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VE General Knowledge
VE General Knowledge

Procedure for cost allocation

  1. Split the product into components and service/system into activities.
  2. Define functions of components/activities.
  3. Divide the total cost of product/service/system into components/activities cost.
  4. Processes performed to achieve particular function; cost allocated to that function.
  5. Component provided to achieve particular function; cost allocated to that function.
  6. Component accomplishes more than one function; allocation should be based on weight, volume, surface area and length.
  7. Hold each function in isolation of the others to do this.

Anil Kumar, “Value Engineering Mastermind”

VE General Knowledge

Concept of worth

1. Worth is the minimum cost of achieving a function.
2. Worth is an indispensable element of VE.
3. Worth varies with time.
4. Worth depends upon information.
5. Worth is usually determined by developing or thinking of other methods of performing functions.
6. Worth is just a technique, not an absolute value.
7. Where an item has several functions, determine worth of each function separately and add them to get overall worth.

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Anil Kumar, “Value Engineering Mastermind”

VE General Knowledge

What is the Value of the Value Index?

The primary objective of function analysis is to find the functions/areas of the project that have the best opportunity to improve value, or in other words which functions should be worked on in the creative phase. The early VA/VE pioneers like Larry Miles and Carlos Fallon discussed the worth of functions. Later it seems that the value index formula used today derived from their thoughts, with Don Parker for one, contributing to its use. For many years people have tried to use the value index as a way to determine those functions. The value index is defined as a ratio that expresses function cost to function worth. Function cost is determined during the function analysis phase by allocating cost of the elements of a project across the functions that each element performs. The result is the total cost of each function in the project. Function worth is defined by SAVE as the lowest overall cost to perform the function without regard to criteria or codes.

Value Index = Function Cost / Function Worth

James Rains…

VE General Knowledge

Essential Features of Project Value Management

‘‘Project value’’ refers to the relationship between the needs of different project stakeholders and the resources used to satisfy them. What constitutes project value, however, can be hard to pin down, because different stakeholders have different views. The challenge of value management is to understand and reconcile these differences.
Essentially, value management focuses on enhancing project value, given cost and time constraints, without any negative impact on the project facility’s functionality, reliability, or quality. Effective project value management includes the following key features:

  1. Careful analysis and identification of project needs and scope,
  2. Thorough planning of the project and subsequent work,
  3. Identification of key areas of opportunities that can influence project value,
  4. Development of alternatives for exploiting the identified opportunities for improving project value,
  5. Evaluation of alternatives; development of proposals and action plans,
  6. Use of a performance monitoring system for tracking project value,
  7. Ensure a free flow of communication that cuts across organizational boundaries.

Ref.   Cost and Value Management in Projects. Ray R. Venkataraman and Jeffrey K. Pinto.

VE General Knowledge

Belief in the Importance of Value

(This excerpt is from Larry Miles book, Techniques of Value Analysis and Engineering, page 270.)

Starting with certain native inclinations and modified by childhood and business experience, any person develops interest in certain lines and disinterest in others. In essentially all cases, human beings are interested in food, although in some cases of unusually unfortunate environments, even loss of interest in food is developed by people. Some individuals are interested in flying, while others vow that they will resist it to the death. Similarly, some people develop an interest in providing new products through the development of new functions which their ingenuity can translate into a practical product. Other individuals develop an interest in making products more economical so that distribution may be widened with resultant benefits, not only to the company involved in selling the products, but to mankind in general, through more universal use. At the present stage of experience with value work, it appears that there exist marked degrees of difference in the beliefs of various individuals in the importance of low cost-or its equivalent, high value-in the general sense. Experience has shown that men who have strong belief in the importance of value are much more likely to be sufficiently motivated to develop the initiative, self-drive, and enthusiasm necessary to accomplish their work well. Such strong belief also seems to be an important factor in creating emotional stability in this very frustrating type of work. Hence the conclusion that ”belief in the importance of value” is a significant trait.

VE General Knowledge

Major Decision Makers

Major Decision Makers

This Figure , “Major Decision Makers’ Influence on Facility Costs,” shows whose decisions have the most influence over the expenditure of funds during the life cycle of a facility. The owner and consultants are the major decision makers. To ensure optimal results, it is essential to involve the owner and consultant in the VE process.
Regarding total costs for a facility, the consultant’s fee represents the smallest expenditure of all of the initial costs. Consultants’ decisions influence about 50% of-the facility’s total costs. Therefore, the optimum results can be expected when resources are set aside for VE early in the design process, focusing on owner and consultant impact. Owners who delight in squeezing design fees invariably promote poor value design decisions. Prudent expenditure during design to improve design decisions can return significant initial and follow-on cost and quality improvements.

 

VE General Knowledge

FAST Diagram, (as is) or (to be)?

As we are going to create FAST diagram, the concept describes the method being considered, or elected, to achieve the basic function(s).

The concept either represents the current conditions (as is) or proposed approach (to be). It is always good to create a “to be” rather than an “as is” FAST model, even if the assignment is to improve an existing product. The “to-be” approach provides an opportunity to compare the ideal product to the current product, and thus resolves
questions on how to implement the differences.

An “as is” model will limit the team’s attention to incremental improvement opportunities. To trace the symptoms of a problem to its root cause and to explore the ways to resolve a problem, an “as is” model is extremely useful. It is useful because of the dependent relationship of functions that form the FAST model.

Ref. Reducing Process Costs with Lean, Six Sigma, and Value Engineering Techniques
VE General Knowledge

Pump Total Life-Cycle-Cost (LCC)

Pump Total Life-Cycle-Cost (LCC)

Life-Cycle-Cost is Sum of all recurring and one-time (non-recurring) costs over the full life span or a specified period of a good, service, structure, or system. It includes purchase price, installation cost, operating costs, maintenance and upgrade costs, and remaining (residual or salvage) value at the end of ownership or its useful life, (www.businessdictionary.com)
According to the Hydraulic Institute (www.pumps.org), life-cycle-costing for pumps is calculated as following:

LCC = Cic + Cin + Ce + Co + Cm + Cs + Cenv + Cd

Whereas:

Cic = initial costs, purchase price (pump, system, pipe, auxillary services)

Cin = installation and commissioning cost (including training)

Ce = energy costs (predicted cost for system operation, including pump driver, controls, and any auxillary services)

Co = operation costs (labor cost of normal system supervision)

Cm = maintenance and repair costs (routine and predicted repairs)

Cs = downtime costs (loss of production)

Cenv = environmental costs (contamination from pumped liquid and auxiliary equipment)

Cd = decommissioning / disposal costs (including restoration of the local environment and disposal of auxiliary services).

 

Figure 1. Typical life-cycle cost for a pumping system (Courtesy of Hydraulic Institute)

VE General Knowledge

Bytheway 9 Questions

Bytheway 9 Questions

In his article “FAST Diagrams” in 1970, Mr. Bytheway points out that the questions used in developing a FAST Diagram are “subject oriented as well as creatively oriented and provide (for the analyst) countless motivations for creativity”. The FAST procedure the is a technique using nine “thought-provoking questions” which are shown in the following figure.