Value Engineering: It May Not Be What You Think!

In capital project circles, “value engineering” (VE) is often considered a smart move. Even the title sounds like a winner. Who doesn’t want value? And sometimes VE does what the title implies: Adds value to a project. Sounds great! Indeed, VE is regularly used to improve an existing design just before construction. But in that context, is it actually a good thing, or is it an indicator of an underlying issue? 

This article explores Value Engineering: What it is meant to be, how it’s misused, and what to do instead. 

VE’s Origin

Value Engineering (VE) started at General Electric during World War II. It was the brainchild of Lawrence D. Miles, Harry Erlicher, and Jerry Leftow. Due to material shortages, they sought alternative solutions that maintained or improved function at a lower cost. Their method, first known as Value Analysis, evolved into Value Engineering by the 1950s.

In this early context, VE was defined as:

"The systematic application of recognized techniques which identify the function of a product or service, establish a value for that function, and provide the necessary function reliably at the lowest overall cost." VE is represented by the formula: Value = Function / Cost.”

Core Purpose

As intended, VE is meant to be a proactive and collaborative effort by experts representing each key discipline of the project’s lifecycle, all aligned around well-defined business priorities to accomplish the following:

1. Improve function without increasing cost.
2. Reduce cost without reducing function.

(SAVE International, Value Methodology Standard / Miles, Lawrence D.,Techniques of Value Analysis and Engineering, McGraw-Hill, 1961.)

What VE is Not

For Value Engineering, timing and root cause determine whether your VE efforts build innovative value or uncover underlying weaknesses to mitigate against.

In today’s capex environment, VE is commonly introduced between the conclusion of detailed design and before construction begins. Consequently, key collaborators, accountable for project execution, are absent during project development initiatives. This timing often results in incomplete data and a lack of context around facility construction means and methods.

Accounting for and correcting data gaps or conditions that could be or should be known as part of integrated project planning and development is more indicative of a fix than VE. Why?

• First, they are largely preventable adjustments that could be addressed when the cost of change is less. So, the owner pays more to get what they already should have had.
• Second, owners may get stuck with limited or no options at later project stages, forcing compromises around scope, schedule, price, and risk. This goes against VE’s core purpose, which is to improve function without increasing cost or decrease cost without sacrificing function.

VE is not intended to be a cost-cutting measure at the expense of function or quality. Nor is it meant to compensate for project planning and development shortcomings. On the contrary, it is intended to prevent them.

Why it Matters

Decisions made early in the project lifecycle have the highest potential to impact ROI and project success. Conversely, mistakes are compounded as the project progresses and changes become costlier and riskier. In extreme cases, owners reach a tipping point where the only answer is to pay more or sacrifice outcomes.

What happens when VE efforts begin as design is nearing completion (or is complete), and the team accountable for project execution has been isolated from project planning and development efforts? A few examples include:

• Project delivery and contract methods can be misaligned, increasing the risk of adverse impacts to ROI, project success, and contractual conflict.
• Specifications misaligned with supply chain constraints, use cases, or construction best practices, impacting procurement processes.
• Design errors from knowledge gaps not mitigated with progressive constructability reviews throughout the design lifecycle.
• Increased risk of design reworks due to constructability issues resulting in unplanned downtime during construction, fragmented systems installation, and startup delays.

“The earlier in the project life cycle VE is applied, the greater its potential for value improvement. Ideally, it is applied during planning and design, before significant investments are committed.” — SAVE International Value Methodology Standard

Value Engineering’s Highest Value

VE’s highest and best uses are for innovation or ensuring that project development initiatives incorporating planning, design, and engineering efforts are prescriptive, collaborative, and value-driven from the start. It is also appropriate during the project execution stage for emerging issues that could not have been known or accounted for earlier in the project lifecycle. Below are a few examples of how VE can appropriately drive functionality, control costs, and achieve project success across various stages in a project lifecycle.

Early in Project Development, VE Should Be Used to Discover:

• Strategic alignment with project objectives.
• Improved collaboration and communication methods.
• Innovative alternatives for new technologies or processes supporting the owner’s priorities and operational performance.
• Risk mitigation strategies to facilitate the coordination and integration of all parties involved in delivering a high-performance facility.
• Cost reduction opportunities by prescriptively analyzing design, materials, and methods without compromising quality or functionality.

During Project Execution, VE Should Be Used to Adapt to:

• Sudden material pricing shifts from tariffs or supply chain volatility that significantly impact procurement strategy.
• Regulatory changes or code updates that necessitate adjustments to system design, materials, or installation methods.
• Site-specific discoveries, such as geotechnical conditions or utility conflicts, that could not be uncovered during conceptual planning.
• Schedule adjustments considering force majeure events or enhancements made available by captured production efficiencies.

VE is a controlled optimization process, not a workaround when applied as intended. It can support certainty and price stability without compromising project quality or strategic outcomes.

Conclusion: Prioritize Prevention

Start with the end in mind. Build a team representing the full project lifecycle. Think and collaborate strategically to leverage capital investments, protect ROI, and optimize system-wide performance.

Prioritize prevention. Invest early and heavily in project development initiatives. Implement a structured process to assess and evaluate proposed changes. Utilize a SWOT analysis as a reality check.

Be proactive and quick to adapt. Every change introduced later adds cost, complexity, and risk.

Discuss your capital project priorities with Hansen-Rice to ensure your facility is engineered right the first time.