7/27/2019 Sadri Value Mgt for Integrated Construction Services Handout 2008 http://slidepdf.com/reader/full/sadri-value-mgt-for-integrated-construction-services-handout-2008 1/68 Building Construction Program Value Management* for Integrated Construction Services Edited by Saeid Sadri, Ph.D. * This handout is prepared based on “ Value Management Poli cy and Procedure M anual ” by U.S. General Services Administration Southeast Sunbelt Region and “Value Engineering: Practical Applications ” by Alphonse Dell’Isola
Transcript
7/27/2019 Sadri Value Mgt for Integrated Construction Services Handout 2008
Chapter One .......................................................................Overview
II. Design Phase Value Management
Chapter Two........ Value Engineering Studies - Policy and ProgramChapter Three ..................................... Value Engineering Processes
........................................................... and ProceduresChapter Four ............................ Value Engineering Study Schedule,
......................................................... Focus and Team
IV. Tools for Value Management
Chapter Five......................................................... Function AnalysisChapter Six .........................................Creativity and BrainstormingChapter Seven.........................Criteria Weighing and Idea Analysis
Chapter Eight ............................................ Life Cycle Cost Analysis
V. Appendices
A .....................................................Public Law No. 104-106B .................Federal Acquisition Regulation Chapter No. 48
C ...................................... OMB Policy Directive No. A-131D ...........................GSA National Policy No. ADM 8030.1CE .........................GSA Southeast Sunbelt Region VE PolicyF ....................................................................... VECP FormsG ............................................Sample VE Study Worksheets
VI. Index
7/27/2019 Sadri Value Mgt for Integrated Construction Services Handout 2008
1.1 Value Engineering .............................................................. 1-11.1.1 Definition ..................................................................................... 1-11.1.2 History..........................................................................................1-11.1.3 Value ............................................................................................1-11.1.4 Function ......................................................................................1-2
1.2 Characteristics of Value Engineering Studies .......................... 1-21.2.1 Systematic .................................................................................... 1-21.2.2 Quick............................................................................................1-21.2.3 Cooperative ..................................................................................1-21.2.4 Effective.......................................................................................1-2
1.3 Intent ......................................................................................... 1-2Figure1.1: VE Job Plan Diagram ..................................................................1-4
7/27/2019 Sadri Value Mgt for Integrated Construction Services Handout 2008
Value Management (VM) is used to represent the overall umbrella for Value Engineering, ValueEngineering Change Proposal, Value Analysis, Quality Reviews, Constructibility Reviews andother value related activities during the design and construction process. For the purpose of thismanual the terms Value Management, Value Engineering and Value Analysis should largely beconsidered interchangeable.
Chapter OneOverview
1.1 Value Engineering
1.1.1 Definition:
"an organized effort at analyzing the functions of systems, equipment, facilities,services and supplies for the purpose of achieving the essential functions at thelowest life cycle cost consistent with required performance, reliability, quality andsafety."
1.1.2 History - Value Engineering had its origin during World War II, atGeneral Electric, when innovation was required because critical materials wheredifficult to obtain and a great many substitutions had to be made. Mr. HarryErlicker, a vice president, made the observation that many times these changeslead to reduced costs and improved products. He assigned Lawrence Miles, astaff engineer, the task of finding an approach that would intentionally improve a product's value.
In 1947, Mr. Miles developed the step-by-step Value Analysis (VA) process. The process focused on analyzing a product's function(s) and associated cost(s) toensure the best value of that product. In 1954, the Navy Bureau of Ships
implemented the first formal program in the federal government. To reflect theengineering emphasis of the bureau, value engineering (VE) was selected as the program name. In 1961, value engineering was implemented as a programthroughout the Department of Defense (DOD), and applied to products andfacilities. Value Incentive clauses in DOD construction contracts followed between 1963 and 1965.
In the mid 1970's the General Services Administration Public Building Service(PBS) developed and issued a body of guidance on value engineering and valuemanagement.
1.1.3 Value. Economic (or Exchange) Value is defined as the ratio of Function(F) to Cost (C), V=F / C. As function is enhanced, or cost is decreased, value isincreased. Other Types of Value include moral (societal) value, aesthetic value,and use value. Value is used as the determinant for every decision, conscious or unconscious, of the design/construction process. The foremost value judgment isuse value, which determines whether a system, subsystem, assembly or part isappropriate to the given function. If the function is to admit daylight , windows,
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skylights, clerestory glazing, glass block, and unglazed openings all meet therequired function. A problem of basing a design on use value alone is that oftenthe first design feature that meets the one or more of the functional requirementsis selected without giving consideration to alternatives. This selection may beknowledge based and not on the specific desirable functional characteristics of agiven design application and the best economic (exchange) value.
1.1.4 Function. Function analysis is a means of determining the desirablecharacteristics of a design or a design element. This is elemental to thedetermination of the value of alternative solutions. And, it is often the overlookedor underemphasized functions that eliminate an alternative from consideration.For example, in addition to admitting daylight , the desired system must alsoexchange air, preclude insects, shed water, repel noise, and reduce glare.
1.2 Characteristics of Value Engineering.
1.2.1 Systematic. Value engineering is a structured exercise. Each phase of thefive-step job plan must be completed before proceeding to the next phase. Thissystematic application of the objective approach to a facility prevents the
automatic selection of building elements based on past prejudices and preconceived notions. Architects and engineers often skip the iterative stages of design and rely instead on associative leaps. These leaps enable the designer toskip (actually internalize) initial and some intermediate steps in much the sameway that some steps are omitted in algebraic solutions.
1.2.2 Quick. The value engineering effort is a short, intense exercise. Thisspeed of execution ensures (1) design progresses largely unimpeded, (2)
continuity, as the VE team is focused solely on the project for the time period, and(3) economy.
1.2.3 Cooperative. Value engineering efforts involve many different players:the value engineering team, the design A/E, Owner project management andtechnical representatives (architects, engineers, property managers, costestimators, et. al.), and user representatives. The efforts must be cooperativeexercises with full acknowledgment of a common goal: the best project.
1.2.4 Effective. When performed in a cooperative atmosphere, valueengineering is an effective mechanism for optimizing project value. Value
engineering challenges the design team to consider even more carefully projectdecisions, and the client/tenant to clearly iterate desirable facility functions
(characteristics) and make choices between real needs and nice-to-have features.
1.3 Intent. An overall goal of each Owner is to design and construct qualityfacilities at the least overall cost of Ownership. Value engineering supports thatgoal in many ways. Value engineering is freely encouraged to questioneverything, and present alternatives. Additionally, and importantly, to cost the
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alternatives (initial and life-cycle), thereby providing the participants a cost basisfor decision-making. The primary emphasis of value engineering is on obtainingthe maximum life cycle value for first-cost dollars expended within project budgets. Secondary emphasis is placed on first-cost reductions. Finally, first cost budget increases may be considered if justified by life-cycle savings. Valueengineering is also an opportunity to excel (exceed expectations) on a project andto review alternatives the design A/E may not have due to time constraints.
Additionally, value engineering may allow the investigation of alternative designapproaches (i.e., sustainable design, etc.).
Value management should be considered an integral part of project design andconstruction and therefore occur at many times throughout project delivery. VE
studies may be conducted at times from pre-concept through to final design.Value Engineering Change Proposals (VECP) are acceptable up until projectcompletion for occupancy.
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2.0 Value Engineering Study Policy............................................... 2-12.0.1 Types of Efforts...............................................................................2-1
2.1 Program Administration............................................................... 2-12.1.1 Selecting VE Consultants ..........................................................................2-1
2.1.2 Team Selection................................................................................2-2
2.2 Responsibilities............................................................................ 2-22.2.1 VE Consultant Responsibilities.......................................................2-2
Figure2.1: VE Methodology and Matrix...........................................................2-3
2.2.2 Owner VE Coordinator Responsibilities.........................................2-4Figure2.2: Audit Process Matrix.......................................................................2-4
2.2.3 Design Team Responsibilities.........................................................2-4Figure2.3: VE Integration into Design..............................................................2-5
2.2.4 Project Manager Responsibilities....................................................2-62.2.5 Construction Manager Responsibilities...........................................2-6
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2.0.1 Types of Efforts. Value engineering efforts can take many forms. The
Function Analysis Concept Design (FACD) VE study is conducted at the designconceptualization phase and is a facilitated design charrette. The valueengineering facilitator leads the design team through the five-phase job plan asthey cooperatively develop the conceptual design. The emphasis of this type of value engineering study is on establishing the functional space areas, the facility parameters and the siting and massing concepts for the design. Matching theresultant basis of design with a parametric cost estimate ensures the funding levelis commensurate with the design. The benefit of this type of study is the buy-in of all stakeholders to the concept developed in the charrette. The eventual occupier,the design A/E and GSA representatives are partnered to the design basis, thefacility construction cost and the character of the facility.
Conceptual VE is conducted at the end of the preliminary conceptual design phase and like the FACD study, focuses on the functional space areas, facilitysiting and massing issues and facility parameters. The primary differences between the FACD study and the conceptual study are that the design A/E has prepared initial conceptual design(s), and the study involves an independent valueengineering study team.
Design Development value engineering studies are typically conducted at or near completion of the thirty-five percent design documents. At the initial stages of design development, the study focuses on systems and subsystems level
alternatives and includes alternatives for assemblies, materials and design details.
Quality Reviews and Constructibility studies are typically convened at the NinetyPercent Construction Documents design phase. The intent of the quality review isto foresee any project delays and cost increases due to document errors andomissions. The intent of the Constructibility analysis concentrate solely on savingconstruction time and money without compromising project objectives such asquality, reliability, operability, maintainability, durability, and appearance. Manytimes it will be a cohesive effort to perform a constructibility analysis whileconducting a VE study, particularly at the design development stage.
2.1 Program Administration
2.1.1 Selecting VE Consultants. It is recommended that Value Engineeringstudies be performed by a firm specializing in value engineering. The selection of appropriate VE Consultants to conduct or participate in studies should be basedon the following criteria (in order of importance).
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• Proven Expertise in Conducting Studies on Similar Facilities
• Team Leader Qualifications
• Consultant Team Member Qualifications
• VE Team Study Management Expertise and General Organizational Skills
• Cost Estimating Support Capabilities
2.1.2 Team Selection. Under the direction of the VE Coordinator, the VEConsultant shall select the proposed team members for the VE Study. A typicalVE team consists of three (3) to seven (7) experienced architects/engineersknowledgeable in the planning/design of the specific project and/or the ValueEngineering Methodology. A typical building project, for example, might requirethe following VE team members:
VE Team Leader Architect
Structural Engineer Mechanical Engineer Electrical Engineer and Controls Specialist
Cost Engineer/Cost Estimator Owner Representative
2.2 Responsibilities
2.2.1 VE Consultant Responsibilities The responsibility of coordinating theactivities of the design team and the CM through the VE process falls on the VE
Consultant. The VE consultant, in concert with the VE Coordinator and ProjectManager will identify the disciplines required on the VE team for each specificstudy.
The VE Consultant will advice the A-E and VE Coordinator of informationrequired through a study. During the pre-study phase, the VE Consultant willevaluate the information received and develop a cost model to determine areasrequiring greatest attention during the study period.
The VE Consultant is responsible for providing sufficient facilities for theworkshop, including space allowances for the A-E, CM, and all other participates
determined to be necessary by the VE Coordinator and the Project Manager. TheVE Consultant will lead the VE team and Project team through all phases of thestudy process (See Chapter 3), providing guidance for all of those not familiar with the VE process, as well as for those that are. The VE Consultant will preparedraft reports after the study period is completed, followed-up by the final reportafter the resolution and implementation process. The VE Consultant isresponsible for assisting the Project Manager throughout the implementation process.
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2.2.2 Owner VE Coordinator Responsibilities. The specific responsibilities of the Owner VE Coordinator are as follows:
• Review the planning/design schedule to identify upcoming planning/design projects.
• Identify those projects that may require a VE Study
• Either proceed or defer the VE study.
• Identify (with the Project Manager and selected consultant) the length of theVE Workshop
• Identify and coordinate with VE Consultant and Project Manager the proposed VE team disciplines required for each specific study.
• Develop a schedule for the VE Study.
• Arrange for the Design Team to be present for the Design Presentation,Analysis Phase Meeting, the VE Team Presentation, and the ResolutionMeeting.
• Review the Draft VE Report, distribute to others and schedule the VE
Resolution Meeting.• Distribute notices and attend the VE Resolution Meeting and assist in the
evaluation of each VE proposal.
• Coordinate with the planning/design team, staff, and the VE Consultant toresolve any outstanding questions after the VE Resolution Meeting.
• Assist the Project Manager in directing the Planning/Design Team to proceedwith all accepted VE proposals.
• Perform audits on the VM Program, via implementation reviews, annual program reporting to Central Office, etc. (See Figure 2.2 below)
Effort Duties Results
Attend / Participate in VE
Study
Evaluate:• VE Firm Coordination
• With Design A/E
• With Owner Project Mgt.
• Proposals
• Quality
• Cost Analyses
VE Firm Evaluation
Attend / Participate in
Resolution / ImplementationMeeting
Evaluate VE Success
• Return on Investment
• Acceptance to
Proposed Ratio
VE Results Report
Coordinate Implementation
Review
Review Later Design Documents for
Implemented VE Proposals
Implementation Report
Figure 2.2: Audit Process Matrix
2.2.3 Design Team Responsibilities The Design Team will present a one (1)to two (2) hour overview of the project to the VE Team on the first day of theWorkshop. This presentation should be made by the Design Team ProjectManager and the project discipline designers, as appropriate.
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The design team project manager also represents the A/E at the Analysis PhaseMeeting and serves as advisor to the Owner and User Agency on which proposalsthe VE team should further develop. On the last day of the VE Workshop, thefull design team returns for an informal briefing by the VE Team on the findingsof the Study and an overview of each VE proposal developed during the week.This briefing typically lasts two (2) hours. This briefing is chaired by the VETeam Leader and is designed to be informational in nature. In addition the design
team will attend the VE Resolution meeting and be prepared to discuss andresolve all VE proposals under consideration. Ultimately, the design team isresponsible for incorporating all accepted VE proposals into the designdocuments, as directed.
2.2.4 Project Manager Responsibilities. The Owner Project Manager (PM) isultimately responsible for the success/failure of the project. The Owner ProjectManager funds the Value Engineering Efforts, participates in the design presentation, the Analysis Phase Meeting, and the Presentation, and chairs theResolution Meeting. The Project Manager also works cooperatively with the VECoordinator to establish the study team, the duration of the study (days) and the
calendar dates for the study. Prior to the study, the PM coordinates with the VEfirm (or in-house team) and the project designer to ensure the delivery of designdocuments to the VE team. During the study, the Project Manager serves asadvisor to the VE team on Owner policies and procedures and design standardsand as an information resource on the project and site parameters.
2.2.5 Construction Manager Responsibilities. If a Construction Manager (CM) is selected for the project prior to the study, the Construction Manager'sresponsibilities are in concert with those of the Owner Project Manager. The CMis expected to be the expert with regard to project schedule, constructibilityissues, risk assessments, and quality control concerns. The CM is required to havea representative and, as required, technical personnel, to act as VE TeamMember(s) throughout the VE Workshop, as well as during the ResolutionProcess and beyond.
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Chapter Three – Value Engineering Processesand Procedures
Section No Description Page No.
3.0 Study Process .................................................................................. 3-1
3.0.1 Pre workshop Activities......................................................................3-13.0.2 Workshop Activities...........................................................................3-13.0.3 Post Workshop Activities ................................................................... 3-1
Figure 3.1: Relationship of Current Activities with VE ...................................3-2
3.1 Study Methodology...................................................................... 3-3Figure 3.2: Value Management Job Plan ..........................................................3-4
3.1.1 Information Phase...............................................................................3-43.1.2 Creative Phase ....................................................................................3-53.1.3 Analysis Phase....................................................................................3-53.1.4 Development Phase ............................................................................3-63.1.5 Presentation Phase ..............................................................................3-63.1.6 Reporting ............................................................................................3-6
3.2 Resolution Process.....................................................................3-73.2.1 Resolution Meeting Participants.........................................................3-73.2.2 Decision Making and Resolution .......................................................3-73.2.3 Final Report ........................................................................................ 3-8
3.3 Implementation Check Procedure................................................... 3-8Figure 3.2: Specific Steps in the Implementation Check Procedure...............3-10
3.4 VE Study Parameters ................................................................... 3-93.4.1 Project Delivery Methods..............................................................3-103.4.1.1 Design, Bid, Build.......................................................................... 3-103.4.1.2 Design-Build .................................................................................. 3-10
3.5 VE Study Focus ............................................................................ 3-10
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VE studies are conducted using the SAVE International (Society of AmericanValue Engineers) Job Plan Standards. The studies are comprised of three distinct phases. These are 1) Pre-workshop Activities; 2) VE Workshop Activities; and 3)
Post-workshop Activities.
3.0.1 Pre-workshop Activities. The pre-study period (typically 1 to 2 weeks prior to actual workshop) is the time when the VE Team Leader/Facilitator becomes familiar with the project. It is crucial for the Team Leader to obtain thetechnical and cost data early enough on to allow adequate understanding of the project and program parameters. It is this period when all cost, quality and energy
models are assembled. The pre-study period is when the VE team is selected, alllogistical arrangements are made for the workshop, and the working relationshipwith the A-E, CM, and Owner are established.
3.0.2. VE Workshop Activities. The VE Workshop is conducted using theSAVE International five step job plan. The five steps are (1) Information, (2)Creative (3) Analysis, (4) Development, and, (5) Presentation phases. In theInformation Phase, the study team assimilates all available information about the project. This phase includes function analysis, which is an evaluation of a project, system, subsystem or assembly to determine their basic and secondary
functions; those that make the object either work or sell. In the Creative Phase,the VE team brainstorms possible alternatives to meeting these functional
requirements. The creative session is a free flowing ideation exercise, intended tocapture as many ideas as possible, therefore critique of the ideas is withheld. Inthe third phase, the creative ideas are briefly analyzed for initial and life cyclecost impact, effectiveness at meeting the required functions, and acceptability tothe user agency and OWNER. A number of ideas are eliminated from further consideration in this, the Analysis Phase. In the Development Phase, the teamdevelops the remaining proposals, documenting the advantages and disadvantagesof the alternative, preparing cost comparisons (including life cycle cost analyses)with the original design, and fully describing through words and pictures the proposed change. The Presentation Phase concludes the formal workshop and isthe opportunity for the value engineering team to present the results of their
investigations in developing the proposals.3.0.3 Post-workshop Activities. Post workshop activities typically consist of the VE Consultant preparing the draft final report and coordinate with the A-E,CM, and Owner in preparing the report of recommendations for acceptance of VEProposals accepted during the Study. It is also during the Post-Workshopactivities that the formal resolution process takes place, and decisions are put onrecord.
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VE Methodology encompasses a new look by an independent team thatobjectively analyzes a system, its functional purpose, and its interface with other systems to achieve the required functions at the least cost commensurate with itsuseful life. The prime purpose of this analysis is not to fault the original
planning/design, but rather to determine if the function is worth the cost. Acomprehensive functional team study to identify high cost, low worth or lowvalue items is essential to an organized VE approach. The Basic questions askedduring a VE Study are:
• What is the system/item?
• What does it do (what is the basic function)?
• What must it do?
• What does it cost?
• What is the item worth?
•
What else will do the same, or better job?• What does that alternative cost?
The VE Study generally consists of a VE Team Workshop followed by preparation of a Draft VE Report, a VE Resolution Meeting, and preparation of the final VE Report. The VE Study will be accomplished using a functionalanalysis approach and will not be limited by the design criteria and the designdata. The key distinguishing features separating the VE Five Step Job Planapproach from the general or normal design review procedures, economic studiesand other cost reduction techniques are functional analyses, use of creativity todevelop sound multiple alternatives, and the principle of maintaining the quality
needed by the user.
Figure 3-2 (Next Page) represents a matrix of the procedures involved throughoutthe steps of the job plan. This helps understand why it is so important not to cutshort the level of activity in any one area for the benefit of another. Each of thesteps has a purpose and must be carried out for the best results of the study.
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phase is for familiarizing the VE team with the project functions and the proposed planning/design team solution. The information gathering includes the review of project documents, criteria, and applicable codes coupled with projectunderstanding gained through interviewing the Design Team and visiting the site.
Design Team Presentation. The original Design Team is required to present theVE team with a 1-2 Hour overview of the project. This overview should focus in part on the project parameters and functional requirements. In addition, theoverview will outline the designer’s solution to meet the project parameters. The presentation should address all of the project elements (i.e., primary facility,supporting structures, site work) and should also include a review of alternatives
considered by the planning/design team. Site Visit. As a part of the InformationPhase, the VE team may make a visit to the site(s) of the proposed project to fully
1 INFORMATION __
QUESTIONS
WHAT IS IT?
WHAT DOES IT DO?WHAT MUST IT DO?WHAT DOES IT COST?WHAT IS IT WORTH?
PROCEDURE USE GOOD HUMAN RELATIONS
GET ALL THE FACTSGET INFORMATION FROM THE
BEST SOURCESOBTAIN COMPLETE INFORMATIONPERFORM FUNCTIONALEVALUATION
understand the contextual issues related to the work. Those issues include thecommunity aesthetic style; traffic patterns; environmentally sensitive properties;
topography; and zoned relationships. Cost Estimating and Cost Modeling.
Additionally, the cost estimator to the VE team will evaluate the project estimateand as required tailor that estimate into a systems, subsystems level estimateappropriate for use by the VE team. The estimator’s effort may includeconverting the cost data into a format separately depicting labor, material,
equipment, and overhead costs, in addition to recommending revisions to the unitcosts for discrete work elements. At the conclusion of this cost estimatingexercise, substantive changes will be reconciled with the planning/design teamestimate. This final, reconciled estimate will be used by the VE team for
comparative purposes. Function analysis is the key to effective valueengineering. The function analysis session should include function identification,
and Function Analysis Systems Technique (F.A.S.T.) Diagramming; and mayinclude graphical diagramming, role-playing and other exercises to aid project
understanding. Project Risk Analysis. In the information phase, the VE teamwill also discuss with the design team the project qualitative risks. Qualitativerisks are the project parameters that, if realized, would impact the project design
and/or construction. Some typical project risks on OWNER projects are: adverseweather; existing geographic or utility features; schedule constraints; work periodconstraints; and coordination issues (with other projects). In the creative phase,the VE team may suggest ideas, which mitigate the more risky elements of the project and ascertain the costs associated with implementing those mitigationmeasures relative to the potential risk impact on the project.
3.1.2 Creative (Speculative) Phase The creative phase is for the generation of alternative ideas to meet the functional requirements of a project. For example,the requirement to obviate threat may be met by vehicle barriers, threat detectionelectronics (i.e., security cameras, personnel scanners), fencing, facility siting,
landscape and hardscape features, and others. Among the techniques used for brainstorming are free association, the building of ideas on one another, andcheck-list, ideation based on successful ideas generated for previous projects.Others include morphological analysis, the generation of combined ideas, andforced relationship, the association of different and apparently irrelevantelements. These techniques may include spatial diagramming, role-playing, andother means of enhancing the creative process. Between one hundred (100) andone hundred and fifty (150) ideas are typically generated during the creative phase. In the creative phase, comments on the creative ideas should be limitedsolely to increasing understanding of the idea or concept. Criticism of the ideas is prohibited during the creative phase.
3.1.3 Analysis Phase The Analysis Phase Meeting is for evaluating and judgingeach alternative idea for merit. The VE team, design team, user agencyrepresentative(s), and the Project Manager (or his/her designee) should be presentat this meeting. The goal of the meeting is to determine which of the creativeideas are worthy of further development by the VE team. The judging of an ideaworthy of further consideration in the analysis phase does not constitute final
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acceptance of the idea. At the meeting, the design team, user agencyrepresentatives and Project Manager are tasked with providing the evaluation asto the interest, and potential for implementation of a given idea. The VE team istasked with evaluating the cost impact of the idea.
3.1.4 Development Phase In the development phase, the VE team fullydevelops and summarizes the worthy alternatives. In this phase, the team develops
cost comparisons with net savings, appropriate sketches, and calculationsestablishing the basic feasibility of the idea. Additionally, the team evaluates andsummarizes the perceived advantages and disadvantages, and develops a paragraph justifying incorporation of the idea in the project. Alternatives arediscarded which, after further development prove to be of low value, or areunfeasible. The present worth of life cycle costs are calculated for the original planning/design feature and the proposed change, along with the net savings or cost. The life cycle cost analysis utilizes standard present worth methods, aspecific life cycle (which may vary by project), and a unique discount factor for the calculations. Chapter Ten of this manual more completely describes the lifecycle cost analysis process.
3.1.5 Presentation Phase In the presentation phase, the VE team makes aninformal presentation to the VE Coordinator, design team, user agencyrepresentative(s), and the Project Manager. The purpose of the presentation is to:(1) give the assumptions made in the course of developing the proposals andverify their accuracy; and, (2) allow for clarifying discussions between the VEteam and the attendees to ensure full and complete understanding of the intent of each proposal. After the VE Workshop is concluded, the VE Consultant will prepare the Draft VE Report and a formal VE Resolution Meeting will bescheduled by the VE Coordinator in consultation with the Project Manager. The
VE Resolution Meeting will generally be held within two weeks of submittal of the Draft VE Report.
3.1.6 Reporting The Draft VE Report is submitted to Owner within one week following completion of the VE Workshop. The minimum requirements for theDraft VE Report are:
• Table of Contents
• Executive Summary (Including a Discussion of the Most SignificantProposals)
•
A Brief Description of the Project and the Project Design Criteria• Summary Of Proposals Organized by Design Discipline, Function, or Other
Category
• Brief Description Of Each Proposal with a Summary of the Potential and LifeCycle Costs
• A Discussion of the Function Analysis Session, and the F.A.S.T. Diagram
• Original Design Reference Drawings
• Original Design Estimate Summary Sheets
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• Each Individual VE Proposal Including Initial Cost Estimates for the Originaland Proposed Designs, Life Cycle Cost Analyses, Sketches, and Other Supporting Information
• Agenda for the Workshop
• Résumé’s for Each VE Team Member
3.2 Resolution Process
3.2.1 Resolution Meeting Participants The VE Resolution Meeting is aformal forum consisting of the Owner Project Manager as chairperson, the VETeam Leader, selected VE Team Members, selected design team members, theOwner VE Coordinator, User representative(s), and others as appropriate.
3.2.2 Decision Making and Resolution The decision process is an evaluationof the merits of the developed proposals as they relate to the project studied. The process begins at the end of the study with the tender of the draft VE report. The
draft report, which captures all of the developed proposals, is presented for reviewto the design A/E, Construction Manager (or CMC), User and Owner representatives. Upon receipt of the draft final VE report, the A-E will begin theformal review process and preparing a report of recommendations for (or against)acceptance and implementation of each VE Proposal submitted in thePresentation Phase.
A resolution meeting, at which time the proposals will be accepted, accepted withmodification, rejected for reason, or earmarked for further study, is scheduled for a time convenient to all parties. In the intervening time, each interested party is todocument their response to the proposed alternatives. The responses should
include the rationale for the recommended decision. At the resolution meeting,each proposal is presented in turn, and through discussion, a singular decision isselected. The design A/E is then directed to implement the proposals that areeither accepted or accepted with modification. Specific responsible parties areselected to review those designated for further study.
The following steps are taken in the VE Proposal Resolution Process:
1) Proposals are Presented;2) General Discussion as to the Relative Merits of the Proposed Alternative
and the Original Design;
3) Cost Comparison Discussion; and4) Agreement on Resolution.
Standard Resolution and Implementation Choices are as follows:
1) Rejected - VE proposals are eliminated at the resolution meeting, but specificrecords as to the rationale for rejection are recorded by the VE Team Leader andincluded in the Final VE Report.
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2) Accepted - VE proposals are also recorded in the Final V.E Report and areincorporated into the design.
3) Accepted With Modification - VE Proposals are those ideas that are altered inthe course of the resolution meeting. An accepted/modified proposal is generallysound conceptually, but has been changed to reflect user agency, ProjectManager, or designer preference on means of execution or extent of implementation.
4) Further Study. Instead of accepting, rejecting or modifying a proposal, theresolution meeting participants may ask that an idea be further reviewed by theVE team or design team for a specific technical issue. Those VE proposals thatrequire further development are returned to the VE team or design team with arequest for a written response. Upon completion of the analysis, the proposal will be routed back through the resolution team participants for final acceptance or rejection.
3.2.3 Final Report Within one week following the VE Resolution Meeting, theVE Team Leader prepares minutes of the meeting and produces the final VEReport. The VE Report documents the outcome of the study and contains a
summation of those items that were either accepted or rejected by Owner. Thereport shall be complete and final in all respect with all proposals resolved andlisted as either accepted, accepted with modification or rejected.
The final VE Report should contain the following minimum information:
• All Information Contained in the Draft VE Report
• Minutes of the VE Resolution Meeting
• List Of Attendees at the VE Resolution Meeting
• Any Proposals Modified as a Result of the Resolution Meeting
Discussions• A Complete Summary of the Results of the Study
The final VE Report then becomes a part of the project record. The final VEReport will be referred to in the future for certain circumstances, if needed. Anexample would be if a General Contractor presents a VE Change Proposal to theGovernment that was previously submitted by the VE Team as a VE Proposal andrejected. Typically, that would be grounds for not accepting a VECP.
3.3 Implementation Check Procedure At the 90% design stage, the Owner
VE Coordinator may institute an implementation check of the project vis-à-vis the
value engineered design. The design is checked against the record of eachaccepted, or accepted/modified proposal to determine the extent of implementation. After review, the designer may be asked to respond withrationale as to why a specific accepted or accepted/modified proposal is notincorporated in the design. Specific steps in the check procedure are shown below in Figure 3.3.
Effort Resources Results
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Figure 3.3: Specific Steps in the Implementation Check Procedure
The Implementation/Audit Report is a three to five page document that recordsthe results of the investigation.
The following sections are required:
• Contents
• Summary of Overall Implementation Results
• Table of Results (Figure 3.4)
The Design A/E response report should include a summary description of the proposal, the correspondence (if any) justifying the reason for not implementingthe proposal, and the rationale for not implementing the proposed.
3.4 VE Study Parameters VE studies may be conducted differently dependent
on a number of factors. Chiefs among these are the project type and projectdelivery method.
3.4.1 Project Delivery Methods
3.4.1.1 Design, Bid, Build Project Studies on a traditional design, bid, build project
focus on all aspects of the design, including site, massing and functional spacearea allocation / arrangement, systems, subsystems and assemblies, and scheduleand constructibility concerns.
3.4.1.2 Design-Build Project Studies VE studies on design-build projects differ inthat their focus is on the opportunities presented and limitations placed thedesign-build teams. A study will typically be conducted at the substantialcompletion of the design-build request for proposal documents and will review
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the plans and specifications for the work as presented to the responding design- build teams. Specifications that are unduly limiting on D-B team initiatives arereviewed and alternatives presented.
3.5 VE Study Focus VE studies may be focused on different aspects of the
design dependent on when the study is conducted:
On ProgramOn Site, Massing and Functional Space Area (FSA) RelationshipsOn Systems, Subsystems and AssembliesOn Schedule, Constructibility and Phasing IssuesOn Special Considerations (i.e., Sustainable Design,
Workplace Enhancements, etc.)
In general, no constraints are placed on the VM program in terms of areas of study for projects. Similarly, governing criteria, except as required by codes or law, is considered open for challenge by the VE Consultant providing the value
and cost benefits are worthwhile and no compromises are made to basic andrequired secondary project functions.
When a projects construction cost is within budget, the emphasis will be onmaintaining or improving value in terms of operations, maintenance, flexibility,or expandability, etc. at the lowest life cycle cost. A decrease in the initial costwill be a secondary goal. When a project is determined to be over-budget, thestudy emphasis should be on reducing construction cost to within budget withoutcompromising the program requirements or eroding the value of the finished product.
The VE Study is not intended to serve as a cost-cutting exercise with anaccompanying reduction in project scope, reduction in function served, or a
reduction in the value to be realized over the life cycle of the completed
facility.
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Chapter Four - Value Engineering Schedule, Focus and Team
Section No Description Page No.
4.0 Value Engineering Study Schedule .......................................... 4-14.1 Conceptual Phase Studies ......................................................... 4-1
4.1.1 Focus of the Study .......................................................................4-14.1.2 Team Composition.......................................................................4-1
4.2 Design Development Phase Studies .........................................4-14.2.1 Focus of the Study .......................................................................4-14.2.2 Team Composition.......................................................................4-2
4.3.1 Focus of the Study .......................................................................4-24.3.2 Team Composition.......................................................................4-3
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The value engineering studies should not substantially impact the design scheduleas the studies are scheduled to correspond with the design review periods. Additional, special studies may also be convened at any time during the design /construction process
4.1 Conceptual Phase Studies4.1.1 Focus of the Study The Conceptual Phase study is conducted to focus onthe macro level elements of the design. These elements include but are notlimited to siting and massing; and environmental and community impacts andconcerns. The Conceptual Phase study is generally of three (3) to five (5) day
duration and may develop fifteen (15) to twenty (20) proposals. Due to thecomprehensive, conceptual, nature of the proposals, the dollar value of eachalternative is expected to be higher than those developed in later studies. Inaddition, conceptual phase studies are typically not conducted if the project valueis less than $20 Million.
4.1.2 Team Composition The VE team for the Planning Phase study iscomprised of six (6) to nine (9) team members in addition to the team leader. Theselected team members are typically senior level architects/engineers, and able toconceptualize alternatives on a macro level.
Detailed cost estimating is typically not required at the Conceptual Phase of a project and often team members’ experience coupled with the expertise of one or more parametric estimators is adequate for the VE workshop tasks.
4.2 Design Development Phase Studies
4.2.1 Focus of the Study The Design Development Phase study is conducted tofocus on the subsystem and detail level elements of the design. These elementsinclude but are not limited to the following:
• Material Selections
• Specific Building Systems Selection and Design
• Proposed Design Details
• Overall Layout Options within overall Building Shell
• Phasing and Scheduling Plans
• Structural Loads and Elements
• Major Constructibility Issues
• Site Paving, Grading, and Utilities
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The Design Development phase study for is generally of three (3) to five (5) dayduration and may develop twenty (20) to thirty (30) proposals. Typically, theDesign Development Phase study is held after receipt of the draft DD phasesubmission of the documents. Typically, the final Design DevelopmentSubmission is prepared upon agreement of all implemented VE proposals.
4.2.2 Team Composition Depending upon scope of the project, three (3) to ten
(10) team members, in addition to the team leader, comprise the VE team for theDesign Development Phase study. The selected team members are typically mid-level engineers, with hands-on experience in design at the subsystem and detaillevels.
The ability to perform calculations and create detail design drawings for alternative concepts is essential. Also, as the design has progressed, information isnow available on supporting subsystems to the major design features (i.e.,controls and valves) and team members with expertise at that level of detail arerepresented on the VE team.
4.3 Quality/Constructibility Studies4.3.1 Focus of the Study. The Quality / Constructibility study does not precludeefforts to determine the quality of the project documents or constructibility of the project at the conceptual or design phase studies. Instead, the Quality /Constructibility study focuses on those aspects to the exclusion of all other considerations. The quality review is an interdisciplinary plan check of the projectdocuments and is conducted to determine if errors and/or omissions that will
impact project quality, cost or progress are evident.
Typically, the quality review process is assigned to one or more individuals on theVE team familiar with the project type. The quality reviewer(s) prepare a reportlisting all of the discrepancies discovered in the process.
The constructibility review is a final opportunity to study the construction-relatedaspects of the project design. The study focuses on the following:
• Construction Schedule
• Utilities Interface
• Contractor Access and Staging
• Productivity Enhancements
• Safety and
• Community Impact; among other aspects.
The Quality/Constructibility study is characterized by a lengthy InformationPhase, during which the quality reviewers perform the plan check, and theconstructibility reviewers become familiar with all aspects of constructing the project and the 90% design cost estimate. For this phase of the study, the teammembers are largely self directed, and focus their efforts on the project as
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represented in the design documents, without the benefit of additional input fromthe design team.
The Information Phase is three (3) to seven (7) days in duration (depending on project complexity). At the conclusion of this information phase, the teamconvenes to review the Quality/Constructibility comments and proceed with the balance of the five-step value engineering job plan (creative, analysis,
development and presentation phases).
The formal study duration is from three (3) to five (5) days and focuses ondeveloping alternatives to identified project final Design / construction issues. For projects of a lesser valued ECC, Quality / Constructibility studies are typically notcost effective and are therefore not conducted if the project value is less than $5Million.
4.3.2 Team Composition Two (2) to five (5) team members, in addition to theteam leader, comprise the VE team for the Quality/Constructibility study. Theteam leader’s role is to facilitate the process of brainstorming and developing
alternative solutions to perceived quality/constructibility problems. The qualityreviewers are detail oriented and have design and/or construction experience andmay therefore be drawn from the same resource group as the Conceptual andDesign Development Phase study teams.
However, the Quality reviewer(s) should have ten (10) or more years of designexperience, including a minimum of five (5) years experience on similar types of projects.
The constructibility reviewers are typically current or former constructionmanagers, supervisors or foremen with eight (8) to ten (10) years experiencesimilar project types.
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5.3 Function Analysis System Technique Diagramming ............... 5-3Figure 5.1 - Fundamentals of FAST Diagramming ...................................5-5
5.4 Determination of Worth............................................................ 5-65.5 Determination of Cost............................................................... 5-7
Figure 5.2 – FAST Diagram for an AFC System ......................................5-8Figure 5.3 – Life Cycle Cost Model for an AFC System ..........................5-9
5.6 Determination of Value........................................................... 5-105.7 Opportunities and Cautions .................................................... 5-10
Figure 5.4 – FAST Diagram VE Study......................................................5-9
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The Information Phase of the Value Management Job Plan has two major objectives. The first is to acquire knowledge of the system, operation or itemunder study by a rigorous review of all pertinent factual data. The second is todefine the value problem by means of functional description accompanied by anestimate of the present design cost of accomplishing each basic and requiredsecondary function.
A user purchases an item or service because it will provide certain functions at acost he/she is willing to pay. If something does not perform as it is intended to, itis of no use to the user, and no amount of cost reduction will improve its value.Alternatives that sacrifice needed utility reduce value. Functions beyond those
that are needed also are of little value to the user. Thus, anything less than the performance of needed functions is unacceptable; anything more is unnecessaryand wasteful. To achieve the best value, functions must be carefully defined sothat the associated costs may be determined and properly assigned.
5.1 Function Evaluation
Often there is a temptation to look at an item and say that the function it performsis the required function. This is not always true. By defining the function, onelearns precisely which characteristics of the system and/or program are required.
The determination of functions should take place as soon as possible to permitdetermination of true needs. All members of the VE study group, including thedesigners, client/users, and VE team members, should participate in functionanalysis. The determination of the required function(s) is vital to the successful
application of subsequent phases of the Job Plan.
After the functional description has been developed, the next step is to estimatethe worth of performing each required function. The determination of worthshould be compared against the estimate of the item's cost. This comparisonindicates whether the study will provide an opportunity for large reductions incost without impeding quality. The overall objective of the VE study is to develop
a design with an associated cost that closely approaches the established worth.
5.1.1 Determining Functions In VE, function is expressed using a twoword/verb-noun relationship. The verb answers the question “What does it do?"while the noun answers the question “What does it do it to?” The verb defines theitem’s required action. The noun must be measurable or at least understood inmeasurable terms, since a specific value must be assigned to it during a later evaluation process that relates cost and function. This two-word abridgment
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forces conciseness, avoids combining functions and attempting to define morethan one simple function at a time, and aids in achieving the broadest level of disassociation from specifics.
5.1.2 Identifying Functions Proper identification of function involves a pointof view and consideration of the application of the item. A function should beidentified so as not to limit the ways in which it could be performed. For example,
consider the operation of fastening a simple nameplate to a piece of equipment.Rather than the specific instruction "screw nameplate", the function would be better identified as "label equipment," since attaching a nameplate with screws isonly one of many ways of identifying equipment. Nameplates can also be riveted,welded, hung, cemented, or wired in place. On the other hand, the name may beetched, stenciled, or stamped on the equipment, eliminating the need for aseparate metal nameplate.
Identification of function should concern itself with how something can be used,not just what it is. For example, the function of a wire may be to conduct current,fasten part, or transfer force, depending on application. The function of a door
could be to control access, or close opening, depending on the designer’s intent.
Identifying the function in the broadest possible terms provides the greatest potential for value improvement because it gives greater freedom for creativelydeveloping alternatives. Further, it overcomes the tendency toward preconceivedideas of the way the function is accomplished.
5.2 Classifying Functions. Traditionally, functions of items or systems aredivided into two types: basic and secondary.
5.2.1 Basic Functions. A basic function defines a performance feature that must be attained. It reflects the primary reason for an item or system. In the case of thescrewdriver, "transfer torque" would normally, but not necessarily, be the basicfunction. For example, if the desired application was to pry open lids of paintcans, the function would be defined in terms of the transfer of a linear force rather than a rotational force such as “transfer force”. Thus, a clear understanding of theuser's need is necessary if an adequate definition of the basic function is to bedeveloped. An item may possess more than one basic function. This would be truein the case of one product that provides several required functions. An example isthe camper's hand ax, with a flat head for driving tent stakes, and a sharp blade for cutting firewood. A basic function answers the question, “What must it do?”
5.2.2 Secondary Functions. A secondary function defines performance featuresof a system or item other than those that must be accomplished. It answers thequestion, "What else does it do?" For example, the basic function of exterior paintis to protect surface. A secondary function is to improve appearance. Secondaryfunctions support the basic function but generally exist only because of the
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particular design approach. For example, a valve on a radiator restricts flow and isnecessary only because a hot water heating design was chosen. (No valve isneeded with a forced air heating system). Many times, the presence of asecondary function depends on the method chosen to achieve a basic functionand, if the method to achieve the basic function is changed, the secondaryfunction may be eliminated.
Because the design and construction field works according to many codes,standards, and safety requirements, a relatively new category, required secondary
functions, has been developed. A required secondary function is a function thatmust be achieved to meet codes, standards, or mandatory requirements. Prior tothis new category, the worth of some project functions developed under the two-function scenario, (either basic function with worth, or secondary function withno worth) were so low that value engineering the project seemed worthless. For example, under the classical approach, the basic function of a hospital is to treat patients. The fire protection system function is to control/extinguish fire – asecondary function worth zero. Patients could be treated without this system, buta hospital without a fire protection system violates code. Classifying the function
as
a required secondary function is a more realistic approach. One can challenge theextent and manner of performance, but the function is required.
5.2.3 Functional Relationships. It is common practice to describe systems (1)in terms of function and the relationship to the next larger assembly, (2) in termsof components or subparts, or (3) in terms of their indivisibility or uniqueness.The relative position that a system or item occupies in the scheme of the totalassembly is the level of indenture.
In value engineering, the significance of level of indenture is that the designationof functions as basic or secondary depends upon the indenture level. A functionthat exists to support the method of performing the basic function is a secondaryfunction. However, when considered by itself and with respect to itself, it is a basic function. Systems and items may have many levels of indenture. The rule of functional evaluation is to work from the top, down; and to consider the item or system under study as the top assembly. If the function of the top assembly isdependent upon the function of the indentured item the function of the indentureditem is basic.
5.3 Function Analysis System Technique Diagramming Another, and perhapsmore precise approach used for identifying and classifying functionalrelationships is FAST (Function Analysis System Technique) diagramming.
FAST diagramming is a technique, which is similar to network diagramming or flow-charting. However, the basic difference between FAST diagramming andthese other diagramming techniques is that FAST diagramming is not time or task
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oriented, but function oriented. FAST diagramming shows pictorially therelationships of the functions as a product or service does the work it wasdesigned to do (not what it would like to do, but what is happening now).
As in the case with most Value Engineering tasks, the development of a FASTdiagram is best accomplished as a team effort. The interplay of differentviewpoints causes deeper thinking on the subject and, therefore, more thorough
investigation. The first step is to determine what the team considers the mostgeneral function of the program, project, or system to be studied. This provides astarting point for what may resemble a game of dominoes. Expansion from that point occurs by asking the questions "How?" and "Why?". Figure 5.1 depicts themethod of graphically representing this technique. To develop a FAST diagram,to the right, one asks HOW the (verb) (noun) is proposed to be accomplished. Theteam makes several suggestions and decides the most appropriate function. Thatanswer, also expressed as a verb and a noun, is the next lower order function onthe diagram.
The progression to the right is accomplished by continuing to ask how for eachnew function on the diagram. Items to the right of a function are requiredsecondary functions (required due to the system design chosen). The answers tothe how questions are verified by asking why is it necessary to (verb) (noun)? Theanswer to that question should be the same as the function in the square to theleft.
Typically in function analysis, the how question determines solutions, and lower levels of opportunity. The why provides reasons, and higher levels of opportunity.By continuing to ask why, one progresses to the left to increasingly higher order functions. Asking why can also extend the diagram further to the left, thusillustrating the fact that the starting function may not have been the basic or primary function after all. The line of functions from right to left is considered thefunctional critical path.
The critical path functions are critical to the performance of the basic function. If you take one of them away, the basic function of the system cannot be satisfied. If you try taking one away and find that the basic function can still be performed,then perhaps the function removed is a supporting function, and not critical.
Supporting Functions are those that happen all the time, at the same time, or arecaused by the critical functions. They occur as a result of the method chosen for accomplishing the basic function. These secondary functions are positionedvertically in the diagram.
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The FAST Diagrams use the design program as a base and can be expanded intothe design solution. As can be seen from the above discussion, the diagram can beexpanded almost endlessly to the left, even to the point of asking why the projectis being designed. At some point along the critical sequence of functions, a scopeline defines the limits of the study. To its right lies the basic function that will bethe subject of the study. The following case is a good example of when FAST
diagramming can change the whole scope of the project:
A request for $63 million was received by the Department of Health,Education, and Welfare (HEW) for a grant to build a hospital next to the beltway circling the city, even though existing city center hospitals wereusing only 50 of their bed capacity. It seems that traffic to get to them wasunbearable and several patients had died in ambulances from beltway
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accidents. In this case, the basic functions of the hospital were to savetime and to treat patients. There was plenty of room to treat patientsdowntown, but the patients could not get there in time; so, the team lookedat alternatives to save time. Instead of building a hospital, the teamrecommended using a helicopter service to save time. In this case,challenging the function of the project paid off.
By associating costs with the functions of a FAST diagram, attention can befocused on the high-cost function or, on the higher order function that makes thehigh cost function necessary. It is important during the Speculation Phase toconcentrate on the function rather than the item itself. Referring to the FASTdiagram during this phase tends to draw attention away from the object andtoward its function.
The preparation of a FAST diagram of, at least, the first choice alternate duringthe Analytical and Development Phases, allows for a re-examination of thesolution. Rethinking at this time can introduce areas for additional savings thatmay have been overlooked. A comparison of the FAST diagram for the originaldesign and that of the proposed alternate can be a valuable sales tool during thePresentation Phase. The diagrams describe in simple functional terms thecomplexity of the item under study.
5.4 Determination of Worth In theory, worth equates to the cost of the mostinexpensive way to perform a function. The establishment of the worth of afunction, commences after all functions have been identified, classified as basic,required secondary or secondary, and all unnecessary functions have beendiscarded. The determination of worth is perhaps the most difficult step in VE, but the step is indispensable. Traditionally, determining the functional worth is ahighly creative endeavor because worth is a subjective rather than absolute or objective measure.
The complexity of buildings make an established worth for each function adifficult and unproductive matter. It is far easier to establish the worth of a system, or group of functions. For example, a window admits light, sheds water, protects people, insulates space, deters insects, exchanges air, and performs other
functions. It is difficult and unnecessary to associate a cost with each of these functions. It is valuable to know that the historical cost of exterior windows on acourt facility averages $2 per building square foot.
The worth of a basic function or group of functions is usually determined bycomparing the relative costs of alternate methods of performing the function. Anattempt is made to find the lowest cost to perform the function or group of functions. During the evaluation of worth, you may ask the following:
1) What is the cost of achieving the basic function in the present design?2) Do you think the performance of the basic function should cost that much?
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3) If not, what do you consider would be a reasonable amount to pay for the performance of the basic function?
4) What is the cost achieving this function historically?5) Is this a common, easily accomplished function or one that is rare and
difficult to achieve?
Once the above questions have been answered, you can determine the worth of a
function. In doing so, the following must hold true:
1) The worth of all secondary functions are zero for VE purposes.2) A dollar figure is associated with necessary function or functions and not
with the present design of the item.3) Worth is associated with necessary function or functions and not with the
present design of the item.4) There must be no discrimination between a function that is definitely
required and the consequences of failure to accomplish that function.
5.5 Determination of Cost The consideration of cost is the third step infunctional analysis. In this application, it is the cost of the method chosen to perform the function that is considered, whereas before, worth applied tofunction.
Evaluation of cost serves several purposes:
1) Identifying high cost elements is useful in determining the priority andeffort of individual VE studies to be undertaken.
2) Cost visibility is given to function performance where normally such costsare buried in unit or system estimates.
3) The validity of the claimed savings at the conclusion of a VE projectdepends upon the accuracy of the cost figures for the present design andthe realism of cost estimates of the proposed design. Thus the cost figuresobtained must be factual and realistic.
Functional cost is the cost of the method chosen to perform the function under consideration. Where an item serves one function, the cost of the item is the costof the function. However, where an item serves more than one function, the costof the item should be pro-rated to each function. For example, the cost of acoustical tile with a flame spread rating of 25 or less might be $1.75 per squarefoot. An appropriate breakdown of this cost on a functional basis might be:
5.6 Determination of Value The fourth step in the functional analysis process is the evaluation of value. The term value is used in many different ways,and has several meanings. It is frequently confused with the monetary price or cost of an item. The value of a given item may differ according to whether it isviewed from the standpoint of the seller, the buyer, or the user. Different conceptsof value may exist between individual users, depending on the time, place,
situation, or availability of substitute items providing the basic function of thegiven item. As an example, the value of a yard rake to a lawn company is vastlydifferent from its value to an automobile mechanic. Perhaps a more meaningfulway to express value is to break it down into the four general categories of 1) costvalue, 2) use value, 3) esteem value, and 4) exchange value.
The sum of the dollar measures of the values offered by an article must be closeto the price of the article (i.e. cost value) for the purchaser to say, “this is a fair price”. Buyer and seller may disagree on the worth of the values present in anyarticle. Value is relative to both cost and price but use value, which is the valuenormally considered by the Government, may not be relative to either.
Value can be quantitatively expressed with the cost to worth ratio, called theValue Opportunity Index. High ratios indicate poor value. Low ratios,
approaching one, indicate good value. The Value Opportunity Index establishedfor a project (or a function) provides a measurement of its true value, and suggeststhose items or functions susceptible to value studies. The value index also provides a factor for measuring the effectiveness of VE efforts. (Did the cost-to-worth ratio after all VE efforts approach unity?)
5.7 Opportunities and Cautions. Unless value engineering is done at the early program phase, the probability of success on the higher-order project function(s)is relatively slim. However, this does not mean that the VE team should notchallenge the project function(s) if there are strong feelings about it. Working atthe lower level of indenture, however, provides greater opportunity for savings, because implementation does not rely on major project scope or program changes.
FAST diagrams are tools for project understanding. By including the FASTdiagramming procedures in functional analysis, the purpose(s) of the project ismore clearly defined. It brings out the goals, objectives, and aspirations for the project, as well as providing a logical approach for the project team. Preparing a project-level FAST diagram also allows a quick function challenge to validate or question the proposed concept design decisions. It provides a valuable “mindsetting” about the project in a short period of time, and facilitates presentation anddiscussion of the project’s overall goals with the designers, tenants, and managersfor better communication. It helps provide for a win-win study.
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In the Creative Phase, the VE team brainstorms possible alternatives to meetingthe functional requirements. The creative session is a free flowing ideationexercise, intended to capture as many ideas as possible, therefore critique of theideas is withheld.
Creativity is the one basic element in the VE methodology that singles outeffective performance by bringing one closer to the attainment of optimum value.It takes creativity to discover alternate designs, construction methods, systems or processes that will achieve the required functions at a lower life cycle cost withequal to, or greater, quality.
The creative process is a mental process in which past experience is combined(sometimes in a distorted fashion) to form new combinations that will satisfysome functional need. The ideas must be useful ideas, not just ideas, and shouldresult in an answer to the question “What else will do the job (perform the basicand required secondary functions)?” The completeness and comprehensiveness of the answers to this question determines to a very high degree the effectivenessand caliber of value work. The greater the number and quality of alternativesuncovered, the greater the likelihood of developing an outstanding solution.
6.1 Positive and Negative Factors in Creativity The results achieved through
the use of creative thinking, especially brainstorming techniques, will vary withthe creative ability of the individual. The most important factors affecting creativeaccomplishments are the individual's living and working environment. A creativeatmosphere characterized by mutual respect for others' ability and theencouragement of individualistic thinking can spur a mind of even averageexpressiveness to great heights.
6.1.1 Creative Attributes. Creativity can be enhanced through conscious efforttowards the development of the attributes listed below:
1) Observation - Alert and aware of existing conditions
2) Problem Sensitivity - Able to recognize when there is a problem3) Constructive Discontent - Question everything.4) Motivation - Willing to expend the energy and time to reach a given goal5) Flexibility - Adaptive and open to change6) Originality and Resourcefulness - Able to conceive a large number of new
and unique ideas that reach beyond everyday solutions
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6.1.2 Creative Blocks. Creative blocks can result from many factors. Thereare habitual, perceptual, cultural and emotional blocks to creativity. One canenhance his/her creativity by specifically counteracting them.
Habitual Blocks
* The continued to use or approve proven solutions when new and better ones areavailable;* Lacking a positive outlook; lack of determined effort; conformity to custom, andreliance on authority;* Rejecting alternate solutions that are incompatible with habitual solutions.
Perceptual Blocks* Failure to use all the senses of observation;* Failure to investigate the obvious;* Difficulty in visualizing remote relationships;* Failure to distinguish between cause and effect; and* Inability to define terms.
Cultural Blocks* The need to conform to proper patterns, customs or methods;* Over-emphasis on competition or on cooperation;* The drive to be practical, above all things;* Having confidence and faith only in reason and logic.
Emotional Blocks * Fear of making a mistake or of appearing foolish;* Fear of supervisors and distrust of colleagues and subordinates;* Over-motivation to succeed quickly;
* Refusal to take any detour in reaching a goal; and* Inability to reject alternatives that are adequate but clearly sub-optimum.
Figure 8-1 – Blocks to Creativity
Probably the single most important factor affecting one's creativeaccomplishments is the environment in which the individual must live and work.A creative atmosphere, characterized by mutual respect for one another’s abilityand the encouragement of individualistic thinking can spur a mind of evenaverage expressiveness to great heights.
6.2 Planning For Creativity Creative effort is directed toward the developmentof alternative means to accomplish the needed functions. Consideration of alternative solutions should not begin until the problem is thoroughly understood.All members of the VE task group should participate. The greater the number of ideas conceived the more likely that high quality, less costly alternatives will beamong the ideas.
Challenge the present method of performing the function. Technology is changingso fast that the rules of a few years ago are probably obsolete. Create new ways(alternatives) for performing the necessary function(s) more efficiently and at alower total life cycle cost. Take advantage of new products, processes, andmaterials.
Use as many creative techniques as necessary to get a fresh point of view. Adopta positive mental approach to any problem. Do not allow negative thoughts or judicial thinking in the creative phase. Concentrate on creating as many ideas as possible on how the function can be performed. After writing down all of the
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ideas, consider all possible combinations to determine the best method of performing the function.
Every attempt should be made during this phase to depart from the ordinary patterns, typical solutions, and habitual methods. Often the new and radicallydifferent approach uncovers the best value solution(s).
The best solution may be complete elimination of the present functions or item.This possibility should not be overlooked. Only after determining that thefunction must remain should the study group look for alternative ways to performthe same function at the lowest conceivable cost. Free use of imagination isencouraged so that all possible solutions are considered.
6.3 Creative Thinking Techniques Several techniques are available for application during the Speculation Phase. They may be used singularly or incombination depending on the project under study and the preferences of the teamleader.
The basic ground rules to follow during and beyond the creative phase are asfollows:
1) Do not attempt to generate new ideas and to judge them at the same time.2) Generate a large quantity of possible solutions. As a goal, multiply the
number of ideas produced in the first rush of thinking by 5 or 10.3) Seek a variety of solutions that represent a broad spectrum of attacks upon
the problem.4) Watch for opportunities to combine or improve ideas as they are
generated.5) Never close the book on possible solutions.6) Consider all ideas, even the most impractical. Do not ridicule any idea.
Some of the more widely known and used techniques are:
1) Brainstorming Techniques2) The Gordon Technique3) Checklisting Technique4) The Synectics Technique5) Morphological Analysis Technique6) Attribute Listing Technique
6.3.1 Brainstorming Brainstorming is an uninhibited, conference-type, groupapproach, based upon the stimulation of one mind by another. A typical brainstorming session consists of a group of four to eight people spontaneously producing ideas designed to solve a specific problem. The objective is to producethe greatest possible number of alternative ideas for later evaluation anddevelopment.
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Brainstorming rules include: 1) Judicial thinking must be withheld. Control thenatural tendency to immediately evaluate ideas. 2) Criticism, by word of mouth,tone of voice, shrug of shoulders, or other forms of body language, is not permitted. 3) Free-wheeling is welcomed. The wilder the idea, the better; it iseasier to tame down than to think up. 4) Apply the technique of hitchhiking or piggybacking to expand on the ideas of others by offering many variations
(synergism). 5) Combine and improve ideas, and 6) Set goals to force hardthinking.
The general procedure for brainstorming is for free discussion, with the groupleader questioning and guiding and occasionally supplying problem-relatedinformation. It is also beneficial to ensure all ideas are listed so that all membersof the group can see as well as hear the ideas.
6.3.2 The Gordon Technique. The Gordon Technique is a variation of
brainstorming, having one basic difference. No one, except the group leader knows the exact nature of the problem under consideration. One of the principlereasons for this technique is to keep the team members from deriving a solutiontoo soon. The proponents of this technique believe that a typical brainstormingsession only scratches the surface.
The Gordon technique seeks to avoid what has been termed egocentricinvolvement. Gordon feels that there is danger in an ordinary brainstormingsession of a participant becoming convinced that one of the ideas is the best possible solution to the problem. This might very well cause the participant tocease producing additional ideas, and instead to devote their energies in sellingthe one idea. A Gordon technique session avoids this danger since there can beno best solution proposed for a problem never identified.
6.3.3 Checklisting The Checklisting technique is a system of getting idea-clues or leads by checking the items on a prepared list against the problem and/or subject under consideration. The objective is to obtain a number of general ideasfor further follow-up and development into specific form. The checklisttechnique is more helpful if the ideas remain open-ended. Checklists are aimed atsolving some specific problem. They ensure those steps that have beensuccessfully used to solve a similar problem have been considered. It isimperative that each checklist does not become a way to go wrong withconfidence.
6.3.4 Synectics This technique requires that the problem be addressed interms of analogies. It involves going beyond the common place and envisioning asituation free from the functional fixation of our everyday behavior. This istypically through personal, direct, and/or symbolic analogy.
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Personal analogy is objective mental concentration that makes you part of a thingyou are designing and puts you in the shoes of the idea you are improving. Directanalogy is an actual comparison of parallel facts which identifies one functionalelement or method with another element. Symbolic analogies are the use of mental images to symbolize something that you have seen, heard, smelled, felt, or tasted.
6.3.5 Morphological Analysis. Morphological analysis is a comprehensiveway to list and examine all of the possible combinations of ideas that might beuseful in solving a problem. The procedure is as follows:
1) State the problem as broadly and as generally as possible.2) Define the independent parameters (variables) that the solution must meet.3) List all alternative ways of fulfilling each parameter. These alternatives
can be entered on a chart to aid in visualizing the possiblecombinations.
If a situation under study has only two parameters or variables, the chart takes the
form of a large rectangle divided into a series of small squares. The horizontalaxis represents one variable and is subdivided into the different forms of thisvariable.
The vertical axis represents the other variable and is similarly subdivided. Themultiple of combinations are then represented via the graph and model. If thesituation had three variables, the model would take the form of a cube. More thanthree variables can be considered, and computer programs exist allowing suchanalyses to take place.
6.3.6 Attribute Listing Attribute Listing is a technique used principally for improving a tangible thing. The procedure generally follows the four steps listed below:
1) Choose the object to be improved.2) List the parts of the object.3) List the essential features or attributes of the object and its parts.4) Systematically change or modify these attributes.
By means of this process, it is possible to bring together new combinations of characteristics or attributes that will better fulfill some existing need.
6.4 Opportunities & Cautions. Creative problem solving techniques are toolsfor expanding creativity. Creative techniques force a different view. The brain canstore an almost infinite amount of data, but only the smallest portion can be processed and integrated simultaneously. Regardless of the creative technique, thefollowing rules are helpful in either analytical or creative problem solving:
1) Establish a specific time and place for creative thinking.2) Set a deadline or goal.
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3) Write down ideas as they occur.4) Review the elements of the problem several times.5) Take notes on observations.6) Suspend judgment. Don’t make false conclusions.7) Rearrange the elements of the problem. Get a new viewpoint. Discuss
the problem with others. Let it incubate.
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In an attempt to emphasize the creative process, a conscious effort was made to prohibit any judicial thinking from taking place during the Speculation Phase.Because not all ideas generated at that time will prove feasible, all must becritically evaluated.
The objective of the Evaluation Phase is to evaluate the ideas generated duringthe Speculation Phase and, based upon analysis of the various alternatives, selectthe best ideas for further development.
7.1 Evaluation Methods. After generating an extremely wide range of ideas, theteam reviews the ideas, addressing how well the ideas achieve performance of the basic and secondary functions, and at what cost impact it may present.
There are many techniques available for which different alternative ideas can beevaluated and judged, but no matter how the ideas are evaluated, the comparisonreveals the ideas with the highest apparent potential at value improvement. Themost widely applied methods are: 1) Advantages vs. Disadvantages; 2) Ranking;3) Criteria Weighing; and 4) The Simplified Idea Rating/Ranking System.
7.1.1 Advantages vs. Disadvantages. In this method, the evaluator lists theadvantages and disadvantages of each alternative. The next step is to sort theideas on the basis of a weighing process in which the number of advantages and
disadvantages are considered. Those ideas with the greatest weight in terms of advantages would be chosen for further evaluation.
7.1.2 Ranking. The ranking technique allows the evaluators to assign anumerical rating to the alternates. This process might start by judging an excellentidea to be worth 10 points; a good idea, 8 points; a fair idea, 6 points; a poor idea,4 points; a very poor idea, 2 points. Next, all 10-point ideas are grouped andfurther evaluated. The same method could be used on all 9-point ideas, etc. Thesame method could be used on 8-point ideas, and if necessary, on 7 & 6 pointideas.
7.1.3 Criteria Weighing. The criteria weighing process formally organizes the process of consider multiple criteria elements such as safety, aesthetics,durability, costs (initial, operation and maintenance, replacement and salvage),and comfort. Weighed evaluation ensures optimum decisions by placing the
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proper emphasis on all criteria. During the evaluation, the project teamdetermines the level of relative importance of each of the criteria elements, andthe weight assigned to each (from 1 to 5 if 5 elements). During evaluation, it isimportant to discuss and weigh the following areas: 1). Needs versus desires, 2)Important versus unimportant, 3) Design tradeoffs versus required functions. If you are required to do a comparable analysis of one alternative versus another, thecriteria weighing process is the only truly accurate way to determine, without
question, the most feasible alternative and best value.
The recommended procedure for weighted evaluation has been broken down intotwo processes, the criteria-weighted process and the analysis matrix. The criteria-weighted process is designed to isolate important criteria and establish their weights or relative importance.
On the criteria-scoring matrix, all criteria important in the selection of thealternatives are listed. Criteria are compared, one against another. This series of comparisons is the simplest way to achieve the evaluation.
In comparing two criteria, preference for one over the other is scored according toits strength. (That is, 4-major preference, 3-above average preference, 2-average preference, and 1-light preference). When criteria are deemed equal, eachcriterion is assigned a score of 1. Scores are then tallied, the raw scores brought toa common base (10 is used for a normal evaluation), and the criteria and weightstransferred to the analysis matrix.
In the analysis matrix, each alternative is listed and ranked against each criterion,and the rank and weight of each constraint are multiplied and totaled. Thealternatives are then scored for recommended implementation. No alternatives areconsidered that do not meet minimum criteria. For example, if a car does not meetminimum safety requirements, it is dropped from the evaluation. An example of this method is shown in figures 7.1 and 7.2
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7.1.4 Simplified Idea Rating/Ranking System (SIRRS). SIRRS is anevaluation method that uses a two-component point approach to evaluate eachidea. The scoring categories reflect two inputs. One is an indication of the interestand potential for implementation by the designer, program personnel, and user
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(D/P/U). The other is an indication of potential cost impact by the VE study team.The two groups are given five points to distribute for each idea being ranked. Aconsensus must be arrived at by each group. For the D/P/U team, a 0 point scorewould represent a recommendation to not evaluate the idea. For the VE team, a 0 point score is given to an idea with a negative or very limited cost impact. Ideaswith zero cost impact points may be considered as value-added options, and may be the result of a program oversight, design improvement, or safety issue. Each
idea is evaluated, points assigned by the two groups are added, and a total isrecorded for each idea. With the five-point system a score of 10-points representsa highly desirable (by the D/P/U group) concept resulting in potentially greater than 10 percent savings. The VE study team can then enter the development phaseof the study with a list if ideas that rate 10-points, 9-points, 8-points, and so on.Ideas that have the same total points (D/P/U + VE Study team) are prioritized based on the D/P/U input.
7.2 Opportunities and Cautions Idea evaluation at this stage of the process issolely a time management tool. The finite development time available to the team
should be optimized by emphasizing those ideas with the greatest impact on the project, and/or the greatest likelihood of eventual acceptance. The evaluationdoes not imply that the user agency, designer or others will ultimately find theidea acceptable, only that the idea is worthy of further evaluation/development.
It is important that no single evaluator dominate the evaluation process. Each participant should be allowed the opportunity to freely discuss the idea. Also,idea modification at this time is encouraged, particularly as the modificationsrelate to mitigating the disadvantages associated with ideas. Free-wheelingdiscussion at this stage of the study assists the team by providing a more completeunderstanding of the concerns and parameters used by the group in ultimatelydetermining the outcome on a given idea. Often, this discussion is more usefulthan the final points determination. On complex ideas, the discussion may changethe ranking three – four times, this is not only tolerated, but encouraged.However, care should be taken to end the discussion at a point in time, as the goalis time management, it is imprudent to extend discussion beyond that necessary to
evaluate the idea.
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8.2.2 Time Value of Money .................................................................. 8-58.2.3 Opportunity Cost of Capital.........................................................8-58.2.4 Discount Rate...............................................................................8-58.2.5 Analysis Period ............................................................................8-58.2.6 Conducting the Discounted Cash Flow Analysis ........................8-6
Figure 10.1 - Discount Formulas for Life Cycle Analysis ..................... 8-7
8.2.7 Sensitivity Analysis......................................................................8-7 8.3 Conducting the Present Worth Analysis................................... 8-8
Life cycle cost analysis (LCC) is a means of assessing the overall total cost of Ownership for facilities. The purpose of life cycle cost analysis is to predict theoverall cost of a project and refine the design to ensure the facility will providethe lowest overall cost of Ownership consistent with the quality and function of the facility. The total life cycle cost of a facility is inclusive of (1) the initialcosts; (2) the operating costs for energy, water and other utilities, and personnel;(3) maintenance, repair and replacement costs.
All facilities have an initial cost component. The initial cost is comprised of thecosts for new design and construction or renovation, land acquisition costs and
the costs associated with furnishing the facility for its intended occupancy.Construction costs are determined in a number of ways. The most accurate is toawait facility completion and total the costs for all contractor construction. As the purpose of life cycle cost analysis is predictive, initial costs for construction must be estimated early, and throughout the design process. Parametric or historicalcost based estimates are used at the planning phase to set the initial facility budget. Detailed estimates are prepared as the design progresses from conceptualdesign through construction documents to completion. Land acquisition costs aretypically included in the facility initial costs for real estate life cycle analysis, particularly when comparing the renovation of an existing facility with newconstruction on purchased land. Furniture, fixtures and Equipment (FF&E) are
those items that are not attached to the facility.
Operating costs for a facility are often difficult to accurately predict in the design phase of a project. Assumptions are made on operating hours, occupancy andFF&E use levels, all of which impact the operating costs. Additionally, predictions are made as to future energy costs and utilities rates. However, tocompare alternative facility designs, absolute determination of operating costs isnot necessary. More important are the relative costs between facilities. For relative cost comparison as part of value engineering, it is only important toassess the difference specific design initiatives (i.e., Day lighting and NaturalVentilation) make in the operating costs of one facility in comparison with
another.
Maintenance, repair and replacement costs form the third component of the LifeCycle Cost triumvirate. Determining these costs is based on statistical averagesand great variation between the actual facility costs and the predictive averages isto be expected. Fortunately, the relative costs and not the absolute costs of facilities are of interest in life cycle cost analysis. Maintenance costs and repair
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costs are associated with the routine repair of systems, subsystems andcomponents and are not inclusive of unusual occurrences.
8.1 Performance Goals. Owner’s goal is to create facilities with the lowest
overall cost of Ownership for the economic life of those facilities. A lifeexpectancy of thirty years is determined based on the monetary depreciation of building systems and is not directly related to the actual life of facilitycomponents (which often last for centuries). Because some facility systems mayhave a life more in the range of fifty or even seventy-five years, it may prove beneficial to consider a life of fifty years for some systems when performing ananalysis.
The lowest overall cost of Ownership is determined by comparing alternativesystems and subsystems for the major systems and subsystems likely to contributemost to the facility life cycle cost.
8.2 Fundamentals of Life Cycle Cost Analysis
Life cycle costing (LCC) is the process of making an economic assessment of an
item, sub-system, system, or facility by considering total costs of Ownership
over an economic life, expressed in terms of equivalent costs. The essence of LCC is the analysis of equivalent costs of various alternative proposals. LCC isused to compare proposals by identifying and assessing economic impacts over the design life of each alternative.
In the decision-making process both present and future costs are taken intoaccount and related to one another. LCC techniques should also be used when
undertaking cost-effectiveness studies and cost-to-benefit analysis.
Given the definition of Value Engineering, LCC is as fundamental to the VE process as function analysis. When performing an LCC analysis, there are seven parameters that form the basis of life cycle cost methodology. They are the1) Estimated Costs,2) Time Value of Money,3) Opportunity Cost of Capital,4) Discount Rate,5) Analysis Period,6) Discounted Cash Flow Analysis, and7) Sensitivity Analysis.
8.2.1 Estimated Costs. The estimated costs are the estimated Initial Costs(design and construction, etc.), Operating Costs (energy), Maintenance Costs(cleaning, preventive maintenance, etc.), Replacement Costs, Financing Costs,and Salvage Values.
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8.2.1.1 Assessing Initial Costs. At the conceptual design stage, initial constructioncosts may be determined using historical cost references to construction costrecords for similar facility types. Alternately, construction costs may bedetermined using the parametric models contained in the National Institute of Building Sciences (NIBS) Construction Criteria Base (CCB) CD ROM or fromthe NIBS web site at http://www.nibs.org/ccb. The models were developed for military and non-military projects by determining the cost driving parameters
(i.e., space classifications, number of floors, area and volume, perimeter length)representative facilities and relating those parameters through algorithms(algebraic formulas) to building systems, subsystems and assemblies. Runningthe models after making alternative selections may readily compare alternativesystems and subsystems (assemblies).
Cost estimates are prepared by the design A/E and or the Owner at the submittalstages of design and are either design parameter or quantity take-off basedestimates, depending upon the stage of design. For the value engineering effort,the cost estimate forms the basis for cost analyses in conjunction with proposaldevelopment. Detailed estimates rely on cost databases such as the Commercial
Unit Price Book (C-UPB) available or the R.S. Means Construction CostDatabase for the base labor, equipment and material costs associated with a building component. These costs are adjusted using Location Factors to reflectthe costs particular to a geographic area. Mark-Ups (i.e., overhead; profit) andTaxes are applied to the detailed line items to develop the completed estimate.The value engineering team estimator will refer to these same databases and usethe same mark-ups in developing the alternatives cost estimates. The UniformatWork Breakdown Structure categorizes the work and enables the estimators toreadily assess project costs by system and subsystem (and in the case of Repair and Alterations projects, by Work Item).
8.2.1.2 Determining Operating Costs. Energy costs are, arguably, the most easilydetermined of the operating costs. The emphasis on energy conservation and therequirements for optimized equipment selections have lead to a number of toolsfor determining the projected annual energy consumption of a given facility.Additionally, historical usage for similar facility types in a geographic area may be applied to a new facility if the facilities are similar.
Energy cost analyses should be holistic analysis of the entire project when possible. This holistic effect reflects the synergistic effect of one buildingelement on another. For example, when evaluating lighting alternatives, thecomplete analysis will include (1) the daylighting impact on electrical lampusage, (2) the impact on the heating ventilation and air conditioning (HVAC)system, and the difference between the fixture types and placement.Unfortunately, in the limited time available to the VE team, this comprehensiveanalysis is often unfeasible. It many instances to help alleviate this, it would prove beneficial to have, as VE Team member, a representative of the BuildingManagers office. The team will, however, be able to assess the impacts in arelative sense, and should do so when making their analysis. For example,
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increasing the daylighting features by 30% and installing photocell controls for interior fixtures might reduce electrical consumption by a conservative 5-10%(even considering the increased load on HVAC systems).
Assessing personnel productivity gains or losses due to selecting alternativestrategies may be determined on a case by case basis. While documented studieshave proven the reduced absenteeism and increased productivity of sustainable
design features, care should be taken when extrapolating those results to everyfacility. In the VE arena, productivity gains should only be considered when thealternative results in the elimination of staff position and then only when the position is created as a direct result of the original design.
8.2.1.3 Determining Maintenance/Repair/Replacement (MRR) Costs. Referenceguides and databases (i.e., Whitestone Building Maintenance and Repair CostReference) give projected annualized costs for building systems and elements.Historical references (i.e., BOMA Experience Exchange Report from the BuildingOwners and Managers Association (BOMA) give overall facility average costsfor maintenance and repair costs. Projected systems lives are contained in
manufacturer literature, or the CSI sponsored Architects First Source at or, in thecase of classic building materials and systems, may be determined empirically bycomparing experiences with built facilities. Testing firms such as AmericanSociety of Testing Materials (ASTM) and trade associations have reference datafor materials and products they test or represent, respectively.
8.2.1.4 Calculating Facility Costs. Determine the level of detail desired. At theearly stages of design, parametric estimating models and/or historical costreferences are generally adequate for estimating initial costs. Likewise,operating, maintenance and repair cost savings may be solely based onengineering judgment/rules of thumb for the project's geographic location and thealternatives under consideration. Increasing the estimate level of detail as the project progresses is typical, with the final estimate as the ultimate projection of project costs.
As the goal of life cycle cost estimating is comparative estimates of alternativedesigns, an approach is to create comprehensive estimates for initial and operatingcosts and exception estimates for repair, maintenance and replacement costs. For example, two alternatives with the same exterior wall systems but dissimilar roofsneed complete initial cost estimates as the framing of the roof (and hence thesupports) may differ.
The operating costs for energy may also differ as roof area and design have alarge impact on energy use. The maintenance, repair and replacement costs between the two designs may be equal except for the costs associated with theroof surface materials. A historical based or average cost may be used for theoverall facility MRR costs. The alternative roof Maintenance/Repair/Replacement
(MRR) cost for each design is added to the average for comparison purposes.
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8.2.2 Time Value of Money. The two factors that attribute to the time value of money are the rate of return and the rate of inflation. The rate of return is theamount of money earned from the use of capital. Interest on a savings accountillustrates the rate of return. The complexity of the determination variesdepending on the length of time considered for the investment.
Inflation is the general increase in prices over time. In inflationary times, the
present dollar’s purchasing power is greater than that of a future dollar.Unfortunately, accurate inflation rates over time are not easily predicted. This isespecially true when considering that many of the LCC analyses performed on atypical facility extend for periods of thirty to fifty years. Additionally, inflation inthe construction market will more than likely be different than inflation in theconsumer market, thereby increasing the difficulty. There is also the possibility of having to consider different escalation rates for different operating & MRR components of the analysis. An example of this is the energy costs with anescalation rate typically higher than that of other LCC elements.
Economic analysis can be performed by considering either “constant” or
“current” dollars. Constant dollars are expressed in terms of the purchasing power of the dollar in the base year; both inflation and the time value of money arereflected through the use of a discount rate. Current dollars are expressed in termsof actual prices each year, including inflation; present or future value of currentdollars is determined using the time value of money rather than a discount rate.Because of the uncertainty in calculating escalation rates beyond six years, onlydifferential inflation on future costs of alternatives requires identification. For that
reason, as stated earlier, constant dollar analyses are recommended.
8.2.3 Opportunity Cost of Capital. Opportunity cost is the foregoneopportunity for an expected rate of return on capital when that capital servesanother purposes. In other words, if Owner continued paying lease payments ILOfunding a newly constructed office building was postponed, the lost potentialsavings represents the opportunity cost.
8.2.4 Discount Rate. Use the discount rate as a means to compare alternativeuses of funds by reducing the future expected costs or benefits to present dayterms. Discount rates reduce costs or benefits to their present worth or annualizedcosts. The economics of the alternatives can then be compared.
8.2.5 Analysis Period. The final component that should be established before performing an LCC analysis is to select or determine an appropriate time period
for comparing alternatives. This, of course, is dependent upon what your analysisis for. During a VE study, you will expose the need to analyze everything fromthe monthly energy consumption to the 5-year cycle of interior painting. For a breakdown of sub-systems and components, and the associated task frequencies,see Figure 10.2.1.
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8.2.6 Conducting the Discounted Cash Flow Analysis. Three analysisoptions exist, present worth, annualized, and rate of return. The first two are the primary economic methods. Because the rate of return method requires moreeffort and calculations, this method does not have general support.
The present worth method is an economic method that involves the conversion of all of the present and future expenses to a base of today’s costs. The present worth
of some planned future expenditure is equivalent to the amount of money thatwould need to be invested now at a given compound interest rate for the originalinvestment plus interest to equal the expected cost at the time it is needed. Thisallows the comparison of alternatives having outlays at different points in their lives on an equal basis. The disadvantage in the use of the present worth methodis that the method can only be used to compare alternatives with equal analysis periods.
The annualized method converts present and future expenditures to a uniformannual cost, resulting in a common base of a uniform annual cost by convertinginitial, recurring and non-recurring costs into annual payments.
To compute the LCC of a building or building system, all relevant cash flows inrelative analysis periods are discounted to a common point and summed.
To simplify the process of summing all data and the applicable equations, thereare compound interest factor tables available in most engineering economy andlife cycle costing texts. A breakdown of the various formulas and the associatedcompound interest factors is shown in Figure 8.1 below.
Equation Name Application Algebraic Form Factor
Single compound amount To find F when P is known F/P = (1 + i) n (F/P, i%, n)
Single present value To find P when F is known P/F = (1 + I) –n (P/F, i%, n)
Uniform sinking fund To find A when F is known A/F = i / (1 + I) n - 1 (A/F, i%, n)
Uniform capital recovery To find A when P is known A/P = (i (1 + i) n ) / ((1 + i) n - 1) (A/P, i%, n)
Uniform compound amount To find F when A is known F/A = ((1 + i) n -1) / i (F/A, i%, n)
Uniform present value To find P when A is known P/A = ((1 + i) n -1) / (i (1 + i) n ) (P/A, i%, n)
where:
i is the interest or discount rate (decimal fraction) per accounting period.
n is the number of accounting periods from 0, there may be several n's.
P is a Present Value at time 0, may be positive or negative.
F is a Future Value at a time n, may be positive or negative.A is a uniform amount per period for n periods, may be positive or negative.
Figure 8.1: Discount Formulas
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8.2.7. Sensitivity Analysis Cost and benefit variables, including discount rates,analysis period, and the costs of various factors including maintenance and user costs related to specific projects have varying effects. Sensitivity is the relativeeffect that each variable may have on the choice of alternatives. Sensitivityanalysis tests the effects of variations in the accuracy of the variables. Project risk may also be identified.
Sensitivity analysis has two purposes, to determine how sensitive the outputsfrom the life cycle cost analysis are to variations in certain inputs and to evaluatethe risk and uncertainty related to a selected alternative. The designer can thendetermine the probability of making the wrong choice or selecting the wrongalternative. The analysis provides the greatest benefit when the difference between alternatives is not very great. In the course of the value engineeringeffort, the sensitivity of a life cycle cost analysis may be performed by conductingmultiple parallel analyses, changing one variable in each to reflect best case,worse case or most likely conditions. Due to study time limitations, only onevariable is likely to be reviewed in this manner, hence, care should be taken inselecting the variable most likely to change (i.e., re-painting frequency)
8.3. Conducting the Present Worth Analysis. After estimating all
constant dollar cost, determine the discount rate for computing the present worthof the future cost components (operating and MRR costs).
Engineering analysis tables provide the present worth factors for specific yearsand for the total of years under analysis (See Figure 10.2 Sample Present WorthFactor Table).
Determine the period of the costs. Operating and Maintenance costs areannualized costs while Repair and Replacement costs are periodic and are appliedin the years they occur. For recurring periodic costs (i.e., every two, five or . . .years) the present worth factors may be summed and applied en masse against therecurring cost. (See Figures 8.2.1 & 8.2.2, for Typical Component M&R Task Frequencies).
Enter the information into the analysis format. Life cycle cost analysis worksheetsare spreadsheet based and are adequate for simplified analysis. A typical
worksheet used in value engineering proposal development is shown in Figure8.3.
More complex analysis requires the use of dedicated computer programs and is beyond the typical scope of the value engineering effort. The Life Cycle Cost inDesign (LCCID) program developed by the University of Illinois-Urbana for theCorps of Engineers and DOE2, developed for the Department of Energy, for example, conducts the analysis based on user input parameters.
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8.3 Opportunities and Cautions Even simplified life cycle cost analysis at the preliminary design phases may be used to set the overall direction of a design and prevent costly and timely redesign later. Assessing the overall life cycle costs asdesign decisions are made on specific components ensures that a seeminglyinnocuous design decision does not have an adverse affect on the overall facilitylife cycle costs. Life cycle cost analysis assumes that dollars are available for
investment to cover the costs of future expenditures and that money saved over time is available to pay back the original investment.
The analysis results are valid for comparing alternatives and should not be used asa predictor of future actual expenditures or savings. Care must be taken to ensurethe values selected are fair and reasonable, avoid selecting cost and/or time valuesthat skew the analysis toward a desired result. Energy rates negotiated for federalfacilities may be lower than open market rates in the geographic area. In somecases, otherwise valid ideas may not achieve favorable Savings to InvestmentRatios (SIR) for the analysis period. Avoid relying on previous analyses whenstudying different facility types or facilities in different climatic/geographic
regions. Most sustainable design strategies are very sensitive to local conditions.
