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Abstract

Value engineering and value management as significant features of capital projects are two project management techniques that identified as critical in optimizing project value for the target cost. Research has shown that value management and value engineering thrive on hard and soft system thinking paradigms, with value engineering mainly focusing on project plan and value management focusing on communication as the key component to optimize value. The ultimate goal of both techniques is to optimize project value for the target cost at every phase of project lifecycle.

In addition to that, value management is a paradigm that focuses on communication and enables stakeholder understanding of the problem under consideration with clearly understood objectives. This research focuses on value engineering as a technique to optimize value for the target cost, endeavors to explain different approaches to value management and value engineering and the implications of both techniques on the ultimate benefits of value engineering and, management on project value. On the other hand, the research endeavors to establish the need to compliment both techniques. The inquiry is further informed by typical case examples particularly by examining the reasons for the failure to manage and engineer value in projects in Southeast Asia. The inquiry terminates with results and recommendations based on literature desktop literature reviews of available literature.

Introduction

Value management in construction projects is a critical element in the attempt for projects to attain maximum value for the target cost of a specific project. Value management (VM) is intrinsically a team based managerial process that optimizes the best method of delivering products to a construction project by optimizing on the cost and product quality, thus making the overall project cost minimal. A continuum of studies show value management as a method to make the best use of toplevel management skills in value systems by aligning with respect to the need to address problems to minimize cost while making the best of quality, reducing time scale for project implementation, and endeavoring to implement value at all levels of project key points. Thus, at each point of making the best value, the need for management to make the best use of and enhance decision-making skills is important.

In addition to that, value engineering and value system alignment is essentially on information alignment and problem solving strategy. On the other hand, value system reconfiguration is an independent variable that enables managers formulate methods for problem solving by restricting information on project value management, formulating problem solving strategies, aligning and realigning project progress to optimize project value with the consequent benefit to optimize value and reduce cost. On the other hand, value system audit is another component of value management, which enables managers to restructure relevant information that enables them optimize project value and consists of professionally qualified team members who contribute their expertise in information restructuring to attain higher levels of project value. On the other hand, value engineering (VE) is a function based thought process that endeavors to optimize product function to maximize value. The approach uses logic to identify the internal value of a product and the best method to optimize function and reduce cost.

Statement of the Problem

The goal is to optimise the project such that the maximum real value is achieved for the budgeted cost. Frequently this is done implicitly with minimal formal process but most modern project teams attempt to manage value through an explicit and formal process.

Thus, the main goal of the dissertation is to conduct an inquiry into value engineering and value management as techniques to make the best use of value in construction projects and as the best approach in project management.

The Research questions

1. What are the differences between value engineering and value management?
2. How can the Value Management process be optimised so that true value is identified and changes are made effectively and efficiently and in a timely manner?
3. What are the consequences of ineffective and inefficient Value Engineering?
4. What are the modern key value management techniques?

Research Objectives

The research objectives are:

1. Examine the complementary aspects of both value management and value engineering in project construction projects
2. Examine the different methods of analyzing and implementing value in a project.

Research aims

1. Distinguish between value engineering and value Management
2. Examine the benefits of value management
3. Examine the befits of value engineering

Literature Review

Value management and value engineering

According to Checkland (1981), value engineering and value management embrace diverse system thinking paradigms based on underlying assumptions about both disciplines. Checkland (1981) views value management as a paradigm that reflects on hard system thinking and as a strategy to optimize project value for a target cost. On the other hand, value management tends to focus on a specific design problem in a project and provides a basis upon which a common understanding by the project stakeholder is established. On the other hand, Male, s., et al., (2007) and Checkland (1981) both view value engineering is a paradigm that reflects the soft system-thinking technique which endeavors to optimize project value through cost reductions based on strategic techniques such as SMART. However, established facts in research literature show that value implementation based on a variety of techniques including the Value Adding Path Map (VAPM) is workable. In both cases, active participation of client in project design is a distinguishing characteristic inherent in both paradigms (Kelly & Male, 1988).

Both paradigms differ in the approach used to implement value in a project with the aim to minimize ultimate project costs.

Value Management

It is important, therefore, to begin by examining the definitions of value management. Different authors have researched and coined different definitions of value management. Value management, Kelly and Male (1988) is an organized approach to providing the necessary functions at the lowest cost p.4. On the other hand, other authors define value management as a structured process of dialogue and debate among a team of designers and decision makers during an intense short-term conference (Yeo, 1993). Other definitions of value management include systematic, multi-disciplinary effort directed towards analyzing the functions of projects for the purpose of achieving the best value at the lowest overall life cycle project cost (Yeo, 1993).

On the other hand, value management is the conceptualization of production (from value viewpoint): As a process where value for the customer is created through fulfillment of his requirements (Yeo, 1993). In all cases of the definitions, value management is a tool used to optimize value in a construction project by enabling project stakeholders to optimize value at the lowest cost during the project implementation process. Thus, value management is not a multi-pronged approach, but focuses on the need for a common ground upon which value is management by project stakeholders in the construction industry. These definitions, therefore, focus on value management as a system thinking approach with the specific purpose to optimize value. In these definitions, value management focuses on a function aimed at minimizing cost (Chan & Kumaraswamy, 1997).

A critical evaluation of the above definitions shows a departure from other perspectives on value by emphasizing on cost. However, one important conclusion drawn from the value management defintions is that it provides a common framework on which project stakeholders base their decision-making when seeking for a solution to a problem. In addition to that, value management emphasizes on effective communication between parties involved in project development besides optimizing the cost function when implementing a construction project (DellIsola, 1982). Thus, value management optimizes on cost and communication in a construction project. Communication, as stated elsewhere in this paper is a critical component that enables understanding of project objectives, conflict resolutions, and a common understanding of the specific value desired by the end user (DellIsola, 1982). In addition to that, value management calls for project stakeholders at different levels of project implementation to endeavor to emphasize on project value to achieve project success (DellIsola, 1982; Yeo, 1993, & Kelly & Male, 1988).

From the principles of value management, Lincoln & Guba (2000) view value from the perspective of the correlation between cost, the ultimate impact of project design, and the decision making process that is enhanced through the component of effective communication. Thus, effective implementation of value management is on a framework involving effective communication, cost, and project design principles (Cheah & Ting, 2004).

On the other hand, it is important to note that value management thrives on objectives widely understood and accepted by each stakeholder in project undertaking. In addition to that, the function that correlates value in a value based management framework specifically draws its strength from the need to minimize and where possible reduce waste when project stakeholders are implementing a project. In addition to that, the value management function optimizes cost by reducing unnecessary expenditure and endeavors to create opportunities to reduce cost and increase value. However, there is need to test the basis for the value management assumptions (Cheah &Ting, 2004).

According to Lincoln & Guba (2000), one of the effective strategies to implement value management is the compartmentalization of a construction firm. Compartmentalization emphasizes on enhancing project value throughout the firms management structure and calls for a concerted effort at departmental levels to reduce waste and duplication of functions to achieve the ultimate goal of project value ((Cheah & Ting, 2004).Thus, value management is a strategy that endeavors to provide solutions to problems based on the economic sense of a project. However, to achieve project value, value management emphasizes on the following methods:

• By identifying unnecessary expenditure within a project, a departmental or within the management of an organization or a firm working in the construction industry and putting in place measures and communicating these measures throughout the organization on the best methods to minimize the expenditure (Cheah & Ting, 2004).
• Identifying best methods to challenge any assumptions made on all aspects of project implementation beginning from the design level to the implementation of the project (Barton, 2000).
• Being creative and innovative in value creation while providing innovative solutions to project design to ensure cost maintenance at the bare minimum while ensuring effective use of the communication component as a common function when implementing a construction project (Fan & Shen, 2011).
• Endeavoring to promote innovative solutions based on the communication function.
• Endeavoring to optimize the usage of resources in a construction project by identifying the best method to reduce costs at all levels of project implementation lifecycle while maintaining quality attributes.
• Value management is a strategy to save expenditure in terms of money and energy requirements for a construction project during the implementation process (Fan & Shen, 2011).
• Ensuring continuous communication within and outside of a project stakeholder continued usage as a critical tool in the implementation process.

Importance of value management

Winter et al, (2006) and Green (1990) have conducted research into the construction industry and have endeavored to identify the importance of optimizing cost based on the strategic use of different methods at management, project, and the entire organization levels (Green, 1990). Typically, according to Lincoln & Guba (2000), research as shown that value management is critical particularly in the construction industry as it comes with a number of benefits. Some of these benefits and the main purpose of value management are listed table 1 below:

Adopted from Green (1990) and Lincoln and Guba (2000).

Value management, as has been argued above, focuses on communication as the key component in the management strategy. Value management focuses on team building and team dynamics, organizational theory and psychology, and other strategies that focus on economic and cost restructuring. Kelly and Male (1993) have shown that communication plays a critical role in enabling clear understanding between all stakeholders involved in a project, such as enabling communication in a team to enhance team dynamics (Lincoln & Guba, 2000).

However, as discussed above other researchers enforce the fact that value management is exclusively a problem solving strategy using the communication component as a vehicle to achieve value management objectives. Thus, the entire focus of value management is to endeavors to minimize costs and economic restructuring as one of the methods of achieving value in a project (Lincoln & Guba, 2000). However, value is only identifiable in a project if costs and economic implications on the project stakeholder show evidence of being minimized based on the concept of value management. In addition to that, project stakeholders show utmost interest in a project if their interests are catered for and in particular, when the cost of investment is low while the profits or gains from a project are high. It is important to note therefore that a strong correlation exists between value management and the perspective of project stakeholders towards this management strategy (Lincoln & Guba, 2000). Moreover, if the stakeholders perceptions about value management strategy management approaches that do not factor value management, then little hope of adopting the value management strategy into an organization can be banked on (Kelly & Male, 1993). Thus, it is important to review some of the benefits of value management as a driving force behind the need integrate the value management strategy. According to industry research reports, Kelly and Male (1993) assert that adopting value management comes with the following benefits:

• Value management provides a clear understanding of project objectives, project costs, restructuring, and other issues related to successful project implementations.
• As mentioned elsewhere, value management enables project stakeholders clearly define project objectives and goals that are commonly agreed upon by all parties in a project.
• On the other hand, the need to make a clear definition of quality and performance measurements and standards agreed upon by the project stakeholders at every phase of project lifecycle relies on a value management framework.
• Based on a value management framework, researchers have noted that companies and particularly the top-level management are able to make clear briefs about all aspects of project progress and management.
• The construction industry projects are capital intensive and the risk of experiencing cost overruns is a real concern for project managers. It has been proven in industry that capital funds savings as resulted from the use of value management as a management strategy in construction projects.
• A successful construction project is an aggregate of different tasks effectively carried out. Thus, implementing a construction project based on the concept of value management has resulted in operational efficiency at different levels of project implementation.
• Team dynamics as already mentioned elsewhere is one of the benefits realized in practice in the construction industry. One of the attributes of team dynamics is team building (Barton, 2000). Team building as one of the benefits of value management is based on the ability, based on the concept of value management, to create an environment of shared understanding between team members, reduce and minimize the risk of conflicts between team members and within the whole team, and encourage an attitude of problem ownership within the team members. In addition to that, value management integrated into an organization enables team members become innovative and creative by adopting and testing the consistency of new ideas with the expectation of improving project outcomes. On the other hand, project participants need continuous and dynamic enhancement their skills for effective fulfillment of project objectives. Thus, value management provides a basis upon which team members in a project can enhance their skills. The ultimate benefit when team members involved in project implementation is to save on development time and better value for the final project product. Typically, therefore, team members attain between skills on achieving project objectives based on the theoretical proposition and application of VMI as discussed in another section of this paper (Barton, 2000).

Soft System thinking

From the foregoing study, value management focuses heavily on the best methods to optimize the overall cost while minimizing the target cost. Thus, the cost function always remains at a minimum (Checkland & Scholes, 1990). To attain this objective, a paradigm shift in value management based on soft system thinking bears significant implications on value management. A research paper by Checkland (2000) shows that soft system thinking is a methodology that benefits both public and private undertakings by endeavoring to factor the customer or end user perspectives in system attributes. Thus, the customer or the end user of a public or private utility has a share in decision making at the onset of project development, and in this case, at the design phase. Checkland (2000) argues that soft system thinking has the flexibility desired in decision-making and objectives formulation in different environments.

According to Checkland (2000), soft system thinking draws on finding or establishing the problem under investigation based on political or cultural values. Political and cultural values strongly influence the decision making process at the management levels that strongly influence the outcome in value management. Other studies agree on a common consensus based on common objectives, perceptions by the end user or the customer on the problem under consideration, and the political views and objectives. One distinguishing point and key at this stage is the problem under consideration. Thus, problem identification becomes a key point in soft system thinking. On the other hand, criticism of the perceptions about problem identification shows the approach as a distinguishing factor in value management. Thus, these approaches arrive at a common consensus that the key point is the problem to solve. In addition to that, these effects are the soft system thinking issues of conflicting objectives that seem to thrive on the contrasting political views and other internal problems (Jaselskis & Ashley, 1991).

At this point, it is important to crystallize hard system thinking and soft system thinking in looking for optimal solutions to problems in the construction industry. Soft system thinking is therefore an approach that managers and other project stakeholders endeavor to factor in order to arrive at a structured approach to value management (DellIsola, 1997). The method is applicable project wise, covering all project team members such as designers, technicians, management, and operational level employees. On the other hand, hard system thinking thrives on technical specifications of a problem without the flexibility associated with soft system thinking. However, both approaches are complementary when faced with real life situations and problems that demand cost effective value engineered solutions (DellIsola, 1997).

Once the problem definition occurs based on soft system thinking, the solution to the problem is formulated on different system models specifically tailored for identified problems. Soft system thinking draws on other phases that are used as solutions points to the problem under consideration (Barton, 2000). Thus, the cultural perspectives and political views are made integral to solving the problem already identified within the system. On the other hand, the soft system-thinking paradigm calls for a feasible solution to the identified problem for which the solution seeking forms the fundamental part of the paradigm (Jaselskis & Ashley¸1991)

According to Checkland (2000), conflicts are bound to rise while seeking for solutions to the problem at hand. These conflicts take cultural and political dimensions in addition to conflicting interests specific at the design and commencement of a project. Drawing from the initial findings on value management, this stage calls for the communication component as a vehicle to enable understanding and conflict resolutions. Once the conflicts have been resolved, a consensus is arrived at which sets concrete foundation for progressing further into the project development process with complete agreement on the project development process (DellIsola, 1997).

SMART Value Management

Value management is an important component in the construction industry as the industry is one of the main contributing factors to a successful economy. Thus, one of the tools used in value management is SMART (Simple Multi-attribute Rating Technique) (Newall & Simon, 1972). Typically, SMART is one of the utility theories used to select among different competing options to gain the best value (Checkland & Scholes, 1990). From another perspective, given that one of the objectives of value management is to identify the best strategy to solve a specific problem, SMART is one of the best options and theoretical frameworks upon which such problems are structured while seeking optimal solutions. One of the critical distinguishing elements specific to the SMART approach is soft system thinking. Soft system thinking draws on the basic assumptions when making requisite decisions.

Typically soft system thinking allows top-level management of all project stakeholders to make decisions that are based on a common understanding of knowledge and consensus approach to a solution for a specific problem. Thus, the communication component is an essential element in decision-making for all project stakeholders making a common decision for a specific problem. In the practical sense of the paradigm, SMART emphasizes the gains made and endeavors to sustain the gains. However, the SMART paradigm lays special focus on investigations that enable appropriate decisions making to address specific problems with optimal solutions based on a common consensus. The common consensus draws on appropriate communication between project stakeholders. Thus, besides it being a theoretical framework upon which problems get optimal solutions, SMART reflects a methodological approach for managing value in the practical sense of value management (Newall & Simon, 1972).

One of the paradigms that SMART draws on in its framework is a consensus building at the design phase. Typically, at this stage, frequent meetings are held with special emphasis on the project problem identified at the design phase. Meetings are held with all project stakeholders where communication as an essential component that plays an important role in enabling understanding between the parties involved in the design. After that, stakeholders agree on a common consensus with the initial stage calling on the integration of VMI as a tool to evaluate the appropriateness of proceeding with the proposed project to the next phase. On the other hand, VMI enables decision making by the client, other stakeholders to evaluate the appropriateness of investing in a project before financial commitments are made, and the project commences. In any case, the primary objective of VMI is to ensure clear communication and understanding of project objectives to the client and other project stakeholders before the commencement of a project (Chan & Kumaraswamy, 1997). It is therefore appropriate to discuss the basic stages of VMI that project stakeholders and in particular, the client has to factor when making a decision to commit finance into a construction project.

• Stakeholder identification
• Formulation of project objectives
• Formulation of the value tree
• Creativity and innovativeness
• Evaluation of the current status
• Development

VMI Phases

VMI has been identified as critical in value management. VMI is a value management technique that compliments other techniques in the construction industry with phases discussed below.

Stakeholder identification

According to Lincoln & Guba (2000), stakeholder identification plays a critical role as one in representing all project stakeholders at the top-level hierarchy. Typically, at that level, a common consensus is arrived at in relation to project objectives and progress. It is also important at this phase to ensure a common understanding of the problem demanding a particular solution and other expectations. One critical element that forms a specific function is the communication function (Chan & Kumaraswamy, 1997).

Formulation of project objectives

Project objectives provide the basis for implementing a construction project. The client and other project stakeholders should comprehensively understand project objectives during the initial stage of project progress. Thus, there is need for the client and other stakeholders to identify project objectives establish a common understanding on the most appropriate objectives by all parties in the project. In addition to that, project stakeholders should formulate project objectives that all agree as the basis for implementing the project. After the client and other project stakeholders have established common objectives, the entire team proceeds to the next phase of formulating the value tree.

Formulation of the value tree

Decision-making is one of the most important drivers in directing a project towards success. In theory and practice, decision-making is based on different frameworks, and one of them based on value. Therefore, most project teams have realized the importance of making decisions based on the value hierarchy that draws on the value tree (Barton, 2000).

The core competence of the value tree to management in this case is to focus on project value amid competing options to select the best option that is cost effective. In addition to that, the options in a value tree are an aggregate at the top of the tree in terms of project objectives for the entire project. Once the objectives are clearly spelt at the top of the tree, it follows the phase for breaking the objectives into sub-objectives. At this point, the sub-objectives are evaluated and a clear understanding is settled upon as by all project stakeholders. Thus, the process demands a critical and detailed evaluation of all objectives and sub-objectives to attain the best economic and financial value form a project by all stakeholders. In this case, communication forms the basic component in enabling understanding by all project partners (Chan & Kumaraswamy, 1997).

In practice, it is at this point that a shared understanding and consensus between stakeholders paves the way for the next phase. At this stage of project design, the design optimizes on value, which becomes an integral component in the project. In addition to that, the performance criteria of the project is valuated at this stage to ensure standards for quality and performance are generally agreed upon by the entire force in the project implementation lifecycle. It is at this point that objectives generation to guide the implementation process occur (Checkland, 1981).

Creativity and Innovativeness

Creativity and innovativeness form the basic brainstorming stage for stakeholders to evaluate the level of attainment of project objectives. However, creativity plays a critical role in enhancing the consensus arrived at (Checkland & Scholes, 1990). Thus, creativity and innovativeness leads to the next phase of project implementation. In all these phases, value management plays the central role around which stakeholders make their decision. After the creativity and innovative phase, the evaluation of the status of the decisions made to enhance project value commences (Checkland & Scholes, 1990).

Evaluation of the status

A this value management stage, all ideas generated in previous stages are examined in relation to value based on economic and cost feasibilities. Each stakeholder represents ones ideas, which are likely to create conflicts of interest. Thus, at this stage, a thorough evaluation process takes place to earmark the project for development. It is therefore important to note that earmarked projects reflect the entire value attributes agreed upon by all stakeholders (Barton, 2000).

Development

It is important to note that value management is an iterative process. Thus, at the development stage, project stakeholders settle again to evaluate the project earmarked for development. The iterative nature of value management is to ensure

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