Presentation Transcript

VALUE ENGINEERING :

VALUE ENGINEERING Presented by: Gregorio C. Poveda Jesus A. Tapel jr. Norie B. Soriao
Joseph Henry Dy Ruben Quintal Jr.

VALUE ENGINEERING :

VALUE ENGINEERING Focuses on ensuring a project’s quality, performance and functionality

while minimizing construction, operation and maintenance costs (life-cycle costs) - Is a
technique that is used to identify poor value functions and identify ideas for lower cost, higher
value alternatives. It allows the creative generation of solutions to specific functionality
problems, without reducing the scope of the process -

Context and Objective of this presentation :

Context and Objective of this presentation Philippines Major infrastructure projects have
suffered from poor design, delays and cost overruns specially on public infrastructure projects.
Other countries Value engineering and rigorous risk management are used to improve design,
reduce unnecessary cost, cost overruns and risks Should value engineering be used in major
infrastructure projects in the Philippines. If so, how? How can risk management be improved for
major infrastructure project in the Philippines? How introducing value engineering will affect
implementing agencies and oversight agencies What needs to be done to make the introduction
of value engineering effective and sustainable

Outcomes sought from this presentation :

Outcomes sought from this presentation Implementing agencies and oversight agencies will
understand what the introduction of value engineering means to them The project team will
understand what needs to be done to make the introduction of value engineering effective and
sustainable

The Problem :

The Problem What is the problem? Projects may not be best way of meeting needs Wrong
options Projects may not be least cost Poor Project Feasibility Projects cost blowouts and
implementation delays Excessive Variations Strategic response as per project terms of reference
Strengthen the institution framework and technical capacity for value engineering and risk
management in development of infrastructure projects
Project Objectives and Components :

Project Objectives and Components Strategic objective Infrastructure projects achieve

development targets and deliver value for money How does this project help? Project How?
Strengthen the institutional framework and technical capacity for value engineering and risk
management in the development of infrastructure Develop standardized contract and bid
documents for the project Develop project ex-post management and performance monitoring
systems

What is Value Engineering? :

What is Value Engineering? Value Engineering is an organized review of a project to improve its
value. Value engineering consists of five basic precepts: it uses a multidisciplinary team
approach, with a team experts; the experts are specialists in all aspects of the project being
studied; the team identifies the essential functions of the project and the cost achieving those
functions; the team uses creative techniques to find alternative ways of performing those
functions; and the objective is to perform those functions at a lower cost or to improve design.
“The final objective of the value engineering is to ensure a project’s quality, performance and
functionality while minimizing construction, operation and maintenance cost (life-cycle costs).”

Value engineering can address the problems identified :

Value engineering can address the problems identified Problems identified: Selected
International experience shows that value engineering: Cost increases Reduces costs US
Department of Transport: 30% ROI on VE studies during pre-construction (2002) United
Kingdom: Saving of £23 billion from value-form-money analyses (using VE) savings were
generated in 2004 Society of Japanese Value Engineers: VE reduces costs by 30-70% in the
industrial sector (1981) Improves the quality of the project proposal Lengthy approval process
due partially to poorly-prepared projects Reduces risk of delays in project implementation
Delays in project implementation Reduces risk of changes in scope during project
implementation Reduces the risk that a project will experience cost over-runs because of changes
during construction Changes in scope during implementation Cost over-runs during
implementation

Definition of Value Analysis :

Definition of Value Analysis Value Engineering is: an analysis of the functions of a project or
service; performed by qualified agency or contractor personnel; directed at lowering direct and
life cycle costs, without affecting performance, reliability, quality and safety. It seeks to
eliminate unnecessary costs, while maintaining or improving the functionality of the project. It
can be applied to any type or product, project or investment. It is commonly use in public works,
especially infrastructure investment.
When can value engineering be done? :

When can value engineering be done? Conceptual stage Options Value Engineering Design stage
Project Value Engineering Construction stage Variation Engineering VE analyzes the functions
of the project and identifies and analyzes various options for achieving them. Savings can be
incurred by selecting the most efficient option for achieving a given objective VE analyzes the
functions and costs of the project based on more accurate construction details and costs. Cost
reductions can be achieved by selecting the most economic design, labor and materials that can
be used to complete the indentified functions VE can reduce the cost of building the project in a
number of ways, including: reducing costs that result from change orders; indentifying least-cost
ways of responding to unexpected events (changes in prices of materials, for example); and
providing incentives to the General Contractor (GC) to find ways to reduce costs.

How is Value Engineering done? :

- Approach & Team How is Value Engineering done? Multidisciplinary approach, using a team
of experts. The team identifies the essential functions of the project and the cost of achieving
those functions. The team uses creative techniques to find alternative ways of performing those
functions, at lower cost. VE Team Team Leader: Certified Value Specialist Cost Estimator Team
Member-Expert in Z Team Member- Expert in X Team Member- Expert in Y

How is value engineering done? :

- Methodology How is value engineering done? Conceptual stage Design stage Construction
stage IA provides information on project to VE team Team Leader prepares team Logistics VE
Team carries out 6-phase Job Plan: Information Phase Functional Analysis – FAST, identifies
the basic, secondary, and unnecessary functions of the project. Assigns a cost to each function
Speculation / Creative Phase – VE team identifies alternative ideas for achieving the functions of
the project Evaluation / Selection Phase – VE team examines all ideas and decides which to
recommend Development / Recommendation Phase – VE team develops the best ideas into
workable proposals Report Phase – VE team prepares VE Report, and if applicable, oral
presentation to IA IA and designer review and evaluate each VE recommendation and decide
which to implement IA prepares VE Final Report, indicating which recommendations will be
implemented

What are the outputs of a VE study, and how are the findings implemented? :

What are the outputs of a VE study, and how are the findings implemented? VE Team VE
Report: Identifies basic, secondary and unnecessary functions in the project Recommends most
efficient way to achieve project’s functions Implementing Agency: Value Manager: Executive
Review Board: VE Final Report: Which recommendations will be implemented Design Team
Finalizes design, incorporating recommendations accepted by IA
First value engineering studies done in the Philippines – Structure :

First value engineering studies done in the Philippines – Structure Project: 7 highways of the
National Roads Improvement Program (NRIMP II) Implementing agency: DPWH (World Bank
Project Management Office) Team Leader: Juan Devicenti, CVS-Life Team Members:
Multidisciplinary from DPWH Designer: GHD Timeframe: May 2006 – February 2007

First value engineering studies done in the Philippines - Results :

First value engineering studies done in the Philippines - Results Design firm indicates that
implemented savings reduced costs by 10-17% over original estimates

The Approach in Reviewing Value Engineering International Experience :

The Approach in Reviewing Value Engineering International Experience Rationale for adoption
and practice of VE Mode of Institutionalization of VE Organizational Base Framework for
Implementation Users and Practitioners Costs and Benefits Why was VE introduced? What were
the motivations? How was VE practice introduced? What medium was used to establish VE?
Who is responsible for VE practice? What is the scope of authority/mandate? What are the
principles, methodologies, rules, guidelines in implementing VE? What sectors and industries are
using or promoting use of VE? What is mandatory benefit of VE? What project costs justify a
VE? How much does a VE study costs?

Value engineering has been institutionalized in a number of countries :

Value engineering has been institutionalized in a number of countries

Value Engineering has delivered concrete benefits :

Value Engineering has delivered concrete benefits

Value Engineering has delivered concrete benefits :

Value Engineering has delivered concrete benefits

Value Engineering has delivered concrete benefits :

Value Engineering has delivered concrete benefits

Value engineering should be introduces in the Philippines :

Value engineering should be introduces in the Philippines Should value engineering be used in
infrastructure projects in the Philippines, and if so, how? YES! Value engineering should be
adopted for infrastructure projects in the Philippines, specially on major public infrastructure
projects Value engineering has been shown internationally to maximize value for money in
infrastructure projects, and to reduce the risk of cost overruns and variations Value engineering
can be introduced for major projects in the Philippines by making the application of value
engineering a condition for all projects requiring approval by the Investment Coordination
Committee ( ICC) (an inter-agency committee NEDA).

Example of how Value engineering should be introduced in the project cycle

through the ICC approval cycle :

Example of how Value engineering should be introduced in the project cycle through the ICC
approval cycle 1. Concept or identification 2. Definition or presentation 3. Feasibility phase 7.
Ex-post evaluation 6. Project implementation 5. Detailed design 4. Approval and financing
Project Risk Engineering Implementing agency undertakes value and risk engineering Project
Value Engineering Variation Value Engineering Variation Value Engineering Options Value
Engineering NEDA evaluates options VE and project VE in PER and variations VE in PER
(PMS) Adapted from fig. 2-1 Components of Project Cycle, vol 1, Reference Manual on Project
Development and Evaluation, (CIDA/ NEDA/ UNDP, 2005)

Outcomes for projects and implementing agencies :

Outcomes for projects and implementing agencies Project Value Engineering Variation Value
Engineering Options Value Engineering Options VE at concepts or identification stage will
improve selection options Project VE at feasibility stage will drive better design and reduce the
risk of subsequent variation and cost increases Variation VE will drive better design of variations
and minimize cost increases

Outcome for the example :

Outcome for the example Making an acceptable value engineering and risk management study
prerequisites for all further evaluation should facilitate evaluation by NEDA staff An acceptable
value engineering will provide greater confidence in cost information used in financial and
economic evaluation Acceptable value engineering and risk management studies will improve
the quality of project preparation and should reduce the number or resubmissions to ICC

Prospects for implementing value engineering in the Philippines are favorable :

Prospects for implementing value engineering in the Philippines are favorable There is a clear &
urgent rationale for adoption of VE There is an existing policy that can be enhanced to
promulgate VE Government needs to strengthen its oversight of large-scale infra projects to
minimize cost overruns & to improve fiscal efficiency The NEDA ICC Guidelines provide an
enabling backdrop for promulgating VE as requirement among implementing agencies and BOT
proponents The NEDA ICC can serve as anchor government mechanism for integrating VE in
the project development process The NEDA ICC Guidelines & NEDA Project Development
Manual can incorporate VE. The NEDA-ICC can be VE champion There is a suitable
organizational base for promoting VE use There is an existing framework for implementation of
VE There is a “captive” pool of potential VE users NEDA-ICC can mandate the use of VE by all
implementing agencies and BOT proponents NEDA can facilitate the growth of pool VE
professionals from public & private organizations & academe

Summary of Findings :

Summary of Findings Major public infrastructure projects in the Philippines have: sometimes
experienced major cost overruns and delays; experienced major changes in scope during
implementation; required lengthy approval processes; not delivered the best value for money;
and been negatively impacted because risks were not managed or mitigated properly. Value
analysis can: reduce costs; reduces the risk that a project will experience cost overruns due to
changes in construction; Reduces the rick of changes in scope during project implementation;
and Improve the quality of the project proposal Improved risk management can: reduce the cost
of projects; reduces the risk of project failure; and Reduce contingent liabilities to the
government

Recommendations in introducing value engineering for infrastructure projects in

the Philippines :

Recommendations in introducing value engineering for infrastructure projects in the Philippines

Implementing agencies will engage independent, accredited value engineering professionals to
lead value engineering reports This project will provide basic guidelines to implantation agencies
on how to prepare the required value engineering reports The implementing agency will evaluate
the value engineering reports submitted by implementing agencies based on evaluation tools and
guidance notes prepared under this project Acceptable value engineering and risk management
reports will be pre-requisites for further evaluation and approval f the implementing agency A
transition and implementation plan will be developed so that value engineering can be introduced
in staged way that is manageable. This implementation plan will involve the development of
value engineering capability in the Philippines and training of staff in implementing agencies