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Measuring project success has changed in the lastcouple of decades, especially for capital projects.The global economy, driven by the stock marketand fierce competition, has intensified the need

for higher efficiency and refining competitive edges. What is thedefinition of project success? Can value engineering (VE) con-

tribute to the project success? If yes, how and when should VEbe implemented? What are the major features that quali fy aneffort as a good VE study.

SUCCESS IN THE PAST & PRESENT

Decades ago, the contracts between owners and contractorswere simpler than current contracts. Owners usuall y selectedcontractors based on simple criteria such as a previous work rela-tionship, reasonable pricing, local reputation, or recommenda-tions by an expert or friend. Most of the contract payments werebased on uni t prices or a cost plus basis. As long as the project

functioned normally and the variances in cost and/or schedulewere within the industry norm, the owners were pleased andconsidered the project a successful one. The contractors werehappy because they made some profit.

Nowadays, more parties are involved as separate identities insimilar projects. Contracts are becoming more complex anddemanding. Compensation is becoming more constrainedtoward hard money. Therefore, a projects success may be per-ceived and measured differently, according to the results experi-enced by the different identities.

TYPICAL INVOLVED PARTIES

1. DevelopersTodays competitive market and innovative finances intro-

duce developers as participating parties. The developers job isto search the market, identify the needs, hire the expertise,develop a project concept, perform due diligence studies, iden-ti fy the financier and the prospective future owners, and hire theengineers and construction manager.

2. EngineersThe engineers are the experts who transfer the developers

ideas into an implementable plan. The engineers develop aplan of action, define the project features, perform calculationsprepare drawings, prepare technical specifi cations, and assemblecontractual material and all the needed documents for transferring a concept to a plan.

3. General Contract/SubcontractorsSelected contractors may be invited to bid on the project,

based on the prepared contractual documents. Successful (low)bidders acquire the material, assemble the labor force (crafts-men, laborers, supervisors, etc.), and attain equipment and toolsThe contractors function is to transfer the plan developed by theengineer into a physical reality.

4. Construction ManagersThe role of the construction manager is to ensure that the

construction execution is proceeding properly. He or she coor-

dinates between different contractors, overcomes typical site dif-ficulties, clarifies drawings ambiguity, interprets contract docu-ments, and ensures the safety and quality aspects.

5. OwnersThe investor raises the capital to pay for the project by avail-

able equity or a pre-arranged loan. The goal is to harvest a goodreturn on investment (ROI). The owner may acquire the proj-ect before or after the construction. Additionally, some ownersdevelop the projects by themselves without the involvement ofthe developers.

6. OperatorsIndustrial and commercial facilities may be technologically

cumbersome and require a specialty organization to operate. Itis not unusual that some owners choose to hire another party tooperate and maintain the facil ity. It is in the operators interestthat the facility is simple, easy to operate with equipment thatperforms reliably and generates products at the required quanti-ty and quality, etc.

AACE.01

Value Engineerings Contribution to Project Success

Dr. Farid Fam Mansour, PE CCE

1999 JOINT COST MANAGEMENT SOCIETIESPROCEEDINGS

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SUCCESS OR CONFLICT

Owners may consider the project a success if it is complet-ed on time within the predetermined budget, to accomplish thesought return on investment. Usuall y, owners demand that theproject price is less than that of the competition and the qualityis higher than industrys norm. This environment dictates verycompetitive bids. Compensation based on fixed price (lumpsum), or target price with incentive, is becoming more common.

The contractors are bidding at lower prices to succeed in gettingthe work. The successful bidders are not always happy campersat the completion of the project. Making a profit is not possiblewith a lean budget and narrow margin. For this reason, the con-tractors are looking for ways to cut costs and are eager to ask forextra money, through change orders. Contention about quali ty,performance, and schedule delay also may arise. On the otherhand, the engineers also are performing the design based on atight schedule and constrained budget. The quality of the deliv-erable documents (drawings, specifications, instructions, etc.)may be affected. A small mistake or inconsistency could beexaggerated (by the contractors) and grow out of proportion dueto the confl ict of interest. Corrections, modifications, or reworks

should be expected. Extra costs to the engineers are anticipated.Also, these consequences affect the fieldwork (construction) andcan become signifi cant. Conflict of interest, low profit, or somelosses may occur. The projects final success becomes meaning-less to them. The role of the construction managers becomesdifficult. Instead of performing the pure technical tasks, theybecame aware of the conflicts between the different parties andare concerned about l egal issues. The facil ity operators consid-er the project successfully executed only if it operates efficiently,runs smoothly, i s maintained easily, and functions reliably.

With these circumstances, the conflict between the partiescan be understood. The success of one party can be disastrousto other parties. Construction claims and lawsuits are becomingmore frequent. Nowadays, it is rare to find that all parties are sat-isfied and considered the project successful.

BASIS OF SUCCESS

It is the writers opinion that projects have a better chance ofsuccess if the involved parties adopted and practiced a policy(recipe) containing the following principles:

good planning, including a solid economical basis; balanced (fair) contractual arrangements between involved

parties; implementation of proven techniques; integrated project organization with minimum adverse rela-

tionships; selecting suitable and reputable (participating) parties such

as contractors/vendors; mutual agreement for common accomplishable goals and

objectives; capable and experienced project management throughout

the project phases (design, procurement, construction,etc.); and

willingness to overcome stumbling blocks through a profes-sional attitude.

VE CONTRIBUTION TO SUCCESS

This paper neither suggests that VE will solve all projectproblems nor that every project will be successful once a VEstudy is performed.

However, for a project to be a final success, every elementevery aspect, and every phase has to be executed perfectly. Valueengineering, as a management technique, can significantly con-tribute to such success. Value engineering is an excellent tool to

materialize the recipe of success mentioned above.Many case studies have proven that VE quali tatively andquantitatively adds significant value, especially when VE isimplemented properly.

CONCEPT OF VALUE ENGINEERING

Value engineering is a goal oriented problem-solving tech-nique, using a systematic (step-by-step) approach. The objectiveis to optimize the project value through a specific process knownas value methodology. The essence of this methodology isbased on analyzing the functions, freethinking, creativity, and

technically merited evaluations. The VE activities have to beperformed by a multidiscipline team working together, underthe directive of an experienced certified value specialist.

MAXIMIZE VE SUCCESS

The following recommendations present the major ele-ments that favorably influence and optimize the output resultsfrom performing VE studies.

A. Timing of VE StudiesSome practitioners are satisfied with conducting one VE

study at the projects early stage. It is recognized that the savingsare larger in the earl ier phases of a project. However, perform-ing more studies along the projects life span will contribute fur-ther success to the project. The following are typical stages forcapital projects.

1. Due DiligenceMany projects were aborted in the early phases since the

project economics (performa) did not exhibit the required finan-cial benefits. The developer/owner may accept such results andcancel the project. Usually, in the early phases of a project, thescope may be ambiguous and undefined. In addition, the com-

municated project concepts/parameters could be different fromthe mind of the engineer to the mind of the developer/owner.Accordingly, the proposed plan may reflect the engineers per-ceptions rather than the owners intentions. The estimated costcould be higher than the anticipated cost, causing the project tobe killed. At this phase, conducting a VE study should lead tothe following advantages.

Accurately defined scope. Ensure that the engineer has a better understanding of the

owners needs and requirements. Generate efficient designs and a less costly project.


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Such results also might improve the project and help theowner to focus on essentials not only by cutting the capital costbut rather by refining its parameters, such as scope, size, fea-tures, or life-cycle costs.

2. Engineering & DesignSome projects seem sound at the very early phase, but later

suffer from growing budgets. The increase of the estimatedbudget could be caused by various reasons, such as over-specifi-

cations, inclusion of nice-to-have-features, neglecting or mispre-dicting inflation, growth in the scope, changing on site condi-tions, etc. Regardless to the reason, performing value engineer-ing at this stage, usually, contributes to the following benefits.

Affirming the projects objectives. Promoting deeper understanding of the projects con-

straints, conditions, circumstances, etc. Defining the functions and requirements for each project

element/component. Developing innovative solutions to satisfy the required func-

tions and to suit the projects circumstances. Generating valuable deigns at less capital cost and optimum

total life-cycle costs. Reshaping the projects features by transferring the projects

problem to an opportunity to excel.

3. ProcurementMany projects have significantly suffered due to some pro-

curement issues. Performing the value methodology along theprocurement activities can eliminate/minimize the related neg-ative concerns and be conducive to the following advantages:

Detecting the cri tical procurement issues. Identifying required characteristics of the vendors and con-

tractors. Selecting qualified vendors/subcontractors. Developing criteria for evaluating bidders. Promoting higher competition between the bidders.

4. ConstructionIt is rare to find a (large) project without significant chal-

lenges during its execution. Diffi culties may appear in variousforms and shapes, such as unexpected field conditions, adverserelationships between subcontractors, interference between dis-ciplines, inconsistencies in specifications or drawings, lack ofworkforce shortage or of specific material. Tackling these chal-lenges through value methodology and involving the proper par-

ties may ensure better results than those based on individualdecisions. The final results may include some or all of the fol-lowing.

Direct communication. Focusing on a common objective/problem. Better (technically and economically) alternative

solution(s). Final resolution covering all the issues. Collective acceptance (by participating parties/identities). Developing cooperation and trust between the parties.

It is recognized that the potential savings (in this phase) arenot as large as those generated by VE studies early in the designphase. However, value engineering may avoid/reduce unnecessary costs that may be encountered otherwise.

B. Follow Job PlanThe value engineering methodology is based on a systemat-

ic approach, i.e., conducting the studies in specific steps with a

certain order. This is called the job plan. For whatever reasons, some practitioners consider eliminating some of the stepsand neglect the sequences. Performing a VE workshop in thisatmosphere can abort the VE study and/or reduce the chancesof the VE studys full success. For thi s reason, experienced VEspecialists insist on complying with the basic VE concept andabide with the job plan. Cutti ng corners in performing a VEstudy will lead to unsatisfying results.

C. Focus on Functions and RequirementsThe major difference between the value methodology and

other techniques (brainstorming, cost comparison, economical

analysis, etc.) is the inclusion of functional analysis and under-lining the project requirements and the client objectivesFocusing on the project objectives and satisfying the functions ofits elements will enhance the success of the selected solutions.It also reduces the chances of typical pitfalls associated with costcutting techniques.

D. Include the Involved PartiesParticipation of various involved identities will increase the

probability of success concerning the following aspects:

defining the core issues; debating all the related points of view; complying with the solutions to owners requirements; mutual acceptance of the selected solutions; enhancing communication and interrelationships between

involved parties; and common satisfaction and less adversity.

E. Unify the PartiesInvolvement of several parties is common for large projects

The chances of conflicts of interest will increase with theincrease of the parties numbers, even, if there is no obvious con-

fl ict between the parties. When every party is working at its ownwavelength and personal understanding, this creates a dishar-mony and communication gaps. Such conditions lead to inefficiency, lack of understanding, frictions, and potential problems.However, VE can change such an environment. Working as oneteam, communicating face to face, using factual informationfocusing on the mutual goal, and a positive attitude will help thedifferent parties to resolve a common problem. Teamwork hasthe tendency to unify individuals, and to reduce adversarialthinking, especially if the mutual objective is trying to reach awin-win-win solution.


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F. Qualified LeadershipIn performing a value engineering study, the facilitator

(team leader) has an important role. Generally, the final resultof the study is greatly dependent on his performance. The VEfacilitator may not suggest an alternative or select a specific solu-tion. The VE facilitator is responsible of the following func-tions.

Develop a workshop plan, form the scope, and prepare the

budget and schedule. Decide the size and composition of the VE team; select therequired specialties and personnel.

Familiarize the team with VE concepts and procedures, toensure smooth operation.

Ensure the availabil ity of the needed data, information, andtools.

Set the workshop tone, i.e., friendly, relaxing, and creativeenvironment, orderly conducted sessions, follow the jobplan, etc.

Ensure proper flow of information, and accurately present-ed data.

Build up professional personal relations between

himself/herself and team members, as well as between teammembers individually.

Challenge the team members to positively participate, bemore innovative, abide with roles, be accurate in descrip-tions, and fair in judgment.

Focuses on the objectives, stick with the methodology, anddont be intimidated by personally opinionated authority.

Transfer the individual inputs into mutually accepted deci-sions.

Considering the importance of these functions, it can beunderstood that neglecting or negating some of them wouldimpact the study results.

G. Proper Team Composition

The outcome of the VE study is the product of the team,collectively. Accordingly, the size of the team, caliber, andexpertise of the individual, and the chemistry between them willaffect the success of the study. For this reason, the VE facilitatorshould seek a convenient team size, the appropriate disciplinesand composition, and the suitability of the persons characterand attitude to the task.

H. Seek Value, Not A Cost CutCutting costs is a popular approach to meet budgetaryrequirements. Cost cuts may not generate savings, or improve aprojects economics. Often, it is related to cutting scope orreducing the quali ty. Meanwhi le, seeking value can be attainedby either reducing the cost for the same scope and quality or byincreasing scope, quality, performance, maintainability, etc.Attaining higher values leads to economic advantages and con-tributes to the project success.

I. Seek Truth, Not The Bosss OrdersIt is essential that VE studies consider, focus on, and satisfy

the client requirements. However, occasionally top management may interfere in how these requirements can be accom-plished. In spite of sincerity, knowledge, and experience, theopinion of management can be altered and/or improved. It isthe responsibility of the VE specialist to familiarize the top man-agement with the VE methodology, ensure them of no compromise in fulfilling the requirements, and ask to allow independ-

ent thinking to function. Seeking facts, following VE methodology, being fair and objective, and declaring truth will lead toreal success. Such results will stand on their merits, gain theacceptance of the opponents, and the respect of everyone.

Todays global economy is getting more complex anddemanding a higher level of competition. Success ina competitive environment requires higher value(value-added) products. Project success is depend-

ent on proper execution. Value methodology has been a proventechnique in optimizing the value of the study subject.Performing VE studies will enhance the project value and will

increase its chance of success. However, the success in attainingdesirable VE results is dependent on many factors. The mostcommon factors are:

how VE will be performed; involvement of the cognizant parties; make-up of the team, and the caliber of expertise; skil ls, abili ty, and quali fication of the facili tator; timing of the VE studies; clients participation and supports; and attitudes of the participants and their commitment to the

objectives and adaptability to VE concept.

Dr. Farid Fam Mansour, PE, CCE, CVSValue Engineering Manager

Raytheon Engineers & Constructors30 South 17th. Street

Philadelphia, PAPhone: 215.422.3376

Fax: 215.422.4507E-mail: [email protected]


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