What Is Value Engineering? A Definitive Guide With Examples
Updated 30 September 2022
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Construction projects can often include multiple elements, each bringing a specific value to the project. Construction companies typically seek to improve the overall value of each element to ensure the overall value of the project in terms of quality, cost-effectiveness and sustainability. If you are planning a career in construction or project management, you can benefit from understanding the concept of value engineering (V.E.) and how it helps plan construction projects better. In this article, we answer the question, "What is value engineering?", show you how businesses use this process and provide some examples for context.
Related: What Is Value-Based Pricing? (Benefits And How To Use It)
What Is Value Engineering?
The answer to "What is value engineering?" is that it a process by which project managers improve the value of a construction process. 'Value' does not necessarily refer to financial value, though this is often a consideration. The value itself can refer to the overall quality of the project, the cost of completing that project, the prestige the project brings to the company or even the aesthetic value of the completed construction.
Project managers use V.E. to optimise each of these elements to create a final product that offers value both to the customer and the construction company or contractor that completed it. Most businesses aim for a low-cost, high-value target for each project. There are typically four metrics of project value, including:
High-cost, low value: When a project has a large time, monetary or labour cost and offers minimal value to either the company, the client or both.
High-cost, high value: When a project has large costs associated with it but can deliver extensive value for the customer and company and minimise long-term expenses.
Low-cost, low value: When a project's costs are low for the customer and the company, but the final project offers minimal value for each.
Low-cost, high value: This is the typical target for construction projects, where the costs in time, money and labour are minimal and the overall long-term value for the customer and company is high.
Related: What Is Intrinsic Value? Importance And Ways To Determine
How Companies Define Value For Each Project
How a company defines a project's specific value can differ according to project specifications, company goals or customer requests. For example, a company building a national monument might value the final aesthetics of a project more than a firm working on a basic bridge across a ravine. For the bridge, cost-effectiveness and the overall structural integrity of the final product are probably more crucial. Here are some examples of how companies define value:
A company can define the value of a project by its cost-effectiveness. This is a measurement of how viable the cost to complete the project is for the business. For example, if a client makes a special request for a home building project that costs significantly more for the company in terms of supplies and labour, the company might determine that this extra request is not viable in terms of cost and might decline the work to retain the overall value of the project. Cost-effectiveness also includes cutting costs where possible without affecting the final integrity of the project.
Related: Comprehensive Guide: How To Become a Construction Manager
Quality or integrity of the project
Another metric by which companies can define the value of a project is its overall quality or integrity when it is complete. If quality and integrity are a high priority for a project, the company might need materials, labourers, tools or processes that ultimately cost more and potentially increase the timeline of a project. For example, if a company is building an office space, the client might request a special kind of noise-dampening flooring, which costs more to instal, but ultimately offers greater value to the people using the space once it is complete.
Related: Quality Assurance Vs. Quality Control (With Differences)
Project life cycle or maintenance needs
Companies also measure the value of a project by determining the life cycle of that project, including any potential future maintenance needs. For example, if the company working on the office space chooses a low-cost sound-dampening floor material, they might save money for both the company and the client in the short term, but the lower quality material can require more maintenance. This maintenance can increase long-term costs and ultimately decrease the overall value of the project since the company cannot maximise financial gain and the project timeline becomes much longer.
How Do Businesses Use Value Engineering?
Businesses can use V.E. in a variety of ways. There are typically three stages of a project where the project's managers consider V.E., including the planning, design and final construction phases. Each of these phases depends on V.E. guidance from project managers to maximise their value and make any necessary changes.
Project planning phase
A company can use V.E. in the planning phase to plan for a more cost and time-effective project. For example, a company building a skyscraper might consider V.E. during the planning phase to determine how to construct such a massive structure while keeping costs low and structural integrity high. The project manager might suggest a different kind of metal alloy for the internal support beams, or a newer construction process that values efficiency and structural integrity. The company can also use V.E. in this stage to determine what the customer values, whether it is aesthetics or integrity or both.
Related: What Is Value-Based Pricing? (Benefits And How To Use It)
During the design phase, the construction team collaborates to draft blueprints and other design documents. This is typically where the first changes occur in a project for V.E., as the design phase is where the team puts the initial project planning phase into action. For example, if a team determines that steel is the best material for a structure during the planning phase, they might alter that decision during the design phase, learning that the shape of the structure requires a more flexible material. The team can also use V.E. in the planning phase to determine cost-effectiveness.
The construction phase is where the design team puts their designs into action in a physical environment. This is where certain V.E. metrics are more rigorously tested, and where the team can often determine the project's life cycle. For example, a team constructing a new floor for an office building might determine that despite the material's seemingly cost-effective nature in the design phase, the labour require to work with the material far exceeds the original estimate, making it less viable and decreasing the overall value of the project for the company.
Related: 10 Construction Management Skills: Examples And Tips
Examples Of Value Engineering
Here are some examples of value engineering to help you better understand the concept in the context of a construction project:
This example focuses on a company hired to construct a new plaza for a shopping centre. The initial planning phase reveals some value issues for the team:
Pajir Construction Partners has a contract for a new shopping plaza on the east side of Mumbai. During the planning phase, the team predicted the project might take six months to complete and cost the company approximately ₹3,500,000. To make a profit, the company charges the customer ₹4,000,000 but soon learns that certain materials may not be available for several weeks. This means the company has to push back the start date, immediately decreasing the value of the project by 15%. Since the team has to wait, the initial timeline is longer, which can also increase costs due to delays.
This example shows how a construction company building a new monument in a town square maximised the project's value using V.E.:
Myjer Building and Engineering Co. is building a new monument in the town square to commemorate a local physician who cured a deadly disease. The customer initially requested a brass monument with a concrete base, custom engraving and an iron fence. Myjer's project managers review the cost, timeline and aesthetic quality of these requirements using V.E. metrics and determine that using bronze instead of brass is not only more cost-effective, but can also be more aesthetic and reduce long-term maintenance costs. They work with the customer to create a compromise using the new material and maximise its value.
Please note that none of the companies, institutions or organisations mentioned in this article are associated with Indeed.
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