Introduction
In an age of
increasing competition and sophistication, innovation and improved value is
needed to manage major EPC Projects. Value, is defined as the ratio of function
to cost. Value can therefore be increased by either
improving the function or reducing the cost.Value Engineering is recognized
worldwide as a highly profitable means to achieve reduction in cost and
improved quality thereby resulting in higher client satisfaction. Value
methodology is extensively used in Engineering, Procurement and Construction
projects to optimize processes and engineering development. Benefits include
decreasing costs, increasing profits, improved quality and performance, thereby
enhancing owner satisfaction.
1. What is Value Engineering?
Value Engineering (VE) is a creative, structured and
organized approach to improve the performance at the least life cycle cost. It
is an investigative and systematic methodology by an experienced,
multi-disciplinary project management team to improve the "value" of projects, products
and processes by use of the ˜examination of function and quality”. It analyzes and identifies the processes,
design and construction plans of projects, and business and administrative
processes and removes unnecessary expenditures and redundant processes resulting
in an increase in the value. It helps achieve balance between required
functions, performance, quality, safety, and scope with the cost and other
resources necessary to accomplish those requirements. The proper balance
results in the optimization in value for the project.
Value engineering is also
referred to as “Value Improvement Practices” (VIP) or "value
management" or "value methodology" (VM), or "value
analysis" (VA) and is a body of knowledge as a technique in which the
value of a system’s outputs is optimized by crafting a mix of function, quality
and costs.
Mathematically, Value is the ratio of function plus
quality to cost and can be increased by either improving the function and
quality or reducing the cost.
V = (F+Q)/C
where
V
(Value) is the
reliable performance of functions to meet project needs.
F
(Function) is the
specific work that a design or item must perform.
Q (Quality) is the owner’s needs,
desires and expectations.
C
(Cost) is the life cycle cost of the
product or facility.
2. Characteristics of Value Engineering:
The Value Engineering
can be characterized as a process that:
1) IS
a creative, structured and organized approach to optimize performance at the
least Life Cycle Cost (LCC)
2) IS
an investigative approach by a team of experienced, multi-disciplinary experts
to improve value?
3) IS
elimination or modification of functions that do not add value?
4) IS
a methodical approach producing better results?
5) IS
NOT a mere cost cutting exercise.
6) IS
NOT limited to only early design stages.
7) DOES
NOT result in a delay in project completion
8)
DOES NOT cost more than it is worth
Value Engineering is based on the
following principles:
1) Everyone is creative and all ideas should be
evaluated
2) Brain storming sessions generate more creative
ideas than individuals
3) There is always a room for improvement
4) 4) Perfect Life
Cycle Costs (LLC) should be as low as possible
3. Value Engineering Methodology
Value engineering uses rational logic technique
where an expert team raises “How” and “Why” questions and analyses the function
to identify relationships that increase value. It uses brain storming sessions
and focuses on hypothesis-conclusion approaches to test relationships. The VE
process produces better results when applied by a multi-disciplined team with
experience and expertise relative to the type of project being evaluated.
Following methodology is found to be quite effective for EPC projects:
1) Team Preparation
Assemble a multi-disciplined team
with experience and expertise relative to the type of project being evaluated.
Following questions help in understanding the Team Preparation:
a)
Do we have representatives from all related
disciplines in the team?
b)
Are group leads included in the team?
c)
Do we have representatives from outside of the
project who can look outside the box?
2) Gathering
Information
Gather significant information to
have a good understanding of the project. Following questions help in
understanding the project:
a)
What is being done?
b)
Who is doing it?
c)
What could it do?
d)
What must it not do?
3)
Measurement
Analyze the project to determine the
requirements. Questions similar to given below help:
a)
How will the alternatives be measured?
b)
What are the alternate ways of meeting
requirements?
c)
What else can perform the desired function?
4)
Analysis
Analyze the project to understand and
clarify the required functions. Following questions help understand:
a)
What must be done?
b)
What does it cost?
5) Generation of
ideas
Generate ideas on all possible
alternatives to accomplish the required functions. Following questions help
understand:
a)
What else could be done?
b)
Will another alternative work?
6) Evaluation
Evaluate and synthesize generated ideas
and concepts to select feasible acts for development into specific value
improvement. Following questions help:
a)
How much do we save in cost?
b)
Which alternatives will work better?
c)
Which Ideas are the best?
7) Development
Identify the best alternatives
and ideas and prepare for improving value. Following questions help:
a)
What are the impacts?
b)
What is the cost?
c)
What is the performance?
8) Expansion of Ideas
Explore the developed Ideas to examine
if some ideas could be further expanded.
9) Presentation
Compile the development results and
present the value recommendation
10) Implementation
Implement the ideas.
4. Potential Savings
VE exercises far exceed the
investment in VGFE process. Savings in time, cost, and quality contribute to
improving an organization’s competitive position. Though there are
opportunities for improvement at all stages, but, in case of EPC projects, a
stage comes beyond which the Value Engineering exercises even result in a
loss.
Expectations:
Potential savings from VE during
the initial stages are found to be in the range of +2% to +7% of TIC. The chart
illustrates the expected savings during different stages of the project
execution. As represented in the chart, the VE efforts may even result in
losses if undertaken at later stages of project execution. The stages vary
from project to project, but generally speaking, the value engineering implemented
on a project after the start of construction may result in a net loss.
The RED Line in the chart represents the savings in
cost on account of the implementation of Value Engineering.
The BLUE Line in the chart represents the total cost
incurred as a result of the implementation of Value Engineering.
5. Impact of Project Time on Cost
The Performance of a Project is judged from three
important angles
1) Project Schedule
2) Project Cost
3) Project Quality
There is usually a
direct and very important relationship between these parameters where a change
in one parameter impacts the other. The discussion here is limited to a
relationship between the performance of schedule and cost of a project.
If the project
schedule gets delayed, the original cost estimate or the project budget is
almost certain to increase resulting in over-runs. The continuation of project always
costs money every day whether working or non-working, weekday or weekend, from
day one, right through the commissioning and start-up of the project. The cost
goes up with time due to a number of reasons including:
1) Payment to the work-force is time related any
delay in time results in additional payments resulting in an increase in
cost.
2) The project overhead costs including
management, administration, accommodation, services, and general
facilities, need to be paid till the end of the project.
4) A delay in project completion also implies
lower performance or inefficient working. This in turn results in higher
project costs.
5) Poor planning results in project delays and
costs more on account of missing information, change orders, material
shortages, etc.
6) Increase ion man-hour expenditure due to poor
performance directly increases the cost.
7) Financing cost is another factor that goes
with the time. Most of the finance raised for major projects, is likely to
be invested for a longer time till the returns start.
All these
time-cost considerations mean that any delay on a large project can easily cause
additional costs and over-runs.
The chart below illustrates a typical time-cost relationship:
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