KING FAHD UNIVERSITY OF PETROLEUM AND MINERALS

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

1. Introduction
2. VE Requirements
3. VE Policies Procedures
4. VE Clauses
5. VE Process
6. Case Studies
7. Summary Conclusions

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INTRODUCTION

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

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INTRODUCTION..

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

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VE REQUIREMENTS

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

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VE REQUIREMENTS..

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

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VE POLICIES PROCEDURES

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

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VE POLICIES PROCEDURES..

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

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VE CLAUSES

• INCENTIVE CLAUSE
• Contractor is encouraged to develop, prepare and
  submit VECPs voluntarily
• Contractors return is a relatively large share
  of the savings and recovery of development
  implementation costs if the VECP is accepted

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VE CLAUSES..

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

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VE PROCESS

• While implementing VE, an organized,
  multi-disciplined approach should be used to
  create alternatives for clients consideration
• This process involves seven phases

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VE PROCESS..

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

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

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

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VE PROCESS..

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

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VE PROCESS..

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

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VE PROCESS..

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

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VE PROCESS..

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

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VE PROCESS..

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

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VE PROCESS..

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

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VE CASE STUDIES

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

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VE CASE STUDIES..

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

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SUMMARY CONCLUSIONS

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

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Thank You