already included as part
of the existing service contracts with the professional team, and therefore
be unwilling to invest in the additional professional fees
— be uncertain about applying a process with which he or she is unfamiliar
— be concerned about increasing risk through innovation.
31
The motivation for the designer to support VM may include but not be limited
to:
— reduction in his or her risk/financial exposure
— innovative/better design
— enhanced integration of design with construction and safety
— maintenance of his or her professional reputation and protection of his or
her PI insurance
— financial gain through entitlement to additional fees
— marketing benefits from adoption of new methods and techniques.
The designer may, however, think that:
— by demanding VM, the owner is implicitly criticizing his or her design
capability
— VM is a cost-cutting exercise where an outsider eliminates all the inter
esting and high quality elements and replaces them with cheaper materials
and designs. The value manager must be sensitive to this and be aware of
(and respect) the features of the design which are essential to fulfilling the
owner's requirements
— the adoption of redesign work in revised schemes under the value process
will be expensive with no offsetting financial benefit to him or her
— risk may increase through innovation.
The motivation for the constructor to support value management may include
but not be limited to:
— a financial incentive through sharing savings
— improved relations with the owner and the designer
— optimization of interfaces and disruption to the works
— the wish to use any specialist capability that he or she may have
— improved buildability and safety
— expansion of constructors experience
— reduction in contract period and overhead costs
— marketing benefits from adoption of new methods and techniques.
The constructor may, however:
— be unwilling to take on any increased risk which could arise out of changes
to the basic design that he or she could propose
— be unwilling to lose his or her opportunity to make a high return on
variations to the original design or through claims
— think that the process could delay the construction start.
Overcoming Thus, there are many positive and negative influences on and from the project
constraints on stakeholders some of which will constrain the value process. These may be
overcome in part by appropriate value clauses within agreements/contracts
the value
with the owner aimed at securing:
process
— the owner's pro-active involvement
— the focus of the whole team on value improvement
— the goodwill of the parties to operate as a team.
The necessity for a good agreement is clear and arises from the need to provide
in advance a mechanism to overcome the blocking systems (Box 2, page 17)
which may frustrate the successful incorporation of value changes into the
32
Agreements and contracts
works. Because of the different timings in the project life-cycle at which value
exercises can be undertaken, parties relating to the value clause and the
circumstances under which the clause must operate are often different.
Consultant/ Two distinct matters have to be addressed: the owner's requirement that the
designer design be subject to value management and the method of payment.
agreements
The owner can:
— enter into a free-standing contract with an independent value manager,
consultant or construction manager to value manage the designers scheme
paid by fee or
— include in his or her designer's agreement a requirement for the design to
be value managed by an independent value expert.
VM starts at the concept stage and the designer undertakes in his or her
agreement to participate in this process throughout and to incorporate where
possible the outcome of the study.
Payment for redesign work arising from the accepted value proposals and
undertaken by the design team, is often on a fee basis as it may not be appro
priate for designers to be rewarded by a share of savings against their own
design.
Within the designers agreement there should be a formal time limit for the
submission and approval process as time is always of the essence.
It is normal for an owner to prefer one designer to be responsible for the works
and for that designer to check, adopt and accept responsibility for any value
changes, however initiated.
The innovations made in value proposals may have commercial value to his or
her designer who may wish to use them on other projects. A copyright clause
should be included to protect these interests and ensure that there is no reluc
tance to raise innovative solutions.
Constructor/ The inclusion of incentives within contracts allows the constructor to share in
subcontractor any savings that can be developed, the objectives of which are to secure
agreements benefits from:
— constructor know-how and cooperation
— criteria improvement
— reduction of capital, operation or maintenance cost
— a contractual means of providing the win-win-win potential.
Under these arrangements tenderers bid on contract documents which include

value savings sharing provisions. These provisions do not affect the basis of the
bid, but the successful constructor may submit value proposals which, if accept
ed would create changes which would be accommodated by the contract,
improve payment to the constructor and effect a saving to the owner.
The contractual points required to achieve the objectives of the parties and
33
convert a potential saving into a secure saving include the following:
— a mechanism for submission of value proposals

— clarification of relationships between the parties
— definition of responsibilities of the parties
— process of approval (including programme)
— the design responsibility
— the method of evaluation of the saving to be apportioned
— the split of the saving between the parties.
Constructor's rights In order to encourage a flow of potential cost saving proposals, the constructor
to propose must have a right within the terms of the contract to make value proposals.
No restrictions on In order to enable all potential savings to be identified, there should be no

proposals restrictions on the type or content of the proposals.
Owner approval The owner should have ultimate authority to accept or reject any proposal.
Reasons for In the event of a rejection the reasons should be provided. This will enable the
rejection constructor to see if he or she can find alternative ways of achieving the saving
whilst meeting the owner's requirements.
Time limits There should be a formal time limit for the submission and approval process
to maximize potential savings.
Contingencies The contract and agreements should provide for expert or external VE work-
shops to be held in the event of contingencies arising from major technical,
delay, cost, or other problems which arise during the contract.
Incentive The incentive for the owner, constructor and, if any, subconsultants, needs to
be provided in the contract by allocating a share of the savings. The
percentage savings need to reflect the work, effort and risks undertaken by
each.
Mechanism for Savings can be established on a lump sum basis or a remeasured basis. The
calculation of lump sum has the benefit that when the value proposal is approved,
savings and for the constructor knows the budget to which he or she has to work and the
payment owner knows that the saving he or she has approved is secure. Several risks
accrue to the constructor in this solution, not least that the works may
ultimately cost more than he or she anticipated. This should be recognized
in the percentage split and a 60 constructor/40 owner split of the net
savings is common. Alternatively, 50/50 might be appropriate if the saving is
initially estimated but paid on a remeasure basis. The mechanism for
calculating payment, the contract clauses and when payments are made has to
be agreed.
34
Agreements and contracts
Adoption of design The (principal) designer will check on, adopt and accept responsibility for
value changes, however initiated.
Copyright The innovations made in value proposals may have commercial value to a
constructor or his or her designer and a copyright clause should be included
to protect these interests and ensure that there is no reluctance to raise
innovative solutions.
35
7. Procedures and
techniques
There are many procedures and techniques available within VM for the value
team to use as they see fit whether applied formally or intuitively. These are
used within the approach described earlier; which technique is applied and
when, will either be obvious or discussed in the following subsections.
The techniques, and procedures, described in this chapter of the guide are:
— information gathering
— cost analysis
— Pareto's rule
— basic and secondary functions
— cost and worth
— FAST diagramming (function analysis)
— creative thinking through brainstorming
— life-cycle costing
— criteria weighting
— analysis and ranking of alternatives
Other procedures, described as part of their potential application in Chapter 3
are:
— value tree
— weighted value tree
Information Information and data to be collected or derived would include:

gathering — project requirements/objectives
— owner's value objectives/value criteria
— constraints imposed on the project by the owner
— owner's planned funding arrangement and cost of borrowing
— particular aesthetic quality or features (detailed for the project)
— matters relating to the environmental impact and acceptability to the
community
— statutory authorities guidelines and approvals, if applicable
— planned project maintenance and operation requirements
— temporary and permanent health and safety requirements
— data on marketability of project
36
Procedures and techniques
— construction milestone or completion dates

— scheme viability studies and reports
— risk assessments
— budget estimates of initial capital, operation and maintenance cost
— expected project cash flow profile.
— any available scheme design in as much detail as possible.
Dependent upon the status and stage of the project, other information to be
gathered may include:
— technical standards
— space/capacity requirements
— bills of quantities/list of materials
— general and technical specifications
— performance versus cost, size, etc.
— cost data including; relevant historical cost information; breakdown of the
elements contained in the budget estimate and; breakdown of the total
budget estimate by elements
— a list of long-lead material items
— energy and consumable material demands
— health and safety factors
— environmental factors
— method statements on buildability
— programmes for design and construction
— equipment availability—lead times
— information on appropriate state-of-the-art technology.
At the VP stage comparatively little information will be available, whereas for
VE the data collection list would be further developed.
It is critical that information gathering merges with value team understanding

and establishing the owner's value system.
Cost analysis Without a valid and current cost model supported by an accurate and compre
hensive cost database, any value proposal may be compromised.
Cost analysis summarizes total cost and helps in identifying subprojects or

elements that could be high cost and candidates for reduction or disposal. The
cost analysis technique is used to organize and distribute estimated costs into
functional areas that can be separately identified and quantified. The purpose is
to present the costs in a hierarchical tree so that the structure of the project cost
estimate can be seen. In this the team use their experience to evaluate the costs.
Each of the principal components is analysed and shown on a 'single-sheet'

cost analysis of the total project. This analysis requires that the elements of
the cost model relate to a cost estimating system organized into functional
areas and trade or activity breakdowns. This is usually done using a standard
form as shown in Figure 6(a).
This summary cost tabulation is a cost framework against which all value
changes are measured and scheme viability reviewed.
Figure 7 shows as pictorial representation of a cost model the cost analysis of
37
Legend: Level
Description
Target
0
Actual / estimated
Commuf
326k
26Ok
Lighting
93Sk
1110k
I
Security*. Trough LVcabto
PA
201k 82k
240k 84k
C«ng LVtwNch
Nghte board
2S4k ask
324k 120k
CaMng Tray rack

370k 27k
480k 08k
l»c. nratarrlf.
ask 22k
06k 48k
Figure 7 Cost model: power station treatment building
the electrical components of a power station turbine hall. The electrical works
comprise three principal components namely: protective installations,
communications and electrical infrastructure. Examination shows the further
subdivisions of these components are given by level 3. Levels 4-7 show the
elemental costs that when aggregated constitute the target and actual values
given at level 3.
The legend shows that each element of the cost model has both a target cost
(based on experience) and an actual/estimated cost based on the design
options under consideration. The elemental target costs are likely to have
been those which have been used during the definition phase in deriving the
project budget plan.
The cost model is useful in examining the budget plan for large differences
between the target cost and the estimated cost, which point to areas of
potential cost savings. For example, under the electrical infrastructure
component, the cost estimate shows that the target cost based on experience
is £1,314,000 and the estimated cost as designed is £1,634,000. This is a
significant differential that would prompt the further investigation of
'electrical infrastructure' component to identify potential cost saving.
Cost modelling using the standard form shown in Figure 7 is one way of
identifying components and elements for review.
38
Pareto's rule Another way of identifying components and elements for review is to create a
decreasing elemental cost histogram and to look at the few items that
inevitably contribute to most of a project's cost.
Figure 8 shows the component costs of a power station turbine hall depicted
as horizontal bars against a scale of cost. Although the histogram has been
shown for a turbine hall it could also be produced for any component or any
other parts of a project. A family of histograms produced for a project helps in
the identification of items worthy of review and provides a ready means of
highlighting the few items containing the bulk of the cost.
The procedure is to produce the costs as bars on the histogram in decreasing

cost magnitude. The histogram should be produced at a level of detail that will
show all items that make up the component or element under consideration.
For simplicity in the example shown in Figure 8 all the many detailed items
have been amalgamated under an item called 'others'.
The dotted line across the histogram, in Figure 8, separates the 10% of items
that constitute about 60% of the total cost of the project (above the line) from
the rest. This broad relationship, can be related to Pareto's principle, which
states that about 20% of all items contain about 80% of the total cost of the
items. In the example the turbines, foundations and boilers are the 10% com
ponents that represent 60% of the total cost of the turbine hall. So Pareto's
principle can be used to identify the few sources of major cost which may
contain significant redundant function.
Setting out costs as in the standard model form (Fig. 6(b)), provides a valida
tion for the structure and distribution of the estimated cost of projects.
Generator / turbines
Foundations
Boilers 10% of the items represent

approx. 60% of the cost
Piping
Electrical supply
Building superstructure
Control room
Cooling water treatment
Water treatment plant
Others (21)
~] I ~1 1 1 —1 1
Figure 8 Cost histogram 3 4 5 6 7 8 9
Cost: £ million
39
Basic and The function analysis approach helps us to think more deeply about the
secondary project by classifying the components and elements as having either, or both,
functions basic or secondary functions (see Fig. 6(d)). This aspect of function is the core
of VM and it is crucial to ascribing value and allocating cost.
The basic function(s) of a project, component or element are those without

which the project or item under study would fail or the task would not
be accomplished. Secondary functions, on the other hand, are those which
are not needed for the project to work but which may be required by the
owner or may be a characteristic of the technical solution chosen for the basic
function.
When analysing the function of a component or element both basic and

secondary functions should be sought in order to fully understand a problem.
For example, an electric filament bulb satisfies the basic function of emitting
light, but also has unwanted secondary functions of generating heat, induces
glare, looks unattractive, etc. These secondary functions can be solved
through the technical solutions of ventilation/air conditioning and by a lamp
shade. These technical solutions can themselves be represented by a function
of control waste heat and shield light source. Further technical solutions can
be generated for these functional definitions. This process continues until
technical solutions only can be found.
Cost and w o r t h The assessment of worth, defined as 'the lowest possible cost of the basic
function plus required secondary functions', is another useful indicator for
determining where to look for potential cost savings.
Basic and required secondary functions are deemed to have value (worth)
whereas unneeded secondary functions have none. Figure 9, which is also the
same as the model form Figure 6(c), shows how to use it. The example shows
the required function for a very simple building element, external doors to a
Project: building Item: external doors Basic function: provide access Date: Dec-95
Quantity Unit Component Function Explanation Original Worth
or element Verb Noun Kind cost (% of cost)
10 No Warehouse door Provide Access B 2500 400

Exclude Elements B 800
Provide Security RS 600
Enhance Appearance S
Ironmongery Control Door B 1000 450

Painting Protect Material B 500 350

cost/worth = 4000/2600 4000 2600
cost/worth = 1.54
Key: B = Basic, RS = required secondary, S = secondary
Figure 9 Function-worth analysis
40
building, and how the basic function and secondary functions are listed and
costed to determine worth.
The estimated cost as designed for the warehouse door system, which includes
door, ironmongery and painting, is shown as £2500, £1000 and £500, respec
tively. By examining other door systems that would reduce the cost of basic
function and eliminate or scale-down some or all of the secondary functions
that have been listed, it is found that the door, ironmongery and painting
should be provided at £1800, £450 and £350, respectively. These costs and
their total £2600 are known as the worth of the door elements and door
system.
The function 'provide access' merely needs a hole in the wall of adequate size
whose minimum cost (and hence worth) is only £400. 'Exclude elements'
demands a door to keep the weather out whose minimum cost is judged to be
£800. Introducing 'security' alters the character of the door which then has to
be strong enough and with sufficient controls to provide security. This is worth
£600 giving a total door worth £1800.
The cost-to-worth ratio is given as 1.54 which being just greater than 1.5
indicates that there could be either redundant secondary function or high
basic cost in the door system under consideration and also suggests further
examination to see how the cost can be reduced nearer to the worth.
This cost worth comparison can also be presented as shown in Figure 10,
which shows component worth superimposed on the items that were
contained in the histogram in Figure 8.
The essence of this approach is that design teams cannot contemplate a design
solution whose cost to achieve a required function is substantially in excess of
the worth. A cost-to-worth ratio of more than about 1.5:1 highlights
components and/or elements of high cost or low value.
41
In assigning worth, it is necessary to speculate on the least cost for performing

the needed function(s) of the component or element being examined. Worth
is, therefore, the least cost to satisfy the basic function(s) plus only the
required secondary function(s) of the item being examined.
The worth of each of the components is shown shaded in the Figure 10. Here
the items: 'foundations', 'piping', 'building superstructure' and 'water treat
ment plant' appear to have cost to worth ratios greater than 1.5, hence these
items would be identified as potentially containing poor value or redundant
costs. Thus, evaluating the cost to worth ratios is an important way of
gathering information and identifying those items or parts of the project that
need further analysis or deserve speculation on an alternative solution.
In making this analysis the team will consider, for example, an alternative form
of foundation, e.g. piles vs mass concrete and then by further study the
cheapest form of piling—precast/steel, etc.
FAST FAST (functional analysis system technique) (see Fig. 6(e)) diagrams are a
diagramming technique that can help in understanding the functional relationship between
components and elements under study. FAST diagrams being a sequential
arrangement of functions, can be useful in providing greater clarity.
This discipline of using FAST allows a functional statement of a project, its

components, or its elements to be mapped and set out graphically. A simple
diagram for the construction of a power station is shown in Figure 11.
The logic of the FAST diagram starts with the initial identification of the
item's main purpose; in our simplified example of constructing a power station
that is 'produce electricity', and this is placed at the left-hand side of the
diagram. 'Produce electricity' is then progressively broken down into functions
by answering the question 'how?' while moving across the diagram from left to
right. The developing structure of the diagram is verified by providing the
answer to the question 'why?' while moving from right to left. The answer to
any question should be in the format of a verb and noun and it should be
measurable.
Horizontally arranged functions must also meet a time sequence requirement,

that is, the earlier time functions appear in a time sequence which start at the
right side of the FAST diagram. As a function occurs later in the overall
sequence it will be found further to the left of the diagram. For example,
'generate steam' can only happen after 'install equipment' has taken place,
and, 'create space' is dependent on 'develop site'.
Concurrent functions are placed vertically, usually below the function in the
horizontal chain to which they relate. If the function happens all the time and
not just once within a sequence then the supporting function is placed above
the horizontal chain at the extreme right of the diagram. For example,
'provide utilities' and 'enable access' are continuous functions in the example
in Figure 11.
If there are specific design objectives to be kept in mind they should be placed
in dotted boxes above the horizontal chain at the extreme left of the diagram.
42
How?- Why?
Meet design Provide

criteria utilities
Conserve Enable
energy access
Produce Drive Generate Install Create Develop

electricity generator steam equipment space site
Drive Supply Install Build Prepare

turbine feedwater auxiliary structures site
equipment
Supply Build Clear
fuel Supply foundations site
fuel
Figure IJ FAST diagram
As can be seen from the FAST diagram functions are best specified by using
two words (see Fig. 6(c)). A verb and a noun are used to identify what the item
does and what the item is respectively. For example, a water pipe has the func
tion to deliver water—deliver (verb) water (noun). Where an item performs
more than one function, all functions are listed in groups of verb plus noun.
A list of some useful active verbs is given below:

amplify establish modulate
attract filter prevent
change hold protect
collect impede ' provided
conduct improve rectify
control increase repel
create induce shield
emit insulate support
enclose interrupt transmit
'Provide* is a verb that current applicable literature suggests should only be
used if there is no better alternative.
The value tree objectives and actions shown in Figures 4 and 5 follow a similar
logic.
Through rigorous application of the 'how/why* test between adjacent func

tions, a FAST diagram helps us to understand the components and elements of
a project or an item under study and their functional relationship to each other.
Creative Creative techniques are used to bring about improvements and progress. The
thinking and solutions are often new and different from the original concept. It is always
brainstorming possible to produce a new proposition that improves the required function.
The options are potentially unlimited. The challenge is in finding the best
solution within the time available.
43
One creative thinking approach is team brainstorming. The success of VM is

very much based on the ideas generated through creative thinking and
brainstorming facilitated by the value manager. As many as 500 ideas may
emerge from a two-hour session, each of which must be recorded immediately
without comment for selection and analysis later. It can be useful to input
each idea into a word processor so that the log is constantly available.
Figure 6(d) shows the layout of the brainstorming log standard form, Figure 6f
shows the format for the first evaluation of the brainstorming ideas.
Life-cycle The determination of least cost and its contribution to value is likely to
costing depend upon the use of total or life-cycle costing techniques. A life-cycle cost
analysis (LCC) reflects initial and future costs of an element of a project, over
its useful life. The owner has, however, the option of maintaining decision
making on the basis of initial capital cost only.
LCC within projects is the total cost of a component or element and it

includes such costs as the initial cost, maintenance, replacement, operations,
energy, including all associated costs within its life-time, long-term cost of
borrowing capital, salvage values and the expected life of the element or
component being analysed.
Cost comparisons of options, whether mutually exclusive or not, must be with

reference to a common baseline of time. By taking the baseline as the present
time a clearer picture of the differences between the total cost of options can
be derived. By using the net present value (NPV) technique it is possible to
compare options.
Figure 12 shows a table having principal and secondary rows representing cost
and pairs of columns representing alternatives under investigation.
The example given is a comparison of high-frequency (HF) lighting and

conventional switch-start lighting with their associated fittings. The
comparison uses a financing interest rate of 6%, taken over an economic life
period of 60 years, and applies these conditions to a room having a floor plan
area of 12 m which is to be lighted at an intensity of 500 lux.
The NPV (or cost) formulae applicable to project cash flows are:
n
NPC = P(l + r)'
n
NPC = A[l - (1 + r)" ]/r
where A is the annuity (£ per year), NPC is the net present cost (£), r is the
interest rate percentage (per annum), n is the period of time (years) and P is
the price to be paid at the time n (£).
The initial cost for providing the required 36 fittings and lighting elements (18
twins) is shown as the first principal row 'initial cost' on the table. The
columns show the initial capital cost for both HF fittings (first and second
columns) and switch-start fittings (third and fourth columns). The initial cost
of the HF fittings and lamps is £278 and the initial cost of the conventional
44
HF fitting Conventional
Item: Conventional lighting vs HF lighting Originai Alternative # 1 Alternative # 2 Alternative # 3
^S. • l - f 1 ' » 1. ...
Life cycle period: 60 years 1995 1995
Date: 20.01.93 Estimated Present Estimated Present Estimated Present Estimated Present
costs worth costs worth costs worth costs worth
Base cost /12 sq. m room 278 278 216 216
Interface cost
a) @ 500 lux
b) 36 fittings
Collateral/ c) (18 twins)
initial costs Other initial costs
a)
b)
Total initial cost impact
Single expenditure @ 6% interest
HF RE lamping 1 5/55 PW factor 2.836664 68 193 > Based on £7.50/twin
HF fitting 2 25 / 50 PW factor 0.287257 278 80 >
Conv. tubing 3 4 / 56 PW factor 3.664025 50 183
Conv. fitting 4 20/40 PW factor 0.409027 216 88
Replacement 5. Year PW factor
Costs Salvage year
Total present worth costs
Annual costs © ....6% interest
a) Maintenance Cleaned every 2 years
Escal. rate 20 156 20 156
PWA factor 7.806036
b) Operations HF @ £28 / yr.
Escal. rate Conv. @ £36 / yr 28 453 36 582
PWA factor 16.1614
Annual c) Others test every 5 years
cost Escal. rate 31 230 - -
PWA factor 2.836664
d) Others
Escal. rate
PWA factor
e) Others
Escal. rate
PWA factor
Total annual costs
Total present worth costs 1390 1225
Life cycle (PW) savings - 165
Key: PW » present worth, PWA = present worth of annuity
Figure 12 Life - cycle cost analysis
fitting and tubing is £216. As these are the initial costs at today's prices they
are also the net present cost or 'NPC' as shown in the second and fourth
columns, respectively.
The next principal row shows the 'salvage and replacement costs' for each
option. In the HF option the lamps will need to be replaced every five years
with the last year of replacement being year 55. The estimated current cost of
the lamps is £68. The NPC factor for year 5, 10, 50 is 2.836664. The NPC
is therefore 68 x 2.836664 = £193, this is shown in column 2.
It is estimated that every 25 years the fitting which holds the lamps will
need to be replaced. The estimated initial cost of the fitting is £278. The
NPC factor for year 25 and 50 is 0.287287. The NPC is therefore 278 x
0.287287 = £80.
Likewise the replacement of lighting elements for the switch start (conven
tional) alternative is obtained by the same reasoning. Retubing is considered
by the designers will be every four years. The estimated current cost of the
tubing is £50. The NPC factor for years 4, 8, 56 is 3.66405. The NPC is
therefore 50 x 3.66405 = £183 (see column 4).
It is estimated that every 20 years the fitting, that is the item that contains the
45
tubing, will need to be replaced. The NPC factor for year 20 and 40 is
0.409027. The cost of the fitting is assumed to be £216. The NPC is therefore
£88 (see column 4).
The annual operating cost is shown in the third principal row. This shows that
the HF fitting type will require cleaning not every year but every two years at
2
a cost of £20. The HF alternative will cost £28 to operate per 12 m of floor
area per year and will need to be tested every five years at an estimated current
cost of £81. The NPC annuity factor for cleaning is 7.806036; for energy usage
is 16.1614 and for testing is 2.836664. The NPC for each of these 'annual' cost
items is shown in the second column as £156, £453 and £230, respectively.
The conventional option, which does not require any form of testing, will be
cleaned every two years at the same unit cost as the HF alternative and will
cost £36 per year in energy cost. The NPCs are shown in the fourth column
and are £156 and £582, respectively.
By separately adding the figures in column 2 (£1390) and the figures in

column 4 (£1225) a comparison of the NPC can be determined. In this exam
ple the conventional alternative is cheaper than the HF lighting alternative
both in initial cost and in LCC Based on cost the conventional alternative
would be the chosen option.
Using the technique of net present cost (NPC), it is possible to compare the
LCC of various options. LCC can be of significant help in the decision making
process during the definition and design phases of projects.
Criteria It often happens that decisions have to be taken on the importance, or the
weighting comparison, of a range of non-economic and economic criteria. Such criteria
can include image, aesthetics, reliability, energy, maintenance and so on. It is
often necessary to determine the degree of importance for these criteria when
comparing schemes during the definition phase, and, components or elements
within a project design. Another word that is used for degree of importance is
'weight'.
Within the value process, criteria have to be weighted and the method for
doing this is to use the criteria weighting process which can be accommodated
on a chart similar to that shown in Figure 13.
Criteria weights are developed by the value team during the information
gathering stage to help clarify and rank the owner's objectives and are used
the evaluation stage to guide design decisions. (One method based on a
weighted value tree was dealt with in Fig. 5).
Figure 13 shows as an example the heating, ventilation and air-conditioning

(HVAC) system of a control building. The value team lists and assigns a letter,
to each criterion; the criteria are written down at random. These are shown as
A to H in the upper table in the Figure 13.
The next step is to compare criterion A with each of the other criteria and
score how A rates against the others. In rating the comparison there are four
preferences to choose, namely major, medium, minor, no preference, and these
46
Project: Control building Item: H VAC

Team: Date:
Criteria Imp. weight Raw score
A) Energy reduction 5 11
B) Cost of maintenance 4 8>
C) Redesign time / cost 7 14
D) Performance 10 21
E) Aesthetics 2 4
F) Ease to erect 3 6
G) Salvage value - 1
H) Impact on building cost 2 5
Criteria scoring matrix
A-2 A-2 D-4 A-3 F-2 A-3 A-H
0-3 D-3 0-E 0-2 3-0 3-H
C-2 C-3 C-3 C-4 C-2
D-4 D-3 D-4 D-3
E-F E-3 G-H
Importance F-3 F-H

4 = Major preference
3 = Medium preference H-3
Figure 13 Criteria 2 = Minor preference
weighting chart 1 = Slight, no preference (one point each letter {letter/letter})
have been assigned scores of 4, 3, 2, 1, respectively. To do the comparison of

criteria the lower set of boxes shown in Figure 13 under 'criteria scoring
matrix' is used.
Taking a single comparison of criterion A against, say, criterion C. In

this example when A is compared with C the team have A with a minor
preference over C; this result would be written A-2. As rating against B to
H is therefore agreed and concluded to be A-2, A-2, D-4, A-3, F-2,
A-3, A-l,* respectively. The summary result of As comparison with the
other criteria is written into the top row of boxes in the 'criteria scoring
matrix'.
Criterion B is then compared with criteria C to H in the same way as already

explained (there is no point in comparing criterion B with A again as that has
already been carried out) and the results of the comparisons written into the
second row marked B. Criteria C to H are then treated in the same way.
*Where there is no preference the score is written down letter-letter, e.g. A-H, and each letter is
allocated a score of 1.
47
With the matrix completed the next step is to calculate the raw score of each
criterion. This is accomplished by simply adding the numbers (scores) for each
criterion. For instance, the raw score of criterion A is 11 and this is derived by
adding up all the importance numbers following the As that are within the
applicable boxes of the matrix. The raw score for each criterion from B
through to H is obtained in the same way.
These accumulated raw scores are then included within the criteria listing in
the upper table; these are shown in the third column.
The weights of each criterion is the last step and is quite simply derived by
setting the highest criteria weight = 1 0 and, using proportionality, calculating
the weight for each of the remaining criteria. For example if the highest raw
score = 21 then:
criteria z weight = (10/21) x criteria z raw score.
The calculated criteria weight for all criteria would then be included within
the criteria listing in the upper box; these are shown in column 2 in Figure 13.
As can be seen the team consider that in this HVAC system example the
criteria in order of importance are performance (10), redesign time/cost (7),
energy reduction (5), cost of maintenance (4), ease to erect (3), and impact
on building cost (3) and aesthetics (3).
The HVAC design team will bear in mind these rankings in their design or
when choosing between alternatives.
Analysing and Criteria weighting, described earlier, is the basis for designing an analysis
ranking matrix which is a key technique normally used in comparing alternative
schemes but can also be used for comparing alternative components and
alternatives
alternative elements. The design of a typical analysis matrix is shown in Figure
14.
The criteria and their weights devised using either the value tree or the
criteria weighting process are transferred to the analysis matrix and are placed
in their appropriate column-head location as 'importance weights'. Criterion
A weight in column A, criterion B weight in column B, and so on.
Listing the criteria is part of the input data. The other part is to list the various
design alternatives X, Y, Z or actions being considered to solve a problem.
These alternatives are concisely defined and listed in rows 1, 2 and 3.
The next step is for the value team to score each alternative design against
each of the criteria using an assessment system using gradings: excellent 10,
good 7, fair 3 and poor 1. The assessment grades and the scores for three
design options, X, Y and Z are shown in Figure 14.
The scoring system selected should take into consideration how each
alternative rates against each of the criteria. In the example shown on
Figure 14 'design X' is therefore assessed against each of the criteria A to K
and the grading score for each criterion is placed above the diagonal within
48
Figure 14 Analysis matrix
the square it pertains to. For example, 'design Y' when assessed against
criterion D is judged to be fair therefore the grading score is 3.
Some marks, such as 9 have been used, indicating that a very, very good
grading has been given but it is not quite excellent. Similar reasoning can be
given for using intermediate scores such as 4, 7, 8, etc. The scores for each
alternative design against each criterion is completed using the same
procedure as just described.
The next step consists of multiplying the grading score by criteria importance
weight located at the head of each column. The product of grading score and
criteria importance weight is then placed below the diagonal within the square
it pertains to. Again looking at 'design Y* when assessed against criterion D
with a grading score of 3 and a criterion weighting for D of 0.10; the product
is 0.30. This is what is called the attribute score.
The final step is to add the attribute scores for all criteria for each alternative
and place the 'total attribute score in the last column. By examination, the
alternatives are then ranked for selection; the alternative with the highest
total score being the top ranked option.
As can be seen from Figure 14, 'design Y' is the alternative with the highest
total score 6.80 and it would be this design alternative which would likely be
selected for inclusion for further value investigation and evaluation. The
value team will review the selection in the light of the sensitivities of the
49
importance weights and the scoring and also consider this selection in th<
light of the relative LCC or capital cost of design Y compared with designs >
and Z.
50
8. Conclusion
The key features of value process and the application of VM to it have been
described and the importance of value planning, teamwork and perseverance
emphasized. The incentives and benefits to all stakeholders have been
identified and discussed. These are underpinned by three particular aspects:
— the independence of the value manager to clearly establish the owner's
value criteria
— planned application of team brainstorming and
— the inclusion of appropriate enabling clauses in contracts and agreements.
The factors needed to ensure success of VM include:
— systematic approach
— integrated team environment
— establishment of value criteria
— focusing on the function
— facilitation of creativity as a separate stage
— consideration of a project or element on a life-cycle cost basis
— collaborative and non-confrontational contract and working environment
and
— generation of records and audit trail.
VM must have comprehensive top management understanding and support
and an enthusiastic, sustained and innovative approach.
Top management ensures that appropriate resources are made available to

undertake the value process effectively and to adopt the recommendations.
Tradition, conservatism and inertia may present major barriers to progressing
VM. The need for an open and integrated approach to address uncertainties
and manage risk is not universally welcomed or readily embraced in the
construction industry which tends towards conservatism and confrontation.
However, to achieve a safer but more cost-effective industry, teamwork and
innovation must be fostered. VM provides an effective answer. The successful
examples quoted in the preface underline the potential of the process and
justify its wider adoption throughout the industry.
51
Glossary
The following definitions are used:
attributes that which characterizes a scheme, or component, or

element, when comparing options against a range of
selected criteria
basic function the basic function(s) of a project, component or
element without which the item under consideration
would fail or would not be accomplished
brainstorming the development of ideas generated by a group of
people
constructor the principal party engaged to apply resources to
convert the design into an operating facility
cost an amount or payment to provide a particular function
criteria measures against which something can be evaluated
and a judgement made
designer the designer, or team, chosen by the owner to design a
separately identifiable and definable part of a project or
structure
facility a project that has been completed and commissioned
and is operational
FAST functional analysis system technique—a technique that
can be used to define function of a scheme, component
or element
function the purpose or working use of something
the summation of all costs relating to a project,
life-cycle cost component or element from inception to retirement
the party who will be responsible for the project being
owner (client) initiated, and its development
a series of activities utilizing resources, having a start, a
project required outcome, a degree of uncertainty attached to
it and an end
project life-cycle consists of sequential phases common to all projects
which have been termed (a) definition (or pre-invest
ment), (b) design (outline and detailed), (c) construc
tion, (d) commissioning and handover, and (e) operation
and maintenance, (f) decommissioning
scheme an option that is investigated and studied to determine
if it will satisfy an owner's needs. It is the 'early life' of
what could eventually become a project
Glossary
secondary function are those functions which are not needed but which
may required by the owner or be a characteristic of the
technical solution chosen for the basic function
stakeholders various parties who have an impact on or are impacted
by a project such as: promoter, owner, financier,
supervisor, planner, engineer, architect, surveyor,
constructor, operator, user, public, etc.
system an organized arrangement of interconnected and
interdependent parts or processes with a common
purpose
user the party who may be the tenant or operator of the
completed facility, not necessarily the owner, the users
input may be crucial to the development of a functional
and efficient solution
value level of importance that is placed upon a function, item
or solution by a prospective acquirer; can be considered
as the ratio of function achieved to cost paid shown
mathematically by: value = function/cost
value team the team consisting of stakeholders' representatives all
of whom are needed successfully to carry out a value
exercise
value tree a diagram, similar to an organizational chart, which is
arranged as a horizontally hierarchy of functions which
will satisfy a primary objective of a or the project, and
basic function of a component or element
worth the minimum cost to achieve the basic function (s) and
required secondary function(s).
53
Bibliography
BARRIE D . S. and PAULSON B. C. Professional Construction Management.

McGraw-Hill, New York, 1992.
BUZAN B. The Mind Map Book—Guide to Radiant Thinking, BBC Books,
London, 1993.
D E B O N O E. Six Thinking Hats. Viking, 1986.
D E B O N O E. Lateral Thinking. Penguin Books, Harmondsworth, 1990.
DELL'ISOLA A. J. Value Engineering in the Construction Industry. Construction
Publishing, Washington, 1973.
DELL'ISOLA A. J. and KIRK S. J. Life Cycle Costing for Design Professionals.
McGraw-Hill, New York, 1981.
EDWARDS B. Drawing on the Right Side of the Brain. J. R Tarcher, Los Angeles,
Calif., 1979.
FALLON C. Value Analysis, 2nd edn. Lawrence D . Miles Value Foundation, 1980.
FLANAGAN R., N O R M A N G., M E A D O W S J. and ROBINSON G. Life Cycle Costing,
Theory and Practice. Blackwell Scientific, Oxford, 1989.
GORDON CHRISTOPHER M. Choosing Appropriate Construction Contracting
Methods, 1994.
GREEN S. D . Beyond value engineering: SMART value management for building
projects. International Journal of Project Management 2, No. 1, 49-56, 1994.
KELLY J. and MALE S. Value Management in Design and Construction. E. & F. N.
Spon, London, 1993.
KIRK S. J. and SPRECKELMEYER K. E Creative Design Decisions. Van Nostrand
Reinhold, New York, 1988.
MACEDO M. C, DOBROW P D. and O'ROURKE J. Value Management for
Construction. John Wiley, New York, 1978.
MILES L. D . Techniques of Value Analysis and Engineering. McGraw-Hill, New
York, 1972.
MORTON C. W. Value engineering and its application to the construction
industry, in BRANDON P S. (ed.) Building Cost Modelling and Computers. E. &
F. N. Spon, London, 1987.
M U D G E A. E. Value Engineering, a Systematic Approach. McGraw-Hill, New
York, 1971.
O'BRIEN J. Value Analysis in Design and Construction. McGraw-Hill, New York,
1976.
OLSON R. W. The Art of Creative Thinking—A Practical Guide. Barnes & Noble,
New York, 1976.
POWDERHAM A. J. and RUTTY R The observational method in value
engineering. Proceedings of 5th International Conference on Piling and Deep
Foundations, Bruges, 1994.
Bibliography
RAWLINSON J. G. Creative Thinking and Brainstorming. Wildwood House,

Aldershot, 1989.
THOMPSON R and PERRY J. (eds) Engineering Construction Risks (A Guide to
Project Risk Analysis and Risk Management). Thomas Telford, London, 1995.
ZIMMERMANN L. W. and HART G. D. Value Engineering, a Practical Approach to
Owners, Designers and Contractors. Van Nostrand Reinhold, New York,
1982.
55

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Creating value in engineering

ICE design and practice guides

Where appropriate, the guides will feature checklists to be used as an aide-

First published 1996

Distributors for Thomas Telford books are

© Institution of Civil Engineers, 1996

Value for money is a prerequisite in all commercial transactions. Project

Completed projects are as successful as their perceived value. Acceptable risk,

Value management provides a practical and workable set of systematic and

On many projects world-wide, this process has delivered improved value. In

Industry cannot afford to ignore the power of value management.

Membership of the Working Party

The assistance of Adele Stach-Kevitz, Nigel Standing and Branko Bajatovic is

1 Introducing value management 1

7 Procedures and techniques 36

The guide is organized as follows:

— Glossary: provides a definition of the terms used in this book.

This approach resulted in a method which identified the function of a scarce

The definitions used in this guide are (see Fig. 1):

against the owner's value objectives and criteria to remove unnecessary

VP and VE are pro-active in that function (what a scheme, project, compon­

All stakeholders should be represented or considered (e.g. the public) in

The key to VM is to involve all the appropriate stakeholders in structured

User Users of the planned facility should participate to assist in establishing

At the concept phase, information will tend to be unstructured and expressed

During the definition phase there should be a close linkage between an

In these formative phases of the project, insufficient attention is often given

The relative timings of VP and VE in the project life-cycle are indicated in

Whereas it is preferable to start VM in the concept phase, not every owner

At a later stage a tendering constructor may be expected to bring other value

VM requires full stakeholder/project team involvement including the owner,

Important benefits of having a value manager include:

The sequence of stages for VP and VE is generally as follows:

(a) Information gathering VP, VE

(b) Function analysis VE

(c) Speculation VP, VE

(d) Evaluation VP, VE

(e) Proposals VP, VE

(f) Implementation VP. VE

The structured methodology VP set out in Chapter 3, is concerned with

Value teams must include all relevant disciplines at an experienced free-

The roles of the key team members are considered below.

The owner's representative should be appointed on their ability to make

Designers The designers appointed by the owner should be required actively to

In design and construct contracts, the tendering constructor may undertake

Specialist suppliers If possible it is recommended that specialist suppliers/subcontractors partici­

Lack of In these times of rapid growth in technical developments it is difficult

As construction projects invariably have to satisfy more than one stakeholder,

VP I The objectives of VP1 include to provide:

The participants working as a group are then required to structure the

Figure 4 shows a value tree for a project whose overriding objective is to

Viable and profitable Low fumes

As in FAST diagrams the response developed in moving from left to right

The team discusses and agrees in placing relative values (importance

It should be recognized that an 'aesthetically pleasing' requirement can be

(0.22) Low maintenance (0.10)

Box 2 Killer phrases frequently used as 'roadblocks*

Time and timing We don't have the time.

(a) Cost worksheet

(b) Cost validation

* List all ideas, evaluate later (brainstorming log)

System/component Fast diagram

*Rank: 1 = excellent (develop), 2 = good (hold), 3 = fair (discard)

(g) J Analysis matrix

VP and VE are pro-active in that function (what a scheme, project, compon

Specialist suppliers If possible it is recommended that specialist suppliers/subcontractors partici

The aim of the information-gathering stage is to obtain a thorough under

The value proposals and change recommendations will be supported by draw

Through rigorous application of the 'how/why* test between adjacent func