FAQs on Value Engineering

March 1, 2022

Shashank Vaidya - Director

Value Engineering is a phrase tossed around lightly in our industry. It is an approach taken to analyse and affect a system or a project so as to provide the necessary function that it is intended to produce at the lowest cost. Since this activity has direct commercial impact, it is requested very often during the engagement of our advisory services. However, this is done without paying much attention towards what it truly implies or towards the environment needed to achieve it. The gap in understanding of this concept is also evident during workshops on Value Engineering. This brief note is an attempt to bring into focus some common questions and misconceptions related to this practice.

Ans: Cost reduction is concerned with cost, which is only one amongst many objectives of VE. Value of a product or service is the ratio of function to cost. Value can be enhanced by enhancing functionality while keeping the cost same or reducing the cost or allowing the cost to increase but at a lower rate than increase in the functionality. Thus VE need not necessarily result in cost reduction, as long as the ratio of functionality to cost goes up.

Ans: There is really no straight answer to this. Like most industries, construction industry also comprises of organizations and engineers with widely varying mindset and attitudes towards VE. There are many developers in the real estate sector who have implemented a process of VE within their organizations. Many owners now seek VE inputs from consultants. In the final analysis, acceptance of VE can be examined at two levels; (1) acceptance of VE as a concept and (2) acceptance of a specific VE proposal. VE as a concept is widely accepted whereas acceptance of specific VE proposal depends on the merit of the proposal. However, we have also come across cases where seemingly sound VE proposals were rejected not on the merit of the case, but due to the fear that acceptance of VE will be taken as failure or mistake of the person who accepted the initial scheme.

Ans: It has been established that VE efforts are most effective when they are considered at early stage of a project. With passage of time, greater detailing of designs, award of contracts and starting construction, the cost of VE keep going up and the benefits keep going down. At some point, the cost of VE outstrips its benefit. While it is not easy to pin point this tipping point, it occurs sometimes in during the detailed design stage (before start of construction). It is advisable to put a stop to VE at this stage and only ideas that have massive benefits should be allowed to be examined as VE.

Ans: Effective VE requires three things. One is to have thorough technical knowledge of the subject including codal provisions, second a need to improve from the baseline, and third creativity. Nonfulfillment of any one of these requirements may result in either no VE or impractical or non-compliant suggestions.

Ans: Innovation is defined as a new idea, or more-effective device or process. Innovation can be viewed as the application of better solutions that meet new requirements, unarticulated needs, or existing market needs. This may be accomplished through more effective products, processes, services, technologies, or business models that are readily available to markets, governments and society. The term “innovation” can be defined as something original and more effective and, as a consequence, that “breaks into” the market or society. Innovation is a more generic term than Value Engineering. Innovation can be in the context of an organization, industry or society. On the other hand VE is more specific to a project or to a situation at hand. VE often requires innovative ideas to be applied to the current situation or a problem but that may not always be applicable.

Ans: Time, Cost and Quality are critical and vast aspects of any project and surely the words ‘limited’ is not justified in this sense. Apart from these aspects, VE may also involve improving safety, productivity, and functionality among others.

Ans: The sooner the better. However, VE cannot be done without the baseline being ready. In rare cases, VE can be done at the construction stage also, provided it has significant benefits, low risk and will not disrupt any activity on critical path.

Ans: Doing anything new or for the first time always entails some risks. Risk-taking is an essential condition for successful innovations. However, risk taking does not mean doing this blindly. Before acceptance of any VE proposal or innovation, a formal risk assessment should be carried out and a risk mitigation strategy worked out. This should be a part of every major VE proposal that is submitted for management approval.