HOLISTIC ApPRAISAL OF VALUE ENGINEERING IN CONSTRUCTION

IN UNITED STATES

By Angela Palmer; John Kelly,2 and Steven Male3

ABSTRACT: The use of value engineering in the United States of America has grown significantly in the last
twenty years. Advocates of the system claim it is effective in reducing cost and improving the value of con-
struction projects. Others however claim that in reality the technique is little more than traditional cost cutting
by another name. This paper makes a holistic appraisal of value engineering as used in the United States of
America's construction industry by investigating current theory and practice. It evaluates value engineering
projects and calculates the savings achieved by them. It goes on to analyze the nature of those savings. It looks
at four VE workshops and makes an appraisal of the technique. Finally it draws overall conclusions about the
current position of value engineering in the United States of America.
Downloaded from ascelibrary.org by Heriot-Watt University on 10/29/20. Copyright ASCE. For personal use only; all rights reserved.

VALUE ENGINEERING THEORY
Origin of Value Engineering
Value engineering (VE) developed during World War II in
the United States. It began as a search for alternative product
components, a shortage of which had developed as a result of
the war. Due to the war, however, these alternative components
were often equally unavailable. This led to a search not for
alternative components, but to a means of fulfilling the func-
tion of the component by an alternative method. It was later
discovered that this process of "function analysis" produced
low-cost products without reducing quality and, after the war,
the system was maintained as a means of both removing un-
necessary cost from products and improving design. The pro-
cess of VE based on analysis of function was therefore born.
Development of VE-From Philosophy to Technique
The early work of Miles (1967) as shown in Fig. 1 was
fundamentally a broad philosophy which, by a questioning ap-
proach to processes, systems, and components, sought alter-
natives based on an examination of function.
The central feature oflMiles' work was the definition of all
functions required by the customer in terms of a verb-noun.
These functions were then evaluated in terms of the lowest
cost to achieve them. Miles illustrated an existing electric mo-
tor screen that was allocated the following functions:
through this process, Miles therefore costed the functions of
the screen based on the lowest possible cost of achieving them.
This lowest cost could then be compared to the actual cost of
the existing screen, thereby highlighting cost that was ex-
pended but that achieved no function. In addition, a byproduct
of defining function was the ease with which it allowed alter-
native means of achieving the function to be generated. It was
therefore this simple but highly effective idea that formed the
basis of Miles work. However, despite its simplicity, Miles
work was disjointed and unsystematic and perhaps for this
reason was rationalized and organized into a much more sys-
tematic approach; e.g. Mudge (1971) and Heller (1971). Al-
though this reorganization diminished the broad scope of VE,
the fundamental principles on which Miles based his original
ideas remained intact.
Fig. 2 shows the position of value engineering theory at the
start of the 1970s. By this stage VE had developed into a three-
pronged technique of function definition based on the verb-
noun, function evaluation based on the lowest cost to achieve
function, and creativity based on brainstorming. The means of
organizing the technique into a systematic framework was the
job plan. In addition, by the start of the 1970s there was gen-
eral consensus among VE authors that a VE study ought to
be carried out by a team and that VE is applicable at any stage
of a product's life cycle.

• Exclude substance
• Allow ventilation
• Facilitate maintenance
• Please customer

The function of "exclude substance" was evaluated on the

basis of the cost of sheet metal required to shield the motor.
The function of "allow ventilation" was based on the addi-
tional cost of putting holes in the sheet metal. "Facilitate
maintenance" was evaluated by adding the cost of a spring
FIG. 1. Miles' VE Philosophy
clip to allow the sheet metal to be removed and "please cus-
tomer" was based on the cost of painting the metal. In going
'Sr. Lect., Dept. of Build. and Surv., Glasgow Caledonian Univ., City
Campus, Glasgow 04 OBA, UK.
'Sr. Lect., Dept. of Build. Engrg. and Surv., Heriot Watt Univ., Edin-
burgh, UK.
'Head of Dept., Dept. of Civ. Engrg., Leeds Univ., Leeds, UK.
Note. Discussion open until May I, 1997. To extend the closing date
one month, a written request must be filed with the ASCE Manager of
Journals. The manuscript for this paper was submitted for review and
possible publication on December I, 1995. This paper is part of the Jour-
,",I of Construction Engineering and Ma,",gement, Vol. 122, No.4,
December, 1996. ©ASCE, ISSN 0733-9364/96/0004-0324-0328/$4.00
+ $.50 per page. Paper No. 12111. FIG. 2. VE at the Start of 1970s

324/ JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / DECEMBER 1996

J. Constr. Eng. Manage., 1996, 122(4): 324-328

 TABLE 1 Major Responses
Question Number Number
number Alpha school received Beta school received
(1 ) (2) (3) (4) (5)
Q1 40 hour work- 16 40 hour work- 16
shop shop
Q2 35% schematics 16 10% concept 0
Q3 An external VE 18 Design team 1
team
Q4 The job plan 23 The job plan 23
Q4 0-25% use of 9 76-100% use of 9
FAST FAST
FIG. 3. Alpha School of Thought Q6 Foundations: 16 Casualty: treat 1
support load emergency
Q7 Cost worth ratio 7 Value mismatch 6
THE FORTY HOUR WORKSHOP
Downloaded from ascelibrary.org by Heriot-Watt University on 10/29/20. Copyright ASCE. For personal use only; all rights reserved.

tions indicate the number of responses received. (The survey

did include two other questions not shown here.)

Survey Questions

1. What method do you use for carrying out a VE study?

40 hour workshop 16
Charette 1
Other 7
FIG. 4. Beta School of Thought 2. At what stage of the design do you usually carry out a
VE study?
VE into Construction Industry 10% Concept 0
35% Schematics 16
Palmer (1992) found that the move of VE into the construc- 60-90% Production 1
tion industry resulted in two major changes in VE theory. First 3. Who is generally responsible for carrying out the value
was the introduction of the 40 hour workshop as the method engineering study?
of carrying out a VE study. Second was the development of The design team 1
two separate schools of thought on how VE should be imple- An external VE team 18
mented. These two schools, which are termed "alpha" and Other 5
"beta," are shown in Figs. 3 and 4. 4. What forms the agenda of value engineering studies?
As shown by the diagrams, both schools added the 40 hour The job plan 23
orkshop to the VE process but differ in other aspects of how Other 0
VB ought to be implemented. Whereas the alpha school carries 5. What percentage of your studies contain a FAST dia-
out the study at the 35% design stage using an external team, gram?
the beta school sees that an earlier design stage using the (0-25%) 9
project designers is more effective. In addition, there is dis- (26-50%) 5
agreement between schools on the use of function analysis. (51-75%) 1
The alpha school defines function analysis based on the ele- (76-100%) 9
ments of the building, such as for example foundations that 6. Which of the following most closely represents the
have the function "support load." The beta school, however, function analysis that you use?
defines the functions of a section of the overall building, such Foundations ... support load 16
as casualty department having the function of "treat emer- Casualty ... treat emergency 1
gency." The means of evaluating the function is also conten- Other 7
tious. Alpha school evaluates function based on the cost-worth Function analysis not used 0
ratio, while beta school relies on a system of function analysis 7. What method do you use for highlighting areas of poor
system technique (FAST) diagrams and value mismatches. value?
Figs. 3 and 4 summarize the position of VB theory in con- The cost worth ratio 7
struction in the United States at the present time (1995). Value mismatches 6
Other 11
VALUE ENGINEERING PRACTICE 9. On which areas of projects do you generate VB pro-
posals?
Survey of Practitioners
All areas 17
A questionnaire survey was sent to VE consultants operating Areas highlighted as ones of poor value 4
in the construction sector in the United States and as listed in Other 3
the Society of American Value Engineers (SAVE) directory. 11. Who do you consider to be the United States leading
Thirty-six questionnaires were sent and 24 responses were re- VE client?
ceived (67%). The purpose of the questionnaire was to dis- Department of Defense 10
cover which school of thought, if any, was the dominant one Government 6
and the questions were therefore based on the systems as out- Other (one answer each) 6
lined in Figs. 3 and 4 of the previous section (Table 1). The No response 2
following is a summary of the results. The questions were
multiple choice. The figures on the right of the survey ques- The results show that consultants practicing VE in the
JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / DECEMBER 1996 / 325

J. Constr. Eng. Manage., 1996, 122(4): 324-328

 United States under the auspices of SAVE predominantly use
the system as laid down in the alpha school of thought. That
is, at the 35% design stage a 40 hour workshop is carried out
using an external team. The results also showed that the use
of function analysis is not as clear-cut as the theory would
suggest. Although most consultants defined function based on
the elements of the building, there was no definite means of
evaluating that function. In addition, the use of FAST diagrams
was much more spread than would have been expected, with
the consultants either using them more than 75% of the time
or less than 25% of the time.
VE RESULTS
In order to make a holistic appraisal of VE, it is necessary
to look at not only theory and practice but also the output or
Downloaded from ascelibrary.org by Heriot-Watt University on 10/29/20. Copyright ASCE. For personal use only; all rights reserved.
• VE proposals were often mismatched with the level of
design of the project. For example a proposal on a hos-
pital project was to revise design of parking lot at a
$500,000 savings. However, as the project was at the 10%
design stage, the car park was not designed sufficiently to
be revised to the level of detail that the proposal sug-
gested. The design architect admitted that he had not
given the design of the car park any serious thought, but
nevertheless had no intention of developing along the
lines assumed by the VE study.
• A further problem with collecting implementation data
was that incorporating the proposal into the design did
not necessarily mean it was incorporated into the final
construction. The view expressed by some construction
managers and clients was that VE proposals omitted in

the design were put back at a later stage, resulting in

results produced by them. In order to do this the proposals
made by a selection of VE studies were analyzed. These pro-
posals were examined in two contexts. First the actual cost
saving achieved was calculated. However, in addition the na-
ture of the savings was also seen as relevant. This is because
the distinction between VE and traditional cost cutting is a
contentious one and it was necessary therefore to analyze the
type of proposals put forward by VE to see if they could be
classified as cost cuts. VE studies were therefore analyzed un-
der three separate groups of proposed savings, implemented
savings, and the nature of the savings. In all, 55 studies were
analyzed. The studies were taken from those consultants prac-
ticing in the alpha school since this was shown to represent
the body of practice in the United States.
Proposed Savings
Proposed savings were taken directly from the studies.
However in the studies examined individual proposals were
often mutually exclusive. Where this was so the total proposed
saving of the study was reduced to account for it, with the
higher of the two mutually exclusive proposals included in the
total. The average proposed saving is shown in Table 2.
Implemented Savings
To obtain data on implementation, each of the 55 studies
was followed up to find the actual level of savings achieved.
VE consultants did not do this themselves, so it was necessary
to follow up the studies individually by contracting the client
or design team. This process encountered some of the follow-
ing difficulties:
additional cost and even delay.
• In VE workshops the VE team usually produced an in-
dependent estimate. Examination of these sometimes re-
vealed differences from the original project estimate. On
some studies the VE team used their own estimate to price
proposals whereas in others they used the project estimate.
• The estimating accuracy of some proposals could be chal-
lenged.
• Proposals did not always truly represent a saving and
sometimes only represented an adjustment or correction
of the estimate.
• Not all VE proposals were priced but were termed "de-
sign suggestions." These fell into three basic categories:
(1) proposals where the impact was too large for accurate
costing; (2) proposals that may have resulted in increased
costs; and (3) proposals that were too vague to attach an
accurate costing.
• These items, which were often implemented, make ac-
curate financial presentation of implemented savings more
difficult. Due to the problems outlined previously, not all
of the studies could be used and the following results are
based on 41 of the original 55 studies. Table 3 shows
average implemented savings.
Nature of Savings
To show that VE is different from cost cutting, it is neces-
sary to define what a cost cut is. For the purpose of examining
the VE studies a cost cut was defined as either an omission or
a specification reduction. Some typical examples of omissions
would be the removal of external works, the omission of fin-

• Proposals were often implemented partially or in modified TABLE 4. Results of Discipline

form, thereby making true savings difficult to quantify or Implemented
Proposed
evaluate. savings savings
(percent of (percent of Implementation
TABLE 2. Proposed Savings Discipline total) total) rate
Proposed savings Value (1) (2) (3) (4)
(1 ) (2) Architectural 33 34 36
Number of studies 55 Engineering 28 30 31
Total cost (U.S. dollars) 28.4 MechanicaVelec-
Proposed savings (U.S. dollars) 4.8 trical 39 36 34
Averaged proposed savings (%) 32.7
TABLE 5. Results by lYpe
TABLE 3. Implemented Savings Proposed Implemented
Implemented savings Value savings savings
(1 ) (2) (percent of (percent of Implementation
Discipline total) total) rate
Number of studies 41 (2) (3) (4)
(1)
Total cost (U.S. dollars) 28.4
Implemented savings (U.S. dollars) 1.8 Layout 32 36 41
Average implemented savings (%) 10.7 Cost cuts 68 64 32

326/ JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / DECEMBER 1996

J. Constr. Eng. Manage., 1996, 122(4): 324-328

 Mechanical!
electrical
Architectural

Engineering

FIG. 5. Implemented Savings by Discipline

FIG. 8. Value Engineering Practice

Layout
changes
ings, along with the actual implementation rate for each dis-
cipline. Fig. 6 shows the same results in graphical form.
Downloaded from ascelibrary.org by Heriot-Watt University on 10/29/20. Copyright ASCE. For personal use only; all rights reserved.

Cost cuts
Results by Discipline and Type
Fig. 7 shows each discipline split into types and the per-
centage contribution of each group to the overall total of im-
plemented savings. The nature of the data and the problems
that were encountered in its refinement do make the conclu-
FIG. 6. Implemented Savings by Type sions that can be drawn on VE fairly limited. However, the
following inferences can be made with a reasonable degree of
confidence.
Mechanical!
electrical cost
cui 1. Proposed savings made by VE studies are approximately
Mechanical/ 30% of project cost.
electricallayou
2. The implementation of these proposals is around 30%,
Engineering
cost cut
giving an average implemented saving of approximately
10%.
Engineering
layout 3. The proposals, in terms of their contribution to the over-
all implemented savings, come equally from the archi-
Architectural
cost cut tectural, engineering, and services disciplines.
Architectural 4. The savings do not confine themselves to cost cuts. Al-
layout though the majority of proposals do fall into category
10 15 20 25
(64%), a significant number (36%) do actually comment
PercentaKe contribution to total implemented savinJl:s
on the design in a way that would not normally be as-
sociated with a traditional cost cutting exercise.
FIG. 7. Results by Discipline and Type
Case Studies
ishes or the reduction in heights of partitions. Specification
changes involve the substitution of one type of material for Four VE workshops were attended and examined. Once
again these were selected from consultants practicing in the
another, examples being the substitution of paint for glazed
tile, or bitumen felt in lieu of permabit. Where a proposal alpha school. The striking item of the workshops examined
offered more than an omission or specification change it was was that although they were carried out as a 40 hour workshop
termed a layout change, that is it commented or made a pro- structured around the job plan at the 35% design stage and
posal that would not ordinarily be expected to be found in a using an external team, the technique of function analysis was
traditional cost cutting exercise. In addition it was felt that cost either not used or was included only as a paper exercise. In-
cuts were more likely to occur in the architectural content of stead of the creative process outlined in VE texts, the VE team
the project and VE proposals were therefore categorized into selected areas that, based on previous experience of the con-
architectural proposals, engineering proposals (which were struction industry, they felt to be above average cost. They
civil or structural), and finally mechanical and electrical pro- then looked for cheaper alternatives in these areas. What was
posals. Of the 41 studies on which implementation data was also striking about the workshops examined was that the depth
reliably collected, six could not be broken down into the cat- of analysis (and therefore perhaps the measure of success of
egories outlined previously. Tables 4 and 5 and Figs. 5-7 the study) was dependent on many factors that are not rec-
therefore refer to 35 studies. ognized as part of the VE equation. The personality of the VE
team leader, the input of the client, the relationship of the VE
and design teams, and the nature of the project itself all ap-
Results by Discipline peared to make a significant contribution to the success or
Table 4 shows the percentage contribution of each discipline otherwise of the study. From the case studies it can be con-
to the overall total of proposed and implemented savings, cluded that the real format of VE is as shown in Fig. 8. How-
~ong with the actual implementation rate for each discipline.
ever. in addition to, and operating outside this system, is a
Fig. 5 shows the same results in graphical form. multitude of factors that appear to have a direct effect on
whether the VE study is successful or not.
Results by Type CONCLUSION
Table 5 shows the percentage contribution of each type of Normally when the theoretical base of a subject is examined
proposal to the overall total of proposed and implemented sav- it is assumed that practice is a reflection of that theory and
JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / DECEMBER 1996/327

J. Constr. Eng. Manage., 1996, 122(4): 324-328

 was preceded by it. However, in the case of VE, this is not
so. VE theory is in fact a representation of practice. The his-
torical development of VE in construction is such that VE
programs were developed first and were then followed by texts
on the subject, often written by the sample people who had
developed the VE programs. One of the outcomes of this was
that VE theory in construction has developed without the
benefit of academic scrutiny. The main area where this is
noticeable is in the area of function analysis, which appears,
in practice, to have broken down completely. As far as the
practitioners are concerned this is not important because they
can achieve success in terms of cost reduction without function
analysis. However the presence of function analysis is impor-
tant to SAVE, which feels that it is function analysis that
makes VE what it is and that without it VE is simply cost
Downloaded from ascelibrary.org by Heriot-Watt University on 10/29/20. Copyright ASCE. For personal use only; all rights reserved.
cutting. As SAVE is now recognized as the accreditation body
for value engineers, the VE consultants are therefore keen to
tow the line, at least in theory. In practice, however, they rarely
do. This dichotomy between the views of SAVE and the prac-
ticing consultants is reflected in the difference between VE
theory, or what the consultants say they do, and VE practice
that represents what they actually do. Despite this dichotomy,
however, the analysis of VE practice showed that in the United
States it is successful in that it reduces cost and it does this
other than by traditional cost cutting means. But how can this
success be achieved when the vital ingredient of function anal-
ysis is missing?
Value engineering in the United States is basically a design
audit. It consists of a 40 hour workshop structured loosely
around a job plan. It is carried out at 35% design by an ex-
ternal team. It involves the selection of high cost areas and
the generation of alternatives. The selection of high cost areas
is a fairly loose procedure. It is based on the comparison of
elemental costs with the cost of cheaper alternatives, along
with a more general analysis of cost centers of the project.
This nebulous approach results in a fairly broad VE output
encompassing design changes and cost cuts from all disci-
plines. This output, however, cannot be attributed to function
analysis. The actual workshop itself as an autonomous unit set
aside for cost reduction is a critical factor. Within the work-
shop, the degree of success or level of output relates largely
to the personalities involved, particularly that of the leader, the
timing of the study, the interaction of the VE team, the input
of the design team, and the role of the client. The technique
of function analysis bears little or no relationship to the output,
but other factors do.
Given this significant development of VE from the early
philosophy of Miles, it is surprising that there is such (al-
though not total) uniformity in the practice of VE. The reason
for this is that the development of value engineering in con-
struction in the United States has been primarily from one
source, the U.S. Department of Defense (DOD). The other
large users are the U.S. federal government, the Environmental
Protection Agency, and the General Services Administration,
328/ JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / DECEMBER 1996
J. Constr. Eng. Manage., 1996, 122(4): 324-328
which all use the same system-developed from the DOD
method. The U.S. government and DOD have become syn-
onymous with VE in the United States. This was reinforced
by the Palmer survey, in which 67% of consultants indicated
these two bodies to be the leading VE clients in the United
States. As such, the DOD method has been adopted by the
vast majority of practicing value engineers in the construction
sector.
The problem is that this Department of Defense method
cannot strictly be termed VE because it does not use function
analysis. This is most likely because, despite its outward sim-
plicity, function analysis is extremely difficult and takes a great
deal of time and expertise. In addition, the 35% design stage
-at which the DOD does its studies-may be, as suggested
by Kelly and Male (1990), too late for an effective function
analysis. Also, poor initial cost control by the DOD means it
is fairly easy to reduce costs significantly even without the use
of function analysis. Finally, it appears that the initial reason
for the DOD program was primarily a need for increased ac-
countability. The output of all this was a program called and
regarded as VE but without function analysis. There is some
recognition of this in the United States that is represented by
the beta school of thought. However, proponents of this school
are naturally suppressed, since if they want to work for the
government agencies, which are the largest clients, they must
use the alpha system.
It would be unfair to write off VE in the United States since
the research shows that it does achieve results and the disci-
pline is still in the early stages of development. Further de-
velopment of VE will most likely require the eventual inclu-
sion of function analysis. However, although function analysis
is a very powerful tool, there are many more factors that are
relevant to the success of VE, and these need as much em-
phasis as the technique of function analysis itself. The contin-
uing overemphasis on the use of function analysis by SAVE
will most likely force the construction sector to be isolated
from the main body of SAVE. VB needs to develop and, in
order to do that, there needs to be a greater examination of
the other factors that are relevant to a VE study, as well as a
separate examination of how function analysis can be used
successfully for construction projects.
APPENDIX. REFERENCES
Heller, E. D. (1971). Value l'IUl1Iagement. value engineering and cost re-
duction. Addison-Wesley Publishing Co., Reading, Mass.
Kelly, J., and Male, S. (1990). "A critique of value management in con-
struction." CIB 90. Proc.• Build. Economics and Constr. Mgmt.• CIB,
Paris, France, Vol. 2, 130-139.
Miles, L. (1967). "Techniques of value analysis and engineering." Mc-
Graw-Hill Book Co. Inc., New York, N.Y.
Mudge, A. (1971). "Value engineering, a systematic approach." Mc-
Graw-Hill, New York, N.Y.
Palmer, A. (1992). "An investigative study of value engineering in the
United States of America and its relationship to United Kingdom cost
control procedures," PhD thesis, Loughborough Univ. of Tech., Lough-
borough, England.