Unit 2: Value Management and Value Engineering of

construction projects

2.1 Introduction
The aim of this unit is to review the background to value management and value
engineering and outline its application to the construction industry.

Simplistically, value management is the name given to an enterprise concerned with

providing the product or service demanded by a customer at the required quality and
at the optimum cost.

The philosophy is based on work undertaken in the manufacturing industry of the USA
in the 1940s and defined initially as value analysis:

Value analysis is an organised approach to providing the

necessary functions at the lowest cost.

From the beginning, value analysis was seen to be a cost validation exercise which did
not affect the quality of the product. The straight omission of an enhancement or finish
would not be considered value analysis. This led to the second definition:

Value analysis is an organised approach to the identification and

elimination of unnecessary cost.

Unnecessary cost is:

Cost which provides neither use, nor life, nor quality, nor
appearance, nor customer features.

In 1954 the US Department of Defence’s Bureau of Ships became the first US

government organisation to implement a formal programme of value analysis. It was at
this time that the term value engineering came into being for the administrative reason
that engineers were considered the personnel most appropriate for this programme.
The formation of the Society of American Value Engineers in 1959 established the
technique and the name.
Unit 2: Value Management and Value Engineering of
construction projects

2.2 Terminology- VM, VE and the Project Life Cycle

The terms most commonly used are value management and value engineering. In
a construction context, value management is generally considered to relate to
the business activity of the client and spans individual projects. Value engineering
relates to studies undertaken on specific projects between the completion of the
sketch design and the completion of construction work on site. These studies tend to
be technical in nature dealing with elements, components and construction
process. This section introduces the context within which VM and VE is applied, and
the issues to be resolved at the various stages throughout the Project Life Cycle are
reviewed in more detail in Unit 4

2.2.1 Project Life Cycle

The Project Life Cycle (PLC) is defined by BS6079 Part 1 as the “sequential
phases through which a project passes to reach its objectives”. There are
numerous interpretations on what these phases comprise of from the various
professional bodies, both in a general project management as well as construction
specific perspective. Within construction the Royal Institute of British Architects
(RIBA) Plan of Work (PoW) is one of the most widely recognised project life cycle
frameworks in the UK, and will be used throughout this course as the main framework
of reference. It was first published in the 1960s and has gone through a number of
iterations. The most recent significant update was 2013 when it was revised to
recognise sustainability and Building Information Modelling activities.

A comparison of the various project life cycle frameworks shows that the timing
and responsibilities for the various design and construction activities involved may
vary, the way the various participants are brought together may differ, and the
number of steps detailed and terminology used varies. However, fundamentally they
all exhibit a number of common features which see the project go through a
strategic definition phase followed by tactical delivery phase. This distinction is
important to VM, VE and RM as will become apparent.
 APM BoK RIBA PoW BS6079 OGC CIRIA
Pre-feasibility Strategic definition Conception Strategic Feasibility
assessment
Feasibility Preparation and Feasibility Business Briefing
brief justification

Design Concept design Implementation Procurement Scheme design

strategy

Contract Developed design Operation Investment Production

decision information

Implementation Technical design termination Outline design Tendering

Commissioning Construction Detailed design Construction

Handover Handover Readiness for Operation

& closeout service
Operation In use Benefits
evaluation

Table 2.1 Comparing project frameworks- different terminology, same basic process

Value Management Opportunities

Value Engineering Opportunities

Figure 2.1 How Value Management and Value Engineering opportunities relate to the RIBA Plan of Work
project framework
RIBA Plan of Work 2013 © The Royal Institute of British Architects, 2018. All rights reserved.

2.3 Construction orientated value management theory

Value analysis/value engineering was initially a service for manufacturing industries

where the aim is to produce a large number of identical products at the highest quality
for the least cost. This high production run is not a characteristic of construction.
However, construction clients also require the highest quality for the least cost and
often within a given time. In the quest for a single building project a large number of
problems will be addressed and a large number of decisions will be taken. A workable
definition for this situation is therefore:

Value management is a service that maximises the functional

value of a project by managing its development from concept
to occupancy through the audit (examination) of all decisions
against a value system determined by the client.
This service is achieved through the application of the job plan described below. At the
core of a value management service is the identification of a function which is defined
as:
An activity for which a thing is specifically designed, used, or
for which something exists.

And value which is defined as:

A measure expressed in money, effort, exchange or on a

comparative scale which reflects the desire to obtain or retain
an item, service or ideal.

Function and its associated value can only be determined by reference to the client’s
value system, a concept discussed later.

Key reflection point

There are numerous definitions of Value Management in the construction literature and,
although they may be expressed differently, the essence of the meaning is consistent.

A definition of Construction related VM for the course…

"Value management is a proactive, creative, problem solving

service. It involves using a structured, multi-disciplinary team-
orientated approach to make explicit the client’s value
system using function analysis to expose the relationship
between time, cost and quality.

Value Management is concerned with defining what is needed in

a project to deliver the expected benefits and then ensuring that
these things are implemented effectively, economically and
efficiently."

Dallas (2006) “A guide to best practice”

VM focuses on the expected outcomes from a project.

2.4 Value study process - The job plan

All value management studies, in manufacturing and construction, follow the job plan.
The job plan is simply a structured method for the logical, sequential, analysis of value.
Value studies can be carried out at various stages of the project life cycle for specific
purposes and these are explored in Unit 4. The job plan comprises the following 6 steps.

Phase 1 - information
In this phase all of the available information relating to the project and relevant to the
stage under review is gathered together. The objective of the information gathering is
to identify the functions of the whole or parts of the project, as seen by the client
organisation, in clear unambiguous terms. The information should not be based upon
assumption but be obtained from the best possible source and corroborated if possible,
with tangible evidence. The reasoning behind this is that the quality of decision making
cannot rise above the quality of the information upon which the decision is to be made.
However, care should be taken not to spend unjustifiable time and effort in information
seeking. There is a dilemma between the dangerous consequences of acting upon
inadequate information and the possible missed opportunity when waiting for reliable
information to arrive. This dilemma is a critical part of a risk analysis. The types of
information being sought are:

 Client needs, which are the fundamental requirements that the project
must possess to serve the client’s basic intentions. Needs should not be
seen solely in terms of utility as the client may have a need for a
flamboyant statement or a need for a facility or a part of a facility which
heightens the client’s esteem.

 Client wants are the embellishments which it would be nice to have but
do not satisfy need.

 Project constraints are those factors that will impose a discipline upon
the design, for example, the shape of the site, planning requirements,
regulations, etc.

 Budgetary limits expressed as the total amount that may be committed

to the project in initial capital and life cycle costing terms.

 Time for design and construction as well as the anticipated period for
which the client will have an interest in the building.

Information is the lifeblood of a value management exercise that is obtained under the
direction of a value management facilitator using tools and techniques
specifically designed to extract information appropriate to the stage of the project.
At the earliest stage, at the point at which the client perceives a problem to
which a building is only one solution the information tends to be
unstructured. This unstructured information may exist as supply and demand
statistics within the client organisation, or information relating to a problem
identified but not made explicit by
client’s employees or consultants, or the strategy of the client executive for which there
is no technical solution. Users of a facility, who are not a part of the client organisation,
may also hold information. For example, public buildings such as law courts, libraries,
museums and offices offering consultation services are situations where the users do
not belong to the client organisation and yet possess valuable information.

Concept information is largely produced by the client organisation in terms of a brief

and by the design team in terms of initial sketches. Once the outline proposal stage is
complete (final sketch design) the design exercise becomes a technical task of
answering the client’s brief. At this point the client’s value system is locked in.

Technical information is the designers’ solution to the problem described in the brief in
performance specification terms.

Phase 2 - creativity

In the creative phase the value management team put forward suggestions to answer
the functions which have been selected for study. Brainstorming is the most popular
technique used by value management facilitators to generate ideas in the creativity
phase. The technique requires a group to consider a function and contribute any
suggestion that will answer that function. Every suggestion, no matter how apparently
stupid, is recorded. So, for example, suggestions for a butchers’ cold store for the
function “maintain internal temperature” could be; ice, cold air curtain, insulation, vary
pressure, in fact, any idea that comes to mind.

There are various rules which apply to the management of a brainstorming session of
which the two most important are: firstly, no criticism of any suggestion by word, tone
of voice, shrug of shoulders or any other method of indicating rejection is allowed.
Secondly, the exercise is one of generating as many suggestions as possible. The good
suggestions will be randomly scattered amongst all suggestions. Research has indicated
that in any sample, the number of good suggestions remains fairly constant as
proportion of wild suggestions, so the more suggestions that there are, the more good
suggestions will be obtained. All suggestions are recorded and none are rejected on the
grounds of apparent irrelevance.

Research has also shown that original suggestions are as likely to come from those
inexpert in a subject as from those who are expert. For example, the interior design
consultant may come up with a good original suggestion for the solution to a structural
function. One reason put forward for this is that the consultant will not be constrained
by professionally determined technical rules or education.

Phase 3 - evaluation

The value management team evaluates the ideas generated in the creativity phase
using one of a number of techniques, many of which depend upon some form of
weighted vote. This stage forms a crude filter for reducing the ideas generated to a
manageable number for further study.
Phase 4 - development

The accepted ideas, selected during phase 3, are investigated in considerable detail for
their technical feasibility and economic viability. If appropriate for the stage of
the study, outline specifications or designs will be worked out and budget costs
realised. There is wide scope for the use of cost models and computer aided
calculations at this stage.

At the end of the development stage the team will again consider the worked up ideas
and all those which either cost more than the original or are found to reduce quality
are rejected.

Phase 5 - presentation
The refined ideas are presented by the value management team to the body that
commissioned the value engineering exercise, supported by specifications, drawings,
calculations and costs.

Phase 6 - feedback

It is important that the value management facilitator receives some detail of those
ideas that have been put into practice and be given the opportunity of testing the
design and cost predictions of the team.

2.5 Building function – 4 levels of application

The function of a building is to provide an environmentally controlled space suitable

for the activity to be carried out within that space. The design of the building is a
technical solution to the functional requirements of the space. Herein lies one major
difference between the manufacturing industry and the building industry,
manufacturing providing products and building providing environmentally controlled
space. A building has a number of characteristics:

• It is comprised of manufactured components and assemblies.

• The components and assemblies are constructed to form elements of a building.
• The configuration of the elements of a building form spaces which are conducive
to the activity to be performed within the building.
• The building represents a stage in the corporate strategy of the client
organisation and contributes to the capital value of that organisation.

Each of the above represents a level at which a particular value management

technique is appropriate. The levels are incremental but, as listed above, are in the
reverse order of their chronological development. The levels and the points on the
RIBA Plan of Work when they are generally considered is discussed below.
 Pre-Brief Brief Sketch Plans Working Drawings Site

Strategy
Organisational
Concept and Spaces

Elements

Structure Components

A VM / VE Approach to Construction

Strategy - level 1

Level 1 represents the first stage wherein the client organisation perceives a problem.
This problem may be realised through a study of efficiency, safety, markets,
profitability, etc. Currently, if a client sees a building as a solution to this problem, a
contact with the construction industry is most likely to be made. The construction
industry representative is most likely to assume that the client has correctly identified
that a building is the solution to the problem and will advise the client on how best to
proceed. The client at this point steps onto the building procurement moving walkway
and is virtually prevented from stepping off until the keys to his new building are
handed over.

As an alternative to this traditional method it is suggested that the first approach be to

a value manager, who, with representatives of the client organisation will undertake a
functional, structured definition of the project and its objectives. A project is defined
here as “the investment of resources for a return” where the return may be social or
financial.

Concept and Spaces - level 2

Having determined that a building is the most promising solution to the project the
value management process moves to level 2 involving the value manager in an
exercise with the client representatives and a design team. Normally the design team
would be that which was to take over the design of the building, but in situations
where the client wished to reserve the choice of an alternative procurement route
e.g. design/build, the design team would be commissioned for this exercise only.
The exercise would address the definition of the various functional spaces required by
the client and performance specification of the spaces in terms of area and height,
adjacency, IT and other technical requirements, quality and the heating,
ventilation, lighting and sound environment to be maintained.

Elements - level 3
An element is described by the building cost information service as “that part
of construction that always performs the same function irrespective of the
components from which it is made”. An element is unusual in that it has a
function but rarely performs or contributes to a process. Also, by definition, the
functional analysis of an element need only be carried out once. Once all of the
functions of an element, e.g. external wall, have been realised they can be
translated into the specific application envisaged by the project.

Components - level 4
Components used in building have been subjected to a process prior to their arrival
on site. All or parts of this process may be analysed to determine function. Having
an understanding of the manufacturing process and the functional requirements of
the component may lead to alternative design decisions particularly when dealing
with components which are project specific, for example, curtain walling, precast
concrete components, windows and doors. For example, a precast concrete
cladding panel is subjected to a process of manufacture, transport, lifting and fixing in
position, each of which may be viewed as a functional operation.
Key point for reflection
This value ratio is an expression of the different ways to manage and improve value on a
project. Is it possible to (1) cut costs without sacrificing functionality (requires identification of
unnecessary cost), (2) Improve functionality without increasing costs (through smarter targeting
of resources), (3) Substantially improving functionality with acceptable increase in cost (pay a
little more for increase in value) and (4) Achieve improved functionality at lower cost (the ideal
outcome! Requires innovation and creativity in developing solutions),

F V = Value
V= F = Function
C C= Cost

Cost saving innovation

F F
C C

Function improving Function emphasis (sell extras)

F F
C C

Value is the balance between customer satisfaction and resource

consumption.

NAO (the National Audit Office) define good value for money as the optimal
use of resources to achieve the intended outcomes.
2.6 Reading and self-assessment questions for Unit 2

Once you have read and understood the above you should consult
the following core reading and then attempt the self-assessment questions.

Reading
Chapter 2.1 - 2.5: Kelly, J., Male, S. and Graham, D. (2014). Value
Management of Construction Projects, 2nd Edition. Chichester, United
Kingdom: John Wiley & Sons. Available at: https://discovery.hw.ac.uk/
permalink/f/1nh9hb8/44hwa_alma7141958980003206.

Chapter 1: Dallas, M. (2008). Value and Risk Management. Hoboken: Wiley-

Blackwell [Imprint]. Available at: https://discovery.hw.ac.uk/permalink/
f/1el5916/44hwa_alma2126794980003206.

Self-assessment questions

1. What are the different ways in which value can be improved in a product or
process?

2. What are the four distinct levels that building function can be explored
through application of VM and VE?

3. At what stages in a construction project would Value Engineering be applied?

4. At what stages in a construction project would Value Management be

applied?

5. What is the main purpose of each stage of the job plan?

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