What is Cost Engineering and Why is it Important?

No one who has responsibility for managing major,complex,high-tech programmes

with
a high development content will dispute the importance of the cost and financial
aspects
of the work, or the particular difficulty of assessing and controlling costs. Cost will be a
constant source of concern, but will be particularly to the fore when considering
different
technical options, in conducting cost/technical trade-offs, in establishing budgets, in
the
submission and evaluation of price proposals, in preparing for contract negotiations,
and
in assessing the cost impact of introducing changes to existing designs. The question
is
how to tackle these aspects to be best able to predict or assess cost, how to minimise
the
risk and impact of overspends against budgets, and how to ensure that there is an
appropriate balance between technical aspects and the related costs.
With these goals in mind, cost engineering essentially attempts to capture practical
experience in a systematic way, to analyse that experience in order to develop tools
and
models which, together with expert judgement, can be applied under different
circumstances to make predictions of likely cost or assessments of whether a
proposed
cost is reasonable. An assessment of the likely cost and risk is made taking account of
past experience with similar activities and the assessment of associated trends, and
of anychanges in working practices and productivity gains.
But cost engineering extends beyond the estimation and assessment of cost,
because
these capabilities can also be applied to support the aim of achieving more cost-
effective
results. Awareness of the related cost is a key factor in the choice of approaches and
design solutions, but traditionally the roles of establishing design solutions and of
assessing the related costs have been separated both in time and responsibility.
Typically,in the first instance the designer produces a design solution, which is then
passed to otherfunctions such as manufacturing and testing to add their inputs, and
finally ends up withthe estimator to calculate the cost of implementing this solution.
Unfortunately, this islikely to be too late, as these exercises are often subject to time
pressures that do not allowfor a solution that is too expensive to be changed in a
controlled way, which wouldnormally require the design loop to be repeated.

USING LIFE-CYCLE COSTING WITH VALUE

ENGINEERING
The concept of economic analysis, which is used in life-cycle costing, requires
that comparisons be made between things similar in nature. In value engineering all
alternatives can be compared using life-cycle costing because the alternatives for
each
project component are defined to satisfy the same basic function or set of functions.
When the alternatives all satisfy the required function, then the best value alternative
can
be identified by comparing the first costs and life-cycle costs of each alternative.
For many projects there is a viable sustainable development alternative or

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enhancement. Sustainable development may include more recycled material
contents,
require less energy or water usage, reduce construction waste, increase natural
lighting,
or include other opportunities that contribute to an optimal facility. The value
engineering
methodology can provide for the identification of alternatives, sustainable or eco-
efficient
design features, and traditional design features, on an equal playing field for
comparison.
Comparison of alternatives, or the process for identifying the best value alternative, is
accomplished using life-cycle costing along with first-cost estimates. Life-cycle costing
will in most cases be able to accurately estimate the first-cost and the full life-cycle
cost
differentials of each alternative.
At this point tradeoffs and decisions can be made to balance environmental
performance with total cost (i.e., initial, recurring, and nonrecurring) reliability, safety,
and functionality. When all alternatives are compared equally (i.e., “apples to
apples”),
sustainable development technology and integration can then be fully evaluated for
performance in the acquisition process.

VALUE ANALYSIS & VALUE ENGINEERING

Value Analysis is an effective tool for cost reduction and the results
accomplished are far greater. It improves the effectiveness of work that has
been conventionally performed as it questions and probes into the very purpose,
design, method of manufacture, etc., of the product with a view to pinpointing
unnecessary costs, obvious and hidden which can be eliminated without
adversely affecting quality, efficiency, safety and other customer features.

VALUE AND VALUE ANALYSIS

Let us consider at this stage what is meant by “Value’. ‘Value’ is itself is some
what difficult to define. It means different things to different people. Also, it is
often confused with the cost and price of a product or service. One way of
defining the value of an item is:
Worth to you
Value = ------------------
Price you pay
This means that if you feel that you have your money’s worth, then you have
received 100 per cent value. Which indicates that ‘Value’ has a subjective
aspect, for what is good value for one person need not necessarily be so far
another. In general, if for any function or a product or a service, you feel you are
paying too much, or it costs you more than you think it should, there is scope for
improving its ‘value’ into it. This leads us on to another useful way of looking at
‘value’.
Value is the least cost that can accomplish reliably a function or a service. This
implies that in achieving reduced cost, the quality and performance of the item
are maintained. It follows, therefore, that value analysis is a technique which
builds “Value’ into an item.
Value can also be defined as that combination of quality, efficiency price, and
service which ensures the ultimate economy and satisfaction of the purchaser.

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 Value Analysis can be understood as a technique which helps everyone to
determine this combination.
It can be seen, therefore, that several components make up ‘Value’. There is
value arising from the function or end use of an item, and from its ability to
perform a useful function reliable. There is the subjective aspect of value in
terms of esteem or prestige value or artistic value; for example, the extra chrome
and styling used to sell automobiles, or the neck-tie or diamond ring you may
wear. Again, there is the cost value made up of the material and labour costs,
overheads and any other costs incurred in producing the item.
However, in the popular mind, this is closely associated with esteem value, as
there is a mistaken belief that because something costs more it is worth more.
Finally, there is the resale or exchange value which may be taken as the ability to
part with money for possessing a particular product. In addition we have place
value with regard to the usefulness of a product at a particular place.

ORGANISATION FOR VALUE ANALYSIS

Value analysis is a staff function like, for instance, Industrial Engineering, and
should be organized as much. It should be directly under a high-ranking officer
from the Senior Management of an undertaking. This is necessary because
Value Analysis concerns all departments, and the analyst must have access to
them and to their records, performance, costs, etc. Depending upon the size of
the undertaking and its scale of operations, there can be a Central Value
Analysis Cell to co-ordinate the work of individual analysts attached to the
design, purchase, production, and engineering departments. Where there is only
one Value Analyst, he may be attached to the Industrial Engineering Department
or to the Purchase Department.
“Don't look now, but an old discipline value analysis is on the comeback trail,”
trumpets the introduction of a Purchasing Magazine article, “Value Analysis
Makes a Comeback”. Value Analysis and Value Engineering are returning with a
vengeance in the battle to bring jobs back to America. Combined with the lean
technologies of Six Sigma, Lean Manufacturing and Automation, Value
Engineering completes a suite of tools dubbed Extreme Lean™ by Dave Dixon
of Technical Change Associates, Inc., a lean management consulting firm based
in Ogden, Utah. Industry Week’s annual survey of US manufacturers included a
vital bottom-line statistic. The dominant concerns of manufacturing CEOs are 1)
achieving lower costs, and 2) warding off foreign competition. In this context,
“foreign competition” includes US competitors who source products offshore. Six
Sigma and Lean Manufacturing are not enough to turn this around. This article
explores how value analysis/value engineering enhances the Lean-Six Sigma
Methodologies and how the concept of “Extreme Lean™” can help stem the tide of
lost manufacturing
jobs in the U.S.

REPORTING
The State Value Engineer shall be responsible for monitoring program compliance and
reporting to Central Office and District Management. Value engineering operations will
be monitored for compliance with the policies, procedures, and standards identified in
the preceding sections. Specific areas to be monitored include:
• District Value Engineering Work Program and Schedule.
• District Value Engineering accomplishments.
• Documentation of value engineering activities.

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• Economic analysis methods being used in cost/benefit determinations for project
decisions.
• Compliance with the provisions of the value engineering procedures.
Monitoring of program compliance shall conform to the Department’s QAR policy and
may include the following:
• Regular visits with district engineering personnel.
• Periodic participation in value engineering team meetings.
• Attending VE team presentations.
• Formal program review of all records, study summaries, interview
documentation, periodic activity, and quarterly VE reports.
The basis for most reporting will be information contained in the Value Engineering
Reports (VER) database. The Districts are responsible for the initial input and
updating
of project data, while the State Value Engineer is responsible for reporting and
disseminating the results throughout the Department.
The State Value Engineer will prepare a quarterly report detailing the progress made
during the current fiscal year. This report will be submitted to Central Office and
District
Management on a semi-annual basis and will reflect the program accomplishments for
th3.3.3 Engineering Design
A final VE study may occur after completion of Phase 1 design plans, but less than
Phase 2 design plans. Under extraordinary circumstances, VE studies may be
conducted beyond Phase 2 when approved by the District Director of Transportation
Development. Elements of the final VE study will center on drainage requirements,
vertical grades, and minor horizontal refinements within the established corridor,
structures, and utilities. Information and data that should be available to the team
include:
• Key Sheet with location map, begin and end stations, equations, and project
numbers.
• Drainage Information showing:
a. Existing data including ridge lines, elevations, and structures
b. High water information
c. Drainage areas and direction of flow
d. Horizontal alignment
e. Proposed water retention areas
• Typical Sections
• Plan and Profile Sheets:
a. Baseline survey, roadway alignment, curve data, and bearings
b. Existing topography
c. Profile grades
d. Proposed right of way
e. Begin and end project stations, equations, and bridges
f. Existing utilities
• Intersection and Interchange Layouts:
a. Existing topography
b. Basic survey geometry
c. Profile grades
• Cross Sections:
a. Existing ground line
b. Partial proposed templates
c. Existing utilities
• Drainage Outfall:
a. Alignments
b. Cross sections showing existing ground line and partial templates

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• Conceptual Structure Information:
a. Bridge Geotechnical Report
b. Bridge Developmental Report
c. Plan and elevation sheets
d. Cross sections through structure
• Traffic Control Plans for all alternative schemes or phasing being considerede fiscal
year.

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