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Appraisal of value engineering in construction in Southeast Asia

Charles Y.J. Cheah a,*, Seng Kiong Ting b,1

a School of Civil and Environmental Engineering, Nanyang Technological University, Block N1, #01b-35, 50 Nanyang Avenue, 639798, Singaporeb School of Civil and Environmental Engineering, Nanyang Technological University, Block N1, CACS-B1b-07, 50 Nanyang Avenue, 639798, Singapore

Received 31 July 2003; received in revised form 9 January 2004; accepted 27 July 2004

Abstract

The concept of value engineering has existed for more than half a century. Its application in construction is credited with some

success notably in public contracts in the United States. Nevertheless, value engineering is rarely applied in the Southeast Asian

construction industry. A survey among industrial practitioners has been conducted to identify possible causes for the dire status.

Generally, there is a lack of understanding in value engineering concepts among industrial practitioners and it is important for

the government to take the lead in promoting value engineering practices in domestic projects. Moreover, the scope of value engi-

neering can be broadened to address corporate-level systems and initiatives.

2004 Elsevier Ltd and IPMA. All rights reserved.

Keywords: Construction value system; Corporate-level initiatives, Target costing; Value engineering

1. Introduction

The origin of value engineering (VE) can be traced

back to the days of World War II when there was a

material shortage problem in the manufacturing sector

due to an increased consumption for war purposes.

Lawrence D. Miles, an electrical engineer who was then

assigned to the purchasing department of General Elec-

tric (GE), started finding ways to alleviate the material

shortage problem in GEs production. To accommodate

the constraint, he focused on functions that a product

was meant to perform and experimented with alterna-

tives to achieve the same functions without compromises

in quality. Although the main emphasis was not costreduction, this came as a by-product. Initially named

as value analysis by Miles himself, the program was de-

signed to improve value without sacrificing intended

functions on purpose [1]. This basic premise still under-

pins todays concepts of value analysis, value engineer-ing and value management.

The value analysis technique was subsequently intro-

duced into construction by the US Navy and the Army

Corps of Engineers circa 1963 through the adoption of

incentive provisions and sharing clauses in construction

contracts [2]. Over a short period, other public agencies

in the US, such as the Department of Transportation

and the General Services Administration, followed suit.

Outside the US, value engineering practices and applica-

tions were introduced in Japan, Italy, Australia and

Canada all during the 1970s. Construction-oriented

value engineers were also found in India, South Africa,England, France, Sweden and Germany [3]. Successful

applications had been reported in many cases of con-

struction projects [4]. Over time, the subject of VE em-

braced other tools such as the job plan, the Functional

Analysis Systems Technique (FAST), and even methods

to nurture creative thinking (e.g., the Delphi Method).

The legacy of Miles lives on when he is now widely

regarded as the inventor of VE. One might also observe

that VE has been developed and applied in various

0263-7863/$30.00 2004 Elsevier Ltd and IPMA. All rights reserved.

doi:10.1016/j.ijproman.2004.07.008

* Corresponding author. Tel.: +65 6790 5267/4916; fax: +65 6791

0676.

E-mail addresses: [email protected] (C.Y.J. Cheah), cskting@

ntu.edu.sg (S.K. Ting).1 Tel.: +65 6790 4916; fax: +65 6791 0676

www.elsevier.com/locate/ijproman

International Journal of Project Management 23 (2005) 151158

INTERNATIONAL JOURNAL OF

PROJECTMANAGEMENT
mailto:[email protected]:cskting@mailto:cskting@mailto:[email protected]

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forms to cater for different industrial contexts. The gen-

eric nature of VE makes it applicable to many types of

projects ranging from buildings to water treatment

works. Moreover, it is also suggested (at a later part

of this paper) that the prospects of implementing VE

in the corporate and systemic contexts are bright. In

many ways, the inquiry of key functions furnished bya product or service system and the search for alterna-

tive solutions beyond mere cost cutting remain central

to these different forms of implementation. The list of

advantages often extends beyond functional improve-

ments, cost reduction and creative solutions, since

implementation of VE potentially leads to more effective

teamwork and improved communication among

stakeholders.

2. The outlook of VE in Southeast Asia

While the picture is generally more positive else-

where, concepts and applications of value engineering

do not seem to be well embraced by the Southeast Asian

(SEA) construction industry. In Japan, the birth of VE

programs was marked by the visit of a Japanese delegate

to the Society of American Value Engineers (SAVE) in

1965 [1]. The active presence of large Japanese contrac-

tors in SEA since the 1970s did not subsequently lead to

a smooth introduction of VE to the region. One possible

reason was a lack of knowledge transfer when local SEA

subcontractors might have been excluded from the VE

programs. Similarly, despite VEs presence in proximate

countries such as Hong Kong and Australia, the SEAregion remains devoid of VE knowledge and practices.

This is also indicated by the worldwide locations of

the local chapters of SAVE International (formerly

SAVE), whereby SEA local chapters are nowhere to

be found. While Hong Kong has set up the Hong Kong

Institute of Value Management (HKIVM) since 1995 to

promote awareness and establish standards of value

management in the city, similar efforts cannot be seen

in Singapore, for example.

The objective of the study outlined in this paper is to

identify causes leading to limited VE application in SEA

and highlight the real concerns among industrial practi-

tioners. Findings from the study would help to structure

future directions and also provide additional insights for

other countries which are facing similar problems in

promoting VE practices in their local construction sec-

tors. It is realized that distinctions do exist between value

engineering, value analysis and value management

as defined by the British Standards [5,6]. Rightfully, va-

lue management is a style of management applied at the

corporate level while value analysis/engineering con-

cerns application of tools and methods at the opera-

tional level (project-oriented activities). Still, the

context of this paper focuses on more general issues of

VE application and such distinctions are less critical.

For the sake of simplicity, only VE is referred through-

out the paper.

3. Data collection and research methodology

A questionnaire survey was conducted among 54

industrial practitioners who were attending a module

in value engineering at the Nanyang Technological Uni-

versity, Singapore. The module was only one component

of a part-time Masters degree program in international

construction management catered for working profes-

sionals. It is important to note that since this was a com-

pulsory module, participation in the survey did not

necessarily imply a bias of interest or knowledge in the

VE topic. In addition, these participants came from a di-

verse background (see Table 1), with their industrial

experience ranging from 1 year to over 20 years. Based

on these facts, it is believed that the sample is reasonably

random. Effectively, a 100% response rate is gathered.

The survey is very similar in nature to the one conducted

by Fong and Shen [7] to study the outlook of VE in

Hong Kong.

With the module spanning five sessions, the timing of

the survey had to be carefully planned in consideration

of two factors:

1. From the authors experience, it is expected that some

participants have either limited knowledge or some

preliminary misconceptions about VE. Such miscon-

ceptions need to be clarified before seeking therespondents views about the future prospects of VE.

2. To preserve the participants independent judgment

and exclude potential influence by either their peers

or the course instructor, the survey had to be con-

ducted prior to the final discussion session.

In view of these two factors, the survey was con-

ducted right after the basic concepts and the methodol-

ogy of VE were introduced. Subsequently, the survey

results were collated and presented in the final session

of the module so that further clarifications can be sought

to explore possible explanations for the findings.

Table 1

Respondents background/nature of their employing firms

Respondents background/nature of employing firms Number

Contractors 29

Designers/consultants 11

Owners/developers/government agencies 5

Facility operators/managers 3

Suppliers and others 6

Total 54

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One additional noteworthy fact is that many of these

participants came from other Southeast Asian countries

such as Malaysia and Myanmar. The employing organ-

izations of some of them have projects and businesses

not just in Singapore but also in other neighboring

countries. Furthermore, it is not unreasonable to con-

sider the nature of the construction industry in this re-gion to be largely homogeneous. In view of all these

factors, findings gathered from the survey can be consid-

ered as indicative of the general situation in Southeast

Asia. The following section discusses the primary results

of the survey following the outline of the original

questionnaire.

4. Details of survey findings

4.1. Respondents prior knowledge about VE

To gather a better understanding about the back-

ground of the respondents, they were asked to comment

on how knowledgeable they are in VE prior to the

course. Table 2 effectively shows that 74% of them were

either lacking in knowledge or completely ignorant

about VE. Moreover, having now learnt about the var-

ious aspects of VE, 17% of them came to realize that

they had previously misconceived VE as just another

usual cost cutting exercise. Obviously, cost cutting is

not the entire story of VE, as the basic principle itself

calls for the provision of functionality in a reliable and

cost-effective manner [8]. In fact, as the terminology it-

self implies, the starting point of VE should be value,rather than cost.

The results did not come as a surprise since they were

consistent with two previous studies in 1994 and 1997

[9,10]. In those two studies, a total of five architects

and 17 engineers were interviewed and 75% of them

claimed that they had little experience or knowledge

about VE. Obviously, the outlook has not improved

over the years. The implications of these findings are

more than trivial considering the fact that most respond-

ents are experienced, practicing professionals in the con-

struction industry with at least a baccalaureate degree.

Apparently, the lack of knowledge and awareness about

VE is a major cause for its limited application in this

region.

4.2. Respondents opinion on the prospects of VE in

construction

This section focuses on both the prospects and limita-

tions of applying VE in construction.

First, the respondents were asked to comment on

whether they believed there is sufficient ground to apply

VE in construction. The picture portrayed by the

respondents was an encouraging one. As shown in Table

3, more than two-thirds of them felt positive about VEs

prospects in the construction industry. The others had

chosen to remain neutral, but none had expressed a pes-

simistic view on this issue.

Despite a positive belief in VEs prospects, it is also

important to identify the major impediments that might

hinder successful VE applications. Six options were

listed as follows and the respondents were asked to se-

lect those that they considered as major impediments:

Divided authority and decision-making process

among project stakeholders including owners, design-

ers, contractors, suppliers and others. Conflict of interests among the various parties (VE

may not create a winwin situation for all parties

concerned).

Lack of communication among the different

stakeholders.

Lack of time to implement especially when VE is

applied to a specific project rather than a more per-

manent production or management system.

Lack of knowledge/awareness about VE in the

industry.

Plain inapplicability of most VE principles in the con-

text of construction.

Respondents were also requested to specify any other

factors which they perceived as major but not listed in

the above. The findings for this issue are summarized

in Table 4.

In Table 4, the lack of time for VE implementation

factor is ranked as the most serious impediment, garner-

ing 65% of the respondents votes. This is closely fol-

lowed by the consensus that the lack of knowledge

about VE is indeed a main concern. Under the option

of Other Factors, one respondent commented that

some contractors are fearful of getting a lower profit

Table 2

Respondents prior knowledge about VE

Respondents prior

knowledge about VE

Number

(Percentage in brackets)

Quite knowledgeable 5 (9)

Thought that VE is just

another normal cost cutting exercise

9 (17)

He ard of, but not sure what it is 28 (52)

Never heard of 12 (22)

Table 3

Feedback on prospects and applicability of VE in construction

Respondents opinion

(voting for positive outlook)

Number of responses

(Percentage in brackets)

Strongly agree 11 (20)

Agree 26 (48)

Neutral 17 (32)

Somewhat disagree 0Disagree 0

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margin in the event of ineffective VE implementation.

This risk has discouraged greater commitment to adopt

VE in their operations. More importantly, most

respondents (91%) do not subscribe to the belief that

VE principles are simply inapplicable to the context of

construction if the responses were to indicate other-

wise, it would signal a structural concern that is hard

to overcome. This finding is thus consistent with the ear-

lier consensus in Table 3 which portrayed an encourag-

ing prospect of VE application in construction.

Generally, construction-oriented VE practices are

more prevalent in the US essentially due to its manda-

tory inclusions in larger federal projects under the fed-

eral procurement law. For Environmental Protection

Agency (EPA) projects, for example, the once voluntary

VE program was made mandatory in 1976. Similarly,VE has established a strong foothold in other countries

such as Japan, Canada, Australia and England through-

out the years. Compared to these countries, it is worth-

while to examine factors that may have prevented VE

practices from flourishing in the Southeast Asian region.

For this, the respondents are asked to select the most

dominant differentiating factors from the four options

listed below:

Cultural and operating factors in SEA are simply too

different from countries such as the US and Japan.

Lack of flexibility in contractual provisions to incor-

porate VE during the procurement process.

Lack of awareness or knowledge about VE in the

local/regional construction industry.

Lack of support from parties who have more author-

ity and clout, such as the government and the project

owners.

Again, respondents wererequested to specify any other

differentiating factors which are not listed in the above.

The findings for this issue are summarized in Table 5.

In Table 5, one of the two most dominant factors is

the lack of support from parties with more authority

to call for VEs implementation. The significance of flex-

ibility in contractual provisions is also evident in Table

5. This factor should not be overlooked during the ini-

tial selection of project delivery methods. In a past sur-

vey conducted by Yuen [11], respondents were asked to

select their choice of procurement systems, as shown in

Table 6. Obviously, integrated project delivery methods

such as Design&Build and Build-Operate-Transfer

(BOT) provide more flexibility to VE studies designersand contractors effectively belong to the same team un-

der these procurement methods. Consequently, frequent

communication and close ties exist between the two par-

ties. For the case of Hong Kong, Fong and Shen [7] also

arrived at a similar conclusion that strict distinctions be-

tween design and construction phases in traditional con-

tracting methods have caused confrontational attitudes

between design and construction teams, which are in

fact major obstacles to apply VE successfully.

Not surprisingly, the lack of awareness/knowledge

about VE continues to be a key problem. Table 5 was

also designed to hypothesize whether construction pro-

fessionals in SEA are hindered by local cultural and

operating factors in adapting to the unfamiliar VE

methodology imported from abroad. This factor does

not turn out to be a very major concern.

4.3. Respondents opinion on usefulness of various VE

concepts

The VE methodology is underpinned by various key

concepts and techniques, such as the job plan and the

Functional Analysis System Technique (FAST) dia-

gram. Over the years, new concepts have enriched the

Table 5

Possible causes for limited application of VE in Southeast Asia

Factors limiting application of

VE in Southeast Asia

Percentage of respondents

selecting each option

Lack of support from parties

with authority

61

Lack of flexibility in contractual

provisions

61

Lack of awareness or knowledge

about VE

59

Cultural and operating factors

differ from other regions

37

Table 6

Choices of procurement system to allow implementation of VE

Contract procurement system Percentage of respondents

selecting each choice

Traditional (De sign-Bid-Build) 9

Construction management 14

Design & Build 57

Build-Operate-Transfer 20

Source. Yuen [11].

Table 4

Major impediments to application of VE in construction

Impediments to apply VE

successfully in construction

Percentage of respondents


Lack of time to implement VE in

a project environment

65

Lack of knowledge about VE in

the construction industry

56

Conflict of interests among

project stakeholders

48

Lack of communication among

project stakeholders

43

Divided authority/segmented

decision making process

39

Plain inapplicability of VE

principles in construction

9


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knowledge field of VE. As previously mentioned, this

survey was timed so that the respondents had just been

exposed to these various concepts and techniques when

the survey was conducted. It would be interesting to

examine their fresh opinions on the usefulness of these

topics, especially for academician and course instructors

who are providing educational training services in thisarea. The respondents opinions are collated under Ta-

ble 7. The findings are generally clear, although a couple

of issues require further elaboration.

First, in many industries, the scope of VE is broader

than those applications found within construction which

focus primarily at project level implementation. For

example, VE may be applied to management and service

systems other than product and project systems [12].

Cooper and Slagmulder [13] related VE to target costing

and also proposed the combination of the two as a

bridging technique to increase collaboration with suppli-

ers. All these can be classified under VE issues in a cor-

porate context. Unfortunately, strong appreciation of

this topic was not reflected in this survey. Incidentally,

the few respondents who had selected this option be-

longed to senior management level they obviously

had a better perspective of corporate level issues.

Second, it is thought that VE could function as an

indirect tool to pursue other objectives, such as promot-

ing interdisciplinary teamwork, nurturing an innovative

culture within a firm, or even serving as a marketing

tool. This is in fact a grounded presumption a direct

analogy can be drawn from past research efforts in the

area of strategic planning. For example, Langley [14]

found that the process of strategic planning can be as

important as the outcome itself, whereby other goals

are achieved along the way when its execution is taking

place. However, a similar idea for VE was not well re-

ceived by the respondents in this survey.

4.4. Respondents opinion on future prospects of VE

The final group of questions focuses on the perceived

effectiveness of VE in elevating the status of construc-

tion in terms of four related aspects: (1) quality of

works; (2) new innovations; (3) profit margin of firms;

and (4) long-term competitiveness of firms. Respondents

were asked to judge with a prior assumption that the VE

methodology has been properly planned, structured and

implemented in each case. The findings are summarized

in Table 8.

In Table 8, a larger diversity of opinion is observed

for the first aspect (quality of works) as compared to

the others. In the post-survey session, when discussions

were open to the floor, some respondents expressed their

view that quality, although intrinsically linked to value,

is not the only concern in VE studies. In fact, other tech-

niques that specifically address quality issues such as

Total Quality Management (TQM), would be more

effective. Some have also commented that the lack of

time to implement VE in many cases (see Table 4) would

inevitably lead to a certain level of quality compromise.

A more uniform agreement was found for the second

and third aspects in Table 8. Consistent with Table 7,

which ranks creative thinking techniques as one of themost useful VE concepts, 80% of the respondents thought

that VE would help to promote new innovations in the

industry. For the third aspect, 72% sided with the belief

that VE is effective inimproving the profit margin offirms.

Overall, the general consensus seems to convey that VE is

a valuable concept that would help to elevate the status of

the industry. Responses gathered for the last aspect were

in line withthis conclusion, with85% statingthat VE helps

to promote a firms competitiveness in the long-run.

5. Other insights furnished by non-parametric statistics

Armed with the survey results, selective non-paramet-

ric statistical tests can be used to verify or refute

Table 7

Feedback on the usefulness of various VE concepts

Selected VE concepts Percentage of respondents


Functional analysis 63

Creative thinking techniques 59

Concept of Value 54

Job plan as a systematic

approach

52

Concept of cost 50

VE in the corporate context (e.g.,

target costing)

24

FAST diagram 22

VE as an indirect tool to serve

other purposes (e.g., marketing)

19

Enhancing scope of VE with

other disciplines (e.g., IT, economics)

11

Table 8

Effectiveness of VE in improving status of selected aspects

Se lec ted aspe cts Numbe r of re sponses (voting for strong effe ctiveness of VE)

Strongly agree Agree Neutral Somewhat disagree Disagree

Quality of works 11 20 20 2 1

New innovation 18 25 10 1 0

Profit margin of firms 16 23 14 0 1

Long-term competitiveness 24 22 6 1 1


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hypothesized relationships among a few factors. The

technique makes minimal assumptions about the under-

lying distribution of the sample data, unlike the case of

parametric studies. Furthermore, non-parametric meas-

ures of correlation are available for both categorical

(nominal scale) and ranked data (ordinal scale) [15],

which suit the characteristics of the data collected in thissurvey.

Hypothesis 1. Type of firms and frequency of applying

VE.

In Table 1, most respondents came from a contract-

ing background. One might suspect whether the survey

results would be distorted by the dominance of this

group of respondents. One way this could be reflected

is through the association between two parameters:

type of firms and frequency of VE application. If

contractors truly take a different stance as a group, this

could be manifested by their frequency in applying VE.

Table 9 shows the construction of a 2 2 contingency

table used to test this hypothesis. The classifications

along each axis are self-explanatory. Using the data in

Table 9, the Cramer coefficient C, which is a measure

of degree of association between two sets of attributes,

was computed as 0.255. This coefficient is not statisti-

cally different from zero at a = 0.05 significance level,

thus one cannot reject the null hypothesis that there is

indeed no relationship between the two sets of attri-

butes. It follows that organization types within the con-

struction value system do not seem to influence the

likelihood of VE application.

Hypothesis 2. Firm size and frequency of applying VE.

A similar test can be done to examine the relationship

between firm size and frequency of VE application.

It is logical to assume that larger firms would have more

resources, project opportunities and larger economies of

scale to implement VE. The measure of firm size can be

represented by the number of employees in the organiza-

tion as reported by the respondents. To ensure consist-

ency of results for the range of number of employees

reported, two separate tables were constructed for differ-

ent cutoff points (100 and 150 employees). The Cramer

coefficients were computed as 0.316 and 0.324, respec-

tively, and they are both statistically different from zero

at a = 0.05 significance level. The results reject the null

hypothesis and confirm that larger firms seem to be

more frequently engaged in VE studies. This finding

concurs with the viewpoint of some respondents that

smaller jobs undertaken may not benefit from VE possi-

bly due to a lack of scope. This issue is especially signif-

icant in the regional context as the market consists of

many small private firms.

6. Summary and discussion of survey results

In summary, the survey findings confirm the belief

that VE principles are sound and possess strong applica-

tion prospects in the SEA construction industry. On the

other hand, many hurdles still stand in the way for VE

practices to flourish. First, there is a lack of knowledge

about VE in this region. Specifically, there is a huge

necessity to educate:

1. Parties who have the authority and clout to impose

VE provisions in contracts, such as owners, develop-

ers and government agencies.

2. Industrial practitioners in general, especially in pro-

moting its usefulness and clarifying misconceptions

about the VE principles.

It is important to realize that concerns and conflict of

interests can be largely resolved if all parties have a better

understanding of the VE principles and appreciate the

potential benefits derived from VE studies. For example,

some owners perceive VE proposals submitted by con-

tractors as an excuse to lower quality and functionality

(which they assume as forming the basis of the costreduction proposed). Ironically, contractors, who might

well have a genuine intention to improve on an existing

design, would eschew the risk of unsuccessful VE studies

that potentially lead to losses. If only the two parties

understand each others concern, a winwin situation

can be structured through proper design of contractual

provisions in equitable savings and risks sharing. This,

obviously, can only be realized when the basis and prin-

ciples of VE are clear to them in the first place.

Second, governments and building/construction

authorities should play a lead role in promoting VE.

Past experience of the US clearly demonstrates the

importance of this factor [2]. Specifically, incentives to

apply VE should be built within the provisions of public

contracts. Over time, this also helps to build up case

precedence and form a database showing success and

failure rates of VE applications. By referring to these

evidence and precedence, private sector owners would

feel more comfortable in adopting VE for their projects.

Key lessons can also be learned from past failures so

that practices are improved over time or customized to

suit unique circumstances.

It should be mentioned that the current situation is

partly a repercussion of the survey conducted by Yuen

Table 9

Contingency table: type of firms versus frequency of VE application

Frequency of VE application T ype of firms Total

Contractors Non-contractors

Never/rare 19 10 29

Sometimes/frequent 10 15 25

Total 29 25 54


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[11] when respondents in his case also expressed posi-

tive views on VE but nonetheless commented on various

factors that have neutralized its popularity growth. Inci-

dentally, some of these factors coincide with the cur-

rently identified ones. This implies that nothing much

has been achieved during the past few years in promot-

ing VEs adoption in this region.Finally, project delivery methods, design of contrac-

tual provisions and organizational structure (for both

projects and companies) are all highly relevant issues of

concern. Segmented delivery methods such as the tradi-

tional approach of Design-Bid-Build may not have room

and time to cater for VE implementations. Moreover,

since the VE process serves to draw inputs from a multi-

disciplinary team, engagement of VE consultants should

be helpful in coordinating VEs implementation and min-

imize theconflict of interests among different stakeholders

provided that the consultants are backed by the owner

[2]. For government agencies that have a more constant

stream of ongoing projects, it may even be justified to

form a VE program committee to oversee the implemen-

tation for various projects andbuild up case precedence to

facilitate learning and future improvements.

7. Broadening the scope of VE in construction

In many cases, implementation of VE within construc-

tion is largely confined to the project level. Researchers

such as Akiyama [12] and Cooper and Slagmulder [13]

have commented on the role of VE in a larger corporate

context. To utilize VE in shaping long-term competitive-ness of construction firms, its scope has to be broadened.

Some may refer this to value management. Essentially,

the key issue lies on the adoption of a broader mindset in

expanding the basic VE methodology.

7.1. Value engineering and target costing

Cooper and Slagmulder [13] linked VE to a concept

known as target costing, which they defined as a

structured approach to determine the life-cycle cost at

which a proposed product with specified functionality

and quality must be produced to generate the desired le-

vel of profitability over its life cycle when sold at its

anticipated selling price. Although this definition is

more related to the manufacturing sector or the sale of

a product, much can be learned from the concept and

applied to the construction business.

In long-term planning, a firm typically determines

the type of market segments to compete, the type of

clients to serve, and any revenue or profit targets to

achieve all these based on a chosen form of corpo-

rate strategy. In all cases, the external market condi-

tions always serve as the backdrop. The process of

target costing starts with the presumption that market

conditions and competitive pressure will dictate a cer-

tain level of targeted profit margin for each type of

projects (or market segments at large). Given this tar-

geted profit margin, the allowable cost can usually be

derived. When the current cost of a working system

judging from past projects of similar nature or

attributes, is higher than the allowable cost, a costreduction objective should be set, coupled with a rea-

sonable time frame to achieve such objective. In this

way, the initial market-driven effect is transmitted

down to the project and component levels. Value engi-

neering then comes in at this point.

The VE principles and methodology provide a sys-

tematic approach in searching for alternative solutions

that preserve the functionality and reliability of con-

structed facilities a floor value, so to speak. The cost

is obviously capped by the allowable cost described

previously. Taken together, the two measures provide

guidelines for redesigning the working system so as to

achieve the minimum floor value while being subjected

to the maximum cost cap. Note that this process is con-

ceptually different from the usual practice of lowering a

mark-up or tender price when the market outlook is

gloomy. The target costing-plus-VE process presets

a profit margin and work from thereon, whereas lower-

ing of mark-up implies a reduction in profit margin in

and of itself. The former effectively calls for more inten-

sive effort to be devoted by an organization to improve

on their operational systems rather than simply yielding

to market conditions and competitive pressure by

adopting a lower mark-up.

For the cost reduction objective to be realized then, itis obvious that a firm would have to work closely with

other parties within the value system who play an influ-

ential role in project- and component-level costing. In

construction, these parties are likely to include designers,

contractors, subcontractors and suppliers. Given the seg-

mented nature of most contractual systems and delivery

methods, large firms that possess in-house design and

construction teams would be in a much better position

to carry out the above mentioned strategy. Furthermore,

large firms have more bargaining power in drawing their

regular suppliers to work with them towards a new pro-

ject or product system a phenomenon that is exempli-

fied by the automobile industry (which incidentally has

a value system that is quite analogous to construction).

For smaller firms, this strategy can still be explored with-

in a network of quasi-firms [16]. In this network, stable

working relationships typically exist within a group of

contractors, subcontractors and suppliers.

7.2. Enhancing value engineering with development in

allied disciplines

Since its inception, the knowledge field of VE has en-

joyed valuable contributions from related areas such as


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8/8

creative thinking. Today, the trend continues in various

aspects. Not too long ago, new developments in prefab-

rication and precast concrete technology have expanded

the domain of technical solutions. Likewise, large con-

struction firms, notably the Japanese, have achieved

admirable advancement in building automation and

robotics [17]. All these developments have helped to ex-pand the frontier in searching for alternative solutions

for a project, a product or a system. For example,

Tabatabai-Gargari and Elzarka [18] illustrated how

the integration of knowledge-based systems and compu-

ter-aided design systems could generate design alterna-

tives and improve the accuracy of cost estimates two

major steps in a typical VE study.

The VE methodology also has many softer aspects

that should not be overlooked. For example, forming a

VE team and coordinating VE activities require prudent

observation of group dynamics such as leadership, trust

building and conflict resolution. Commonly perceived as

a functional analysis technique, the FAST diagram is

also an effective communication tool since it is essen-

tially a roadmap that facilitates discussions among the

VE team members. Not too long ago, Green [19] re-

ported on a research project that sought to propagate

a few soft methodologies within UK value manage-

ment practice.

In many ways, these concurrent developments help to

elevate the application of VE techniques to the macro le-

vel. Indisputably, the VE process is generic and a broader

range of available solutions can only enhance its useful-

ness in solving component-, project-, system- and corpo-

rate-level issues. Even new developments in finance andeconomics can indirectly affect VE through the aspects

of life-cycle costing alternative solutions need to be

evaluated in the light of marginal operating and mainte-

nance costs, replacement values, decommissioning costs

and salvage value of the facility. Proper evaluation tech-

niques are thus required to arrive at a reasonable esti-

mate in present value terms, so that all alternatives

can be compared on par.

8. Conclusions

This paper presents a survey that is indicative of the

extent to which value engineering principles and prac-

tices are being applied in Southeast Asia. Although gen-

erally there is a strong belief that future prospects of VE

in the Southeast Asian construction industry are posi-

tive, a number of impediments still stand in the way.

In particular, more efforts are required to educate indus-

trial practitioners and owners on various aspects of VE.

Governments also have to play a lead role in promoting

such initiatives.

In addition, there is substantial ground to broaden the

scope of VE by: (a) introducing its use at the macro level;

(b) enhancing its effectiveness by adopting new develop-

ments in allied disciplines. All these factors imply that

since its inception, VE has somewhat changed its outlook

towards a new and promising direction. Construction

professionals need to keep themselves abreast of theseissues in order to elevate the status of their firms and

the industry as a whole. Back in Southeast Asia, how-

ever, there are obviously more concerns of catching up

with these ongoing developments.

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