Planning Projects to Meet Functional and Economic Criteria of Facilities
Your dream project can become a nightmare if it is not planned and budgeted properly. Before committing substantial funds and resources to a major facility development or operations improvement project, a thorough analysis and documentation of the requirements, priorities, options and costs is necessary. Failure to examine such issues carefully can lead to costly delays and budget overruns, inefficient use of resources (financial, human, environmental, etc.), underperforming facility assets, disputes and even litigation.
Proper planning and programming of projects is vital to making sound decisions and maintaining the financial health of organizations. Facility managers are responsible for writing clear, concise, correct and complete performance requirements for projects, including objectives, general scope of work, timelines, and budgets. The program requirements become the basis of contracts with professional design consultants, suppliers and contractors, preparation of early cost estimates and measuring project effectiveness.
Value engineering: an effective method for programming projects
It is incumbent upon facility managers to develop plans to maximize value and minimize costs. Facility managers can introduce positive change in their organizations and develop substantial savings by using the value engineering method to analyze operations and program projects. Value engineering, sometimes called value analysis or value management, is a systematic team method to analyze the functions of a project, process, product, or service, establish the worth of those functions and provide the required functions at the lowest overall cost without loss of performance.
The value engineering method was developed by Larry Miles during the World War 2 era at General Electric Co. while he was working in the purchasing department. He was frustrated because the parts and products that GE needed to fulfill manufacturing contracts were costly or impossible to obtain because of the war. He asked two simple questions: What does the product do and what else will do the job? He soon discovered that by specifying performance requirements in terms of functions, rather than the actual product or part, GE was able to meet its contractual requirements at reduced cost and oftentimes at improved performance.
The use of value engineering spread throughout manufacturing, construction and government as a project programming and cost management tool. However, application of the value engineering method became less popular in the United States over the years as organizations were able to make money in spite of their inefficiencies. Today there is a renewed interest in value engineering worldwide as organizations are searching aggressively for ways to survive and compete in our increasingly resource-constrained global business environment. Facility managers should seriously consider making value engineering a core competency and standard practice within their organizations. Value engineering provides a way to accomplish more with less and expedites consensus decision making necessary to exploit changes as profitable business opportunities.
Cost/benefit analyses
Periodic value engineering studies on buildings, systems and operations are necessary to insure that they are designed, constructed, operated and maintained in the most economical way, taking into consideration functional requirements and life-cycle costs. The approach is to examine the processes, systems and components that require the greatest expenditures, to challenge the costs and functions, and compare them with alternatives on a cost/benefit basis.
People know the price of something when they make a purchase but they seldom know its value. Determining the value of something involves a comparison of what else will do the job. Value is the lowest cost way to perform the functions required by customers. Problems are understood best when they are broken down into their various functions and components. Define the functions of the value study subject and develop the parts or tasks required to accomplish the functions, or list the parts or tasks of the value study subject and then identify the associated functions.
Good cost data is essential in any meaningful value study. Areas that represent the highest life-cycle costs are the best candidates for value engineering savings opportunities. Pareto’s Law of Distribution states that 80 percent of the items tend to represent 20 percent of the costs of a project, product, system or service. Prepare an itemized breakdown of the costs that make up the subject being studied and locate the high cost areas for value study using Pareto’s Law. Distribution of costs to functions helps customers understand how their money is being spent.
Value engineering is a rigorous process that is accomplished by following the steps in each phase of the standard value engineering study job plan:
The Value Engineering Job Plan
- Phase 1: Information Gathering
- Define the problem
- Collect data
- Select subject for study
- Conduct customer attitude survey
- Create a cost model
- Phase 2: Function Analysis
- Identify and classify functions
- Determine function costs
- Prepare a F.A.S.T. diagram
- Allocate costs to functions
- Apply Pareto’s Law
- Identify value mismatches
- Phase 3: Creativity
- Generate alternative solutions
- Brainstorm ideas
- Phase 4: Evaluation
- Evaluate ideas
- Apply life-cycle cost analysis
- Phase 5: Development
- Develop the best alternatives
- Phase 6: Presentation
- Presentation recommendations for
consideration by top management
- Presentation recommendations for
Information gathering and function analysis
During the information phase, cost data is collected along with sufficient information needed to understand the customers’ problems, attitudes, needs and priorities. Customers have a tendency to want more than they can afford from their facility investments so it becomes necessary to separate needs from wants.
Next, during the function analysis phase, the value study team identifies, classifies and analyzes functions within the scope of the value study. Function analysis is the characteristic which most clearly differentiates value engineering from conventional cost reduction methods. Functions describe required performance actions without describing specifically how each function is performed. Identifying performance requirements in terms of functions frees one’s mind from all restrictions associated with the original product, system or service and thus has the potential of stimulating many different ideas for solving the customer problems. Function descriptions should be as broad and generic as possible to help foster ideas for satisfying customer requirements.
A fundamental rule of value engineering is that all functions must be described using two-word verb-noun combinations. For example, during a value study of facility operations, costs for material, labor, equipment and utilities are identified and translated in terms of functions. Examples of facility functions might include manage projects, adjust capacity, maintain facilities, safeguard occupants, control environment, illuminate space, conserve energy, assure convenience, enhance image and dispose waste. Some functions like assure convenience or enhance image might not be essential for a product, system, or service to work but they increase customer acceptance and help something sell.
Improving value versus reducing costs
Precisely defining the verb-noun requires a better understanding of what the customer wants and what the facility, service, product, or system must do for the customer. This is a radical departure from conventional cost reduction, which simply asks the question: what is it, and then concentrates on making the same item less expensive by asking how do we reduce its cost. Moreover, many people equate cost reduction with staff reductions and cannot be expected to be enthusiastic with a project to do that. Improving value is the concept behind value engineering. Value study results may even indicate that it is necessary to apply additional resources to those areas which are most critical to maximize customer value.
Analysis of those functions that make something work and sell also differentiates value engineering from traditional cost avoidance or cost reduction efforts. Value engineering helps businesses understand what functions the customer needs and is willing to pay for, and then uncovers new lower cost ways to satisfy those requirements. Projects, products, systems and services are justified by their ability to perform functions desired by the customer. During the function analysis phase the value engineering study team allocates actual costs to functions on an F.A.S.T. (Function Analysis System Technique) Diagram to graphically show functions and their relationships. Developing a F.A.S.T. diagram also aids in identifying missing functions and value mismatches. Value mismatches are high cost functions with low acceptance from the customers’ viewpoint.
Generating ideas, evaluating ideas and developing solutions
During the creativity phase, brainstorming techniques are used to generate alternative lower cost ways to satisfy customer requirements. The ideas generated during the creativity session are ranked according to their feasibility, cost and probability of being accepted by the customer during the evaluation phase. Ultimately the ideas that represent the best opportunities for value improvement are developed into a written report with recommendations and presented to the customer for consideration.
Value engineering is a powerful team method for defining customer, stakeholder and user requirements, developing project budgets, and demonstrating a cost avoidance effort. The process helps multidisciplinary teams build a shared understanding of the functions of a subject under study and their associated costs and worth before products, systems and methods are selected, and locked into the project specifications. Value engineering can be performed anytime it is profitable to do so. However, costs saving opportunities are greatest when a value study is performed in the planning and conceptual phase when the scope rather than details of a project are being defined.
Richard Sievert, Ph.D., CFM, PMP, CVS-Life, CCC has more than 25 years of experience as president of The Sievert Group, Inc., a training and consulting firm that provides services in value management, project management and facilities planning. As a professor at Drexel University, Sievert prepares students for SAVE International certification as associate value specialists. He is author of “Total Productive Facilities Management” published by R. S. Means Company, Inc. For more information he can be reached at rsievert@sievertgroup.com.
