Professional Documents
Culture Documents
Often, decisions are made by one dominant individual, who bases the choice on just one criterion, such as cost, quality, or reliability. Decisions like these lead to less than optimal overall decisions.
VALUE ENGINEERING
Value Engineering (VE) is an effective technique for
Electric Corp. during World War II and is widely used in industry and government, particularly in areas such as defense, transportation, construction, and healthcare.
APPLICABILITY
It can be applied to hardware and software,
development, production, and manufacturing, specifications, standards, contract requirements, facilities design and construction.
It may be successfully introduced at any point in the
life-cycle of products, systems, or procedures. VE is a technique directed toward analyzing the functions of an item or process to determine "best value," or the best relationship between worth and cost.
VALUE
Value is defined as a fair return or equivalent in
goods, services, or money for something exchanged. Value is commonly represented by the relationship: Value Function + Quality/Cost where function is the specific work that a design/item must perform, quality is the owners or users needs, desires, and expectations and cost is the life cycle cost of the product.
VALUE CONCEPT
VE is a balance between Function, Quality and Cost
Function
VALUE ENGINEERING
Cost
Quality
TYPES OF VALUES
COST VALUE
EXCHANGE VALUE
USE VALUE Use value or functional value is the perceived value of goods or services to a customer because the goods/services do what they are supposed to do in the way they do it. Thus a vacuum cleaner that cleans better than another has higher functional value - most customers would be willing to pay more for it
ESTEEM VALUE
Esteem value is the value of goods or services according to
the status they afford to the buyer/user. Thus, many customers will pay more for a branded item of clothing because they want to 'wear the name' - they feel it gives them some status a non-branded item would not.
WORTH
The quality that renders something desirable, useful, or
POOR VALUE
Lack of information.
Lack of ideas.
Temporary circumstances. Honest wrong beliefs. Habits and attitudes. Changes in owner requirements. Lack of communication and coordination. Outdated standards and specifications.
HOW IT WORKS?
VE follows a structured thought process to evaluate options . Phase1
Gather Information
Phase2
Analysis
Phase3
Creativity
Phase 4
Evaluation
Phase 5
Development
Phase 6
Presentation
determine which need improvement, elimination, or creation to meet the projects goals.
Phase 3: Creativity
The team lists creative ideas generated from its review
of the project with the aim of obtaining a large number of ideas through brainstorming and association of creative proposals. The team employs creative techniques to identify other ways to perform the projects function(s).
Phase 4: Evaluation
Creative ideas are analyzed , and the team selects the
best ideas for further development. The team follows a structured evaluation process to select those ideas that offer the potential for value improvement while delivering the projects function(s) and considering performance requirements and resource limits.
Phase 5: Development
The team prepares alternative designs with capital and/or
life cycle cost comparisons of original designs and proposed alternatives. All recommendations are supplemented with written descriptions, sketches, basic design concepts, technical information and cost summaries. The team develops the selected ideas into alternatives (or proposals) with a sufficient level of documentation to allow decision makers to determine if the alternative should be implemented.
Phase 6: Presentation
The objective in this phase to present the VE study report to the decision-makers ,the report includes a statement of the follow-up necessary to ensure implementation ,the presentation may be in written form or both written and oral .
stakeholders. Generate innovative and creative solutions to improve issues such as energy use, air quality etc. Maximize system efficiency and alleviate consumption of natural resources Decrease both capital and life-cycle costs. Seeks best value for money spent. Ensures you do the Project Right (cost effective).
In a Nutshell
Value Engineering Helps Organizations In
DECREASING COSTS INCREASING PROFITS IMPROVING QUALITY
SOLVING PROBLEMS
SAVING TIME USING RESOURCES MORE EFFECTIVELY
What is a Contract?
Work being done between two or more parties should
always involve a mutually approved document or contract. This document usually covers:
Terms and Conditions of a specific job An inclusive and detailed scope of work A pricing breakdown A timeline or schedule for work to be completed Any exclusions that must be outlined; also part of the scope of
work.
parties involved. They inform all involved parties of exactly what they are responsible for and in what time frame. They allow for progress evaluation and management. They outline what needs to be present in a finished product for all parties to be satisfied.
acknowledged and outlined, if necessary. Contracts should be thoroughly reviewed by a legal department, normally a third party. Contracts should exclude anything that may otherwise be assumed to be part of a job assembly.
Contracts can be added to easily, they cannot be easily
of a project Disagreements can get out of hand Costs can increase in both direct and indirect areas
Additional labor Additional material Missing windows of opportunity as normally coordinated with other contractors, creating more difficult (and expensive) working conditions
Who cares?
The end customer, (usually the owner or
representative of the owner), and contractor are the main people concerned with any Contract. Other interacting contractors Arbitrators/Legal representatives Project Managers and Site Supervisors Any additional party that may otherwise be described as a principle stakeholder
scope is well defined Provides the most room for the contractor to maximize profit Usually is most efficient by promoting coordination of a job ahead of time
well defined Possesses more risk and not as much profit opportunity for the contractor
These types of jobs usually progress at a slower pace.
contracted parties Should only be used in situations where very little is known about the scope of work, while still adhering to a budget
the estimate of the job in question Proposal letter outlining the scope of work Any bond information General conditions and any special conditions Permits, Licenses, Reports, etc. Any change orders
Cost-plus incentive
Fixed price with incentive fee Fixed price economic price adjustment Bonus-penalty
possible problem or negative outcome can be thought of during the estimating phase, or even earlier-it should be accounted for in a contract or at least specifically excluded from any responsibility up front and in writing.
resources required to complete the scope of the project If the scope is not well defined, we are doomed to failure in the estimate!
Cost Estimate
Direct Cost
Indirect Cost
Contingency
Material
Labor
Sub-contract
FEL-1: Appraise
Unknown > 70 Known < 30
FEL-2: Optimize
Unknown > 65 Known < 35
FEL-3: Define
Unknown > 60 Known < 40
Execute
Unknown > 30 Known <70
Probabilistic VS Deterministic
Probabilistic Estimate A range of estimates In FEL-1 and FEL-2 stages Deterministic Estimate A single point estimate, one number In FEL-3 stage
$60,000
$140,000
$100,000
Types of Estimate
1.
Conceptual
Made without detailed engineering data Lang Factor: Equipment price = $10,000 and Lang Factor = 3.1 for Solid process plants, then Estimated total cost = $31,000
2.
Preliminary
Engineering is 10% to 20% complete Used for initial budgeting
3.
Detailed
Engineering is 40% to 60% complete Used as a basis for awarding the contract
4.
Definitive
Very defined engineering data 50% + Used for Project Cost Control and Cost Monitoring
FEL-1: Appraise
Preliminary
FEL-2: Optimize
Detailed
3% to 5%
20% to 30%
-10% to +15%
FEL-3: Define
Definitive
40% +
10%
-10% to +10%
*For example, if in FEL-1 phase TBE is $10,000, then the Total Cost will be $14,000 @ 40% contingency) ** $14,000 - $2,800; $14,000 + $5,600 = > the real cost should be between $11,200 and $19,600
Probability Ranges
P(10) There is only 10% chance of project cost being equal to or less than estimate In FEL-1 stage P(50) There is 50% chance of project cost being equal to or less than estimate In FEL-2 stage P(90) There is 90% chance of project cost being equal to or less than estimate In FEL-3 stage
AACEI* Classes
Type of Estimate Conceptual Preliminary Detailed Definitive AACEI Class Class 5 Class 4 Class 3 Class 2 FEL Stage FEL-0 FEL-1 & FEL-2 FEL-3 Execute
Responsibilities
Responsibility Chart
Project Manager Engineer Manager Construction Manager Project Engineer Project Controls Manager Scheduler Procurement Manager
A/C Manager
Estimator
Cost Control
Electrical
Mechanical
Civil
Environment
Responsibilities
PM: Supervises and approves cost estimates. Controls Contingency. PCM: Prepares and supervises detailed estimates and presents them to the PM.
Estimator
Information
Methods
Skills
Past experience People skills Software use (Icarus, Timber line) Sanity checks
Plan
Schedule of activities Team preparation Buy in of all stakeholders
THANK YOU!
Clauses
Clauses are like earmarks that are used when a bill is
passed by congress They include special rules within a major deal For example if bill is passed to build roads in Iowa and that bill has is an earmark that says that they also need to build a McDonalds on top of The Rocky Mountains for a politician that gets hunger when climbing.
Changes
Contractors Responsibilities Delays Changed conditions Dispute Resolution Force Majeure Governing law
Insurance
Late Completion Damages Limitation of Liability No Damage for Delay Order of Precedence Owner Responsibilities Payments
Schedules
Suspension of Work Termination Time of Performance Warranty
Claims
This is when you request extra money due to an
occurrence Usually there are a certain amounts of claims in a contract. There will be a clauses that states it if there is. This is called an Universe of Claim
Types of Claims
Direct Changes
Types of Claims
Delays
Solving Disputes
Negotiation: this is the best and fastest way to handle a
dispute Mediation: Here you have another person of group that helps negotiate Arbitration: This is when you present your evidence and a final decision is made without any negation after the final decision. Litigation: Is when you file a lawsuit
The End