Project Cost & Value Engineering

PROJECT COST & VALUE
ENGINEERING
DR. ALI RAZA KHOSO
PROJECT COST MANAGEMENT
Different Cost Analysis (Labour, Material, Equipment)
Cost management is for controlling various cost
Controllable vs Uncontrollable cost
Cost planning
COST PLANNING
Accurate cost estimation (with accurate planning)
Start with rough estimate (comparison with past projects)
Detailed estimate
Latest schedule of rates/market rates
Few million dollar questions: Is particular item/material really offer value of money?
Do we have another alternative? Is it necessary to add this?
Cost Budgeting
Allocating overall cost estimate to individual items
Prepare BOQs
List out items (different grades of concrete)
Assign different cost heads
Cost Control
Final cost should not exceed the budgeted cost
Continuous monitoring of cost vs items
Better to go with alternatives

Cost Related Information
1. Labour Cost
Employed by Main Contractor/subcontractor
Prepare log book of labours
Different codes for different labours
2. Material Cost
Cost of each material
Buffer inventory theory vs Just-in-Time Concept
3. Plant and Equipment Cost

Rent vs Leased vs ownership
Labour charges, fuel charges, maintenance charges
Cost Related Information
4. Subcontractor Cost
Profit of sub-contractors
5. Overhead Cost
Allocate some percentage
For running project
Bills, extra expenditures
We are behind schedule and over budget!
What is issue?
Why cost is deviating?
Where is the problem?
6
Beginning of Value Engineering
World War II: Lawrence Miles was responsible for purchasing raw materials
and experienced extreme material shortages. He searched for suitable
alternatives that functioned similarly. Found some substitutions that were
more cost-effective AND performed better. This new technique called “value
analysis” is more commonly known today as value engineering.
6
Value Engineering Definitions
 Value Engineering as a function-oriented, systematic, team approach to provide

value in a product, system, or service. (The Society of American Value Engineers
International)
 Value Engineering can be defined as an organized effort directed at analyzing

designed building features, systems, equipment, and material selections for the
purpose of achieving essential functions at the lowest life cycle cost consistent with
required performance, quality, reliability, and safety. (U.S. General Services
Administration)
 The analysis to eliminate item that is not adding value comparative to cost.
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Phase of Value Engineering
• Feasibility Study - Explores multiple strategies , pros/cons, associated
costs. Ultimately a preferred direction is stood up as the project. Team
evaluates effective solutions for the budget.
• Pre-Schematic Design or Concept Phase – looks at multiple solutions
(Often 3) to determine best path forward. (Meeting criteria, life-cycle-
cost, budget, sustainability, working with constraints, etc.)
• Design Process –Expert’s review options. What is the appropriate roof or
mechanical system, lab casework, or floor finish for the project? Not
done in a vacuum without understanding life cycle cost, energy
performance, durability, and program/performance, etc.
• Checking Scope back to key project goals/requirements and what is
necessary versus nice to have. What moves forward in design, as an add
alternate, or parked until we have a better handle on budget.
6
Value Engineering – Why Earlier is
Better
6
Value Engineering Change Proposals (VECP)
 To come up with cost savings method
 Time Saving Method
 Best alternatives compared to present method
 Waste Management
LIFE CYCLE COSTING
Initial capital cost +
Additional capital expenditure is warranted now to achieve future
cost benefits.
Factors to be considered:
 Maintenance + operation costs
 Energy
 Insurance, rates and taxes
 Future income growth
 Future trends in real estate
 A principal factor in LCC is the total cost concept
LCC of projects
Planning Phase
Concept - research - feasibility studies
Development
Design - financing - procurement - construction
Operation
Support services - maintenance - disposal
METHODOLOGY
Costs ($M)
Item Original design Revised design
Design cost 0.2 0.4
Construction cost 5.0 4.0
O&M cost 40.0 33.0
Total cost 45.2 37.4
Overall savings (18%)
LCC is normally performed using either of 2 approaches:
Annual-cost method Present-worth method

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PROJECT COST & VALUE

Cost management is for controlling various cost

Controllable vs Uncontrollable cost

Continuous monitoring of cost vs items

Better to go with alternatives

3. Plant and Equipment Cost

 Value Engineering as a function-oriented, systematic, team approach to provide

 Value Engineering can be defined as an organized effort directed at analyzing

 To come up with cost savings method

 Time Saving Method

 Best alternatives compared to present method

LCC is normally performed using either of 2 approaches:

Annual-cost method Present-worth method

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