Evolution of Value Engineering and Value Management (Engineering & Construction No. 5)

The Value Engineering Concept in Construction Project Management is a systematic and structured approach within the context of construction projects, aimed at analyzing functions to achieve an optimal balance between time, cost, and quality.

The Value Engineering work plan consists of several phases, spanning information gathering, creative ideation, meticulous evaluation, iterative development, decisive decision-making, and conclusive recommendations. A series of compelling case studies further enriches the narrative, offering realworld insights into the transformative impact of Value Engineering on construction projects. These case studies underscore the versatility and efficacy of Value Engineering across various contexts, thereby reinforcing its status as a powerful tool for enhancing project value and stakeholder satisfaction.

This Value Engineering concept is highly relevant for both academics and practitioners in construction management in Indonesia. It illustrates the practical application of Value Engineering principles in various construction contexts, highlighting the underutilization of Value Engineering concepts in the country. By providing comprehensive insights and practical guidance, this work aims to bridge the gap and contribute valuable information to enhance construction project management practices in Indonesia, emphasizing the importance of achieving efficiency and effectiveness in construction projects through the potential benefits of Value Engineering implementation.

The definition of Value Engineering, according to Miles (1972), is an organized and creative approach to identifying unnecessary costs. The unnecessary cost is the cost of not providing quality, utility, and proper performance and characteristics required by consumers.

Value Engineering, according to Zimmerman & Hart (1982), is a creative and systematic approach to reduce or eliminate unnecessary costs.

The complete definition is as mentioned below:

Value Engineering is also mentioned as:

The definition of Value Engineering, based on Dell’Isola (1997), is a systematic approach to obtaining the maximal output of each cost spent. It requires creative effort in analyzing the function by deleting or modifying the additional costs not required in the construction budgeting process, operation or implementation, maintenance, equipment replacement, and others, and finding out the best function balance on project cost, reliability, and performance.

The definition of Value Engineering, according to Hammersley (2002), is a process for creating systematic and structural team decisions.

The definition of Value Engineering, according to Shen and Liu (2007), is a systematic, organized approach that is oriented toward function and a multidisciplinary team.

The definition of Value Engineering, based on the SAVE International Value Standard (2007), is the application of a systematic process used by a multidisciplinary team to improve the value of a project by using function analysis.

The definition of Value Engineering, according to Berawi (2014), is a professional team approach in the application of function-oriented and carried out systematically in analyzing and improving the value of product facility design, system, and service. VE is a good method for problem-solving and cost reduction and still improves performance and quality requirements.

The definition of Value Engineering, according to Chandra (2014), is the effort organized and carried out in analyzing the existing problems to obtain the required functions by using minimal cost.

It can be concluded that Value Engineering is a systematic and structural concept for analyzing the function of finding the best value in a construction project to reduce or delete unnecessary costs.

Value Engineering (VE) was first introduced at the beginning of World War II in 1939–1945 to produce a large amount of war equipment. The war impacted the number of workers, materials, and spare parts. One of the areas where demand improved was the metal requirement, while supply was limited. Lawrence D. Miles and Harry Erlicher from General Electric Company conducted the function analysis to find an alternative material providing similar or better performance at a lower cost. The technique developed could reduce the cost, improve the product, or both (SAVE International Value Standard, 2007).

Value Engineering was promoted by the United States Army (USA) during the Korean War and named Value Analysis. The first to apply the technique was the US Naval Shipping Bureau. In the first year of applying for the program, it could save up to 18 million dollars (Chandra, 2014). The success influenced the launch of similar products and resulted in substantial savings for the USA Air Force in 1955 and the USA Army Artillery Corps in 1956.

In 1959, the USA Secretary of Defense decided to reduce expenditures by supporting Value Engineering applications as the cost reduction program by using the following principles:

The output of the Value Engineering application reduced unnecessary expenses, saving the budget.

Value Engineering was disseminated across America and Europe in the 1960s. The first program in England in 1961 was begun by the Dunlop Company, and many companies applied Value Engineering in 1963. The improvement in curiosity in Value Engineering was generated by the establishment of training institutions in the USA by Lawrence D. Miles and Value Engineering Ltd. In England in 1962, which provided the major contribution and responsibility in initial Value Engineering distribution and development (Crum, 1971).

Value Engineering began to be utilized in the construction sector by the USA Department of Defense in 1963. In 1964, when Secretary, Robert S. McNamara, expanded cost reduction, the USA government started utilizing the advantages of Value Engineering as an effort in management escalation.

The Department of Public Building Services developed Value Engineering extensively and applied it to construction management services in 1972. In 1975, the Environmental Protection Agency (EPA) required the use of Value Engineering, which was then applied in various countries.

The influence of Value Engineering came to Indonesia in 1986, when the government carried out an efficiency program in budgeting. The application of Value Engineering in the Cawang Flyover Road Project resulted in billions of rupiah in cost savings (Ramiadji, 1996; Untoro, 2009).

The Australian government also gave serious attention and support to Value Engineering in the construction industry in the beginning of the 1990s (Daddow & Skitmore, 2003).

As support for Value Engineering applications, the Indonesian government issued Public Work Minister Regulation Number 45/PRT/M/2007 on Technical Guidelines for National Building Construction.

Value Engineering applications in the Indonesian construction industry have not indicated extraordinary development (Berawi, 2014).

The limitations of material, cost, or worker resources become an obstacle to project continuity. The resource limitations affect the anticipatory steps carried out to ensure project continuity.

The VE application is one of the alternatives to ensuring construction project continuity. There are several reasons why the VE concept is required to be applied to the construction project, as mentioned below:

Dell’Isola decided on seven significant factors influencing the VE requirement, as below:

Fig. 1 shows that excessive cost by 22% refers to situations where the project incurs costs beyond the allocated budget, necessitating the application of VE to identify cost-saving measures; Specification review by 18%: involves the critical examination and potential revision of project specifications to align with project goals and optimize resource utilization; Redesign cost by 15%: Indicates the expenses associated with redesigning elements of the project to improve functionality, efficiency, or cost-effectiveness; Technology advances by 23% reflect the impact of technological advancements on project requirements, necessitating adjustments to incorporate innovative solutions and methodologies; Bad design by 4% refers to instances where design flaws or inadequacies hinder project performance, necessitating VE interventions to rectify deficiencies and enhance outcomes; User input by 6%: highlights the importance of incorporating end-user feedback and requirements into the project design and execution process to enhance user satisfaction and functionality; and User requirements change by 12%, which indicates the likelihood of evolving user needs and preferences throughout the project lifecycle, necessitating agile adaptation and VE interventions to accommodate changing requirements.

Value Engineering uniquely consists of design ability, constructability, and contract ability as the values influencing control budget and cost into three value components in the construction service business, mentioned as follows:

Research conducted by Kineber et al. (2022) introduced a systematic Value Engineering approach for large sewer projects, which resulted in the following major contributions to the relevant body of knowledge:

Furthermore, research by Youssef, et al. (2023) towards the construction of 1,500 schools in the reconstruction plan. This research applies Value Engineering to Model 15 Schools in Al-Khums City to maximize the use of the available budget. Savings on critical items range between 20% and 30% leading to a reduction in the overall cost of the project. The study concluded that the Educational Facilities Authority (EFA) could save around 30% of the allocated funds.

Value Engineering (VE) competence in improving the construction industry's competitiveness in several countries depends on benefit achievement, particularly in the construction phase, which provides optimal benefits. In Indonesia, VE benefits are required for construction development since many problems arise in the project construction phase, impacting waste and less efficient output. The benefits of VE in the construction project are mentioned below:

In Liang, et al.'s (2023) research, more than 300 valid empirical data points were collected from key stakeholders in the building sector, including developers, consultants, contractors, etc. The findings show that:

Value Engineering analysis aims to delete unnecessary costs and find alternatives to complying with the lowest cost requirement without reducing construction quality. It provides the optimal output for the money spent and the support to differentiate and separate necessary and unnecessary costs. The application of the VE concept will save cost, time, and material.

Value Engineering (VE) has been recognized as a concept that provides efficiency to construction development by optimizing the function, performance, and cost of the project while maintaining quality.

The VE concept in construction projects convinces the stakeholders involved in the project that construction investments produce effective and valuable assets for development, application, and maintenance. According to Connaughton and Green (1996) in Berawi (2013), the certainty in producing a more valuable product or value for money of product is because the Value Engineering application will ensure that the project requirements are verified and supported by data, project goals are discussed informally and explicitly, the important decisions in the Value Engineering process are rational, assertive, and reliable, the design developed as the project goal framework is agreed, the various alternatives are considered, and the design alternatives are evaluated and selected carefully due to the performance criteria required.

According to the studies carried out by Barrie and Paulson (1992), the application of VE can be started at the beginning of the planning concept phase. Since this phase has a high influence on the whole project, it has maximum flexibility for revisions without the additional budget for the redesign.

Through process development, the cost planning required for the revision will improve until the break-even point, at which point there is no saving achieved. In the planning phase, the project owner determines:

Due to this background, the planner determines the project objectivity and the cost framework as part of the budget planning to determine the boundaries of the objective, requirements, and criteria required by the project’s owner.

The research of Barrie and Paulson (1992) proved that the planner has the highest influence on the project cost, and likewise, the project’s owner's determination of their own requirements and criteria has a highly significant influence on the whole project cost. At least 70% of the project cost determined at the end of the planning concept is managed by the planner and the project’s owner.

The VE study carried out in this phase has a high potential for improving quality and reducing cost. In this phase, the VE study can assist the project’s owner to:

At the end of the planning phase, VE implementation still receives the benefits. However, the revision elements, without delaying the time or increasing the cost, can be reduced compared to the previous phase. As the project planner progresses, starting from concept, programming, schematic, development, and the final design, VE is required to assist in the planning. VE analysis should be included in each submission of the planning phase. It is conducted to provide a briefing to the planner and ensure that the value or cost consideration has been informed to the owner to be noticed in decision-making.

Value Engineering is most effectively applied in the planning phase, yet it is also possible to be applied in the bidding and construction phases. It can be carried out and is possible in the situation below:

Husen (2011) mentioned that the Value Engineering process can be carried out by:

The processes are carried out by considering the correlation of cost, function, and value from a wide perspective and adding value to a construction project.

Cost is the various efforts and expanses spent in developing, producing, and applying the products. Producers constantly consider the impacts of cost on quality, reliability, and maintainability since they will influence the cost to the users. The development cost is an appreciable component of the total cost. Attention to production costs is required due to unnecessary costs.

A cost model is used in determining work segments with high costs and creating them due to the cost analysis required from data collection. Zimmerman & Hart (1982) mentioned several types of cost models, as below: