holistic value engineering
TRANSCRIPT
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CEE 422: CONSTRUCTION COST ANALYSIS
Comprehensive/Holistic Value
Engineering and Value Analysis
Approaches in ConstructionResearch Paper
Saumil J Mehta
11/26/2010
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Abstract
Traditionally value engineering has been defined as the process of relating the functions, the
quality, and the costs of the project in the determination of optimum solutions for a project.
However, with the growing awareness of environmental and social issue it has been recognized
that a definition of value that focuses only on economic efficiency is unsuitable. Also there is a
need to quantify and analyze life cycle costs upfront (as opposed to just construction and design
costs) and . Hence an evolved and holistic approach that can facilitate the integrated
consideration of social, economic and environmental issues emphasize the need to develop a set
of metrics for assessing and optimizing the lifecycle value of the built environment.
Several new technologies focusing on life cycle modeling for energy, water and electricity have
been developed to provide a better metric of value. The values of environmental protection and
energy efficiency have also been promoted by certifications awarded by Leadership in Energy
and Environmental Design (LEED) Green Building Rating System based on performance
across metrics such as energy savings, water efficiency, CO2 emissions reduction, improved
indoor environmental quality, and stewardship of resources and sensitivity to their impacts.
However measuring the social impact and quantifying its value in monetary terms has always
been a challenge. Moreover there has been a lack of consensus on which absolute measure of
value can best measure progress towards all such issues concerning sustainability. At the same
time the purpose of integrating the three spheres is not merely to define a combined set of
environmental, economic and social objectives, but to reconcile potential conflicts between them.
This paper shall focus on summarizing some of the current work on developing a holistic
approach to value engineering for analyzing construction projects and the challenges faced in
such an endeavor.
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1.IntroductionOver the past decade, the sustainability of the planet has becomes an issue of greater
international concern, and the continuation of traditional modes of development have become
more questionable. However for these concerns to take effect, there has to be a greater
understanding of the issues related to sustainability and the economic trade-offs involved in
development processes. One of the biggest industries that directly affect the use of raw material
and carbon emission is the construction industry. In the recent past, several standards and rating
systems like LEED have been developed to evaluate construction projects in terms of their
impacts. However, little has been done to answer the larger question of value addition of a
project. The aim of this study is to survey various approaches that can allow a holistic evaluation
of construction projects.
2.BackgroundCurrent methodologies in project performance measurement are limited to impact evaluations
and provide little scope of improvement. The traditional process which begins with the civil
engineers and architects, who make the early conceptual design decisions followed by
environmental engineers and scientists and local political groups who attempt to patch their
environmental and social equity issues onto these early conceptual designs late in the process.
Such a process is sub-optimal because it does not allow lifecycle costs, environmental concerns,
and social equity stakeholder issues as modifications to a conceptual design that has been
effectively locked in through early financial, legal, and regulatory approvals and covenants. Our
recent awareness of economies, societies and ecosystems as complex adaptive systems that
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cannot be fully captured through a single perspective further adds to the argument. Failure to
describe these systems in a holistic manner through the synthesis of their different non-reducible
and perfectly legitimate perspectives amounts to reductionism.
Most conflicts seem to be rooted in a narrow perception of value understood by different
stakeholders. The aim of this study is to tackle the problem of interpretation and assignment of
value from an archaic standpoint and the challenges involved in developing holistic approaches.
All approaches to define value holistically depend on a certain set of assumptions and what
distinguished each approach are the assumptions themselves. Three chief approaches shall be
outlined and discussed and an attempt to expose the advantages and limitations will be made
based on their assumptions
i. Bottom Line Approachii. Multidisciplinary analysis and visualization tools for project planning
iii. Developing richer conceptual framework like
3. Bottom Line ApproachThe bottom line is a metaphor arising from within the business lexicon that confers the ability to
capture in a unique representation (a number) the effect of a multitude of separate actions
(transactions) by systematically representing these actions using a common metric and summing the
contributions (benefits) and detriments (costs). The quintessential symbol of the bottom line is the net
income (earnings) reported on the financial statements of publicly held corporations. Net income is
the difference between the revenues of a period generated by selling the products or services,
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capturing the organization and the costs of producing and selling those products or services and
purportedly captures the organizations inflows and outflows in a single figure. As a metaphor, the
bottom line (net income) represents information capture of a collection of activities enabling the
synthesizing of the effects in a concise representation. The requisite unit of measure is presumed to
be compensatory, additive, inclusive, and, to be useful, relevant.
Figure 1: Traditional Project Evaluation Process
A new reporting technique being developed is called the triple bottom line reporting technique
which applies the bottom line metaphor to the social and environmental aspects of a business
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organization. The legitimacy of such an application depends on the extent to which the
characteristics of the application domain (social and environmental) conform to those of the
initiating domain (economics/accounting). Environmental Accounting is usually done using
rating systems. For example in the US, Leadership in Energy and Environmental Design (LEED)
is often used as criteria for selecting projects.
Figure 2: Project Evaluation using Triple Bottom line
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Development of rating systems such as the Leadership in Energy and Environmental Design
(LEED) Green Building Rating System are meant to improve performance across metrics such
as energy savings, water efficiency, CO2 emissions reduction, improved indoor environmental
quality, and stewardship of resources and sensitivity to their impacts. Each of the above criteria
are awarded a certain number of points and then summed up. LEED 2009 for New Construction
and Major Renovations certifications are awarded according to the following scale:
Certified 4049 points
Silver 5059 points
Gold 6079 points
Platinum 80 points and above
Social benefits are usually measured in terms of reduced travel time, better connectivity, service
offered to community by the infrastructure and so on. These are harder to quantify.
Limitations of Bottom Line Approach
The major assumption in the bottom line approach is that costs and benefits of components can
be calculated individually and reduced to monetary values or basis points which are used as sole
guidelines for project approval. Some researchers have even criticized the bottom line as a
disconnected and misconstrued metaphor when it is applied within the guise of triple bottom line
reporting and provides little, if any, utility for organizations or their stakeholders. As argued
above, the application of the bottom line metaphor, as currently construed, represents a limited
and conceptually flawed application. It then follows that the resulting triple bottom line reporting
would also be flawed as a portrait of the three categories of sustainability. The categorical
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reporting moves from the traditional economics based business-related concept of bottom line to
broader, more ill-defined, and non-rigorous concepts of the environment and the social systems.
Even standards like LEED are inadequate because of lack of a weighting system based on
climate, bioregion, and local factors (Kibert and Grosskopf , 2006). It does not, for example,
address the future extraction of resources from the building and it barely addresses the
composition of the products that comprise buildings. Although sustainable forestry is certainly
an important issue, this point, as is the case with several others, is subject to a certain amount of
gamesmanship in which products are specified solely for the purpose of achieving this point. In
order to positively evaluate and reward innovative design which is integrated with local
ecosystems, rather than putting a cap on the maximum points that can be earned by eco-friendly
projects, a holistic analysis of project value is necessary. The triple bottom line report gathers
together the three legs of sustainability but provides no focus and fails to address, even at a high
level, the need to arrive at some salient point, some essential value. The bottom line is a
disconnected and misconstrued metaphor, with no real utility for organizations or their external
stakeholders when operationalized within the triple bottom line statement [3].
4. Understanding Impact using Visualization ToolsOne of the reasons why stakeholders do not reach a consensus is lack of ability to visualize the
project in its totality. Development of visualization and graphical tools have opened up
possibilities to overcome this limitation and provide more information about the project at the
design phase itself through prototyping, modeling and forecasting techniques. For example,
visualizing the energy flow can give a better picture of future energy demands and the chance to
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minimize current load if the energy modeling division is aware of other components of the
system. This is specifically provided by BIM.
4.1 Integrated Project Delivery using BIM
The traditional business environment within the AEC industry is fragmented and rarely do
stakeholders within the total life cycle of the delivery and use of facilities, within the total life
cycle of the delivery and use of civil infrastructure systems, and within the total life cycle of the
delivery and use of technologies, systems, products, materials, and equipment have a
collaborative interaction with each other. The tendency is for each one to operate independently
of the others. Several efforts have been made to overcome fragmentation and segregation of
design and construction activities. BIM is an approach to building design involving the use of a
digital building model created from coordinated, consistent design information enabling whole-
building analysis, faster decision-making, and better documentation. Integrated project delivery,
enabled by BIM, is based on the following strategy: cross-functional project teams collaborating
on a buildings design, construction, and lifecycle management for optimized owner outcomes,
using collaborative, model-based technology as a platform.
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Figure 3: BIM software uses a centralized, parametric model allowing automatic coordination of
all plans, quantity takeoffs, and other related documentation (Middlebrooks, 2008)
BIM also provides a platform to build tools to measure building performance in an effort to
minimize energy consumption of buildings. Leading BIM vendors such as Autodesk, Benteley
and Graphisoft have created products that are integrated with BIM to support one-click energy
analysis. These are typically based on importing building information models in standard formats
and applying statistics to obtained models. These approaches focus mainly aspects such as solar
exposure, thermal performance, acoustics, lighting, shading, etc., during schematic design as
well as design development.
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4.2 Geographic Information Systems
Just as BIM can be particularly useful to measure energy performance, GIS also has a significant
role to play in terms of determining social impact of infrastructure projects such as roads,
hospitals, manufacturing plants and so on. GIS is often recognized as a decision support system
involving the integration of spatially referenced data in a problem solving environment. Hence
GIS can be considered as a rudimentary Community-based Geographic Information gathering;
the use of different coding methods allows for the composition and storage of thematic
information layers; this in turn facilitates community-based analysis of spatially-defined
information and the display of results. The tool processes existing data and its output(for instance
the change in policy by decision makers in favor of society welfare), providing the foundation
upon which public participation GIS can release in its full potential, by displaying multiple
realities and conflicting interest through the eye of all concerned stakeholders. This can be used
as a platform for communication and dissemination of information which can link community
participation and Geographical information in diversity of social and environmental context. In
order to fulfill the vision of GIS to make contextual decisions, a consensus building exercise
must be performed where shared beliefs and values can be negotiated and defined (Malczewski,
2004). GIS is often combined with Multi-criteria Decision Analysis since MCDA provides a rich
collection of techniques and procedures for structuring decision problems, and designing,
evaluating and prioritizing alternative decisions.
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Figure 4: Regions of Sustainability to visualize landscape as a sustainable unit (Ball, 2002)
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Limitations of Visualization Tools
Information schema evolution through time to support changing project or industry contexts is
not fully catered for by standards such as IFC or STEP. Another limitation of from data-centric
application integration is the inability to capture work processes and peoples knowledge.
5. Development of richer frameworksAlthough most collaboration technologies have tried to overcome the fragmentation across
various domains, little has been done to improve the process of project design and planning.
Providing formal foundations to the requirement phase is critical because it has been identified as
the most error-prone, and these errors are the most expensive to correct and continues to be the
cause of high failure rate of large infrastructure projects. One of the biggest obstacles is the
polarity between the languages used by the clients, suppliers and other stakeholders. Relying
merely on visualization techniques to overcome the language barrier between all parties may not
be enough to reach the best possible design for a project.
The continuing evolution of semantic forms developed by computer scientists has lead
researchers to investigate ontology-based systems to overcome the above limitations. Ontologies
provide a framework for representing, sharing, and managing domain knowledge through a
system of concept hierarchies (taxonomies), associative relations (to link concepts across
hierarchies), and axioms that allows reasoning in a semantic way. For example, the words in the
planning ontology are technical terms that govern the form of inputs and the interpretation of
outputs. The definitions tell the user of a planning system what information must be given about
an event or resource in order for the planner to be able to use the information. Each program
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must commit to the semantics of the terms in the common ontology, including axioms about the
properties of objects and how they are related.
Figure 5. Evolution of semantic forms
One of the key factors that make ontologies superior to taxonomies or product models in terms of
semantic richness is the use of axioms. Axioms, constraint the interpretation and well formed use
of terms formed within ontology. This means that using axioms makes ontology more systematic
and well-defined, moving closer to the goal of a common language and leading to greater
integration of different perspectives. Different stakeholders such as planners, engineers,
architects can exchange understand project components and processes from a holistic standpoint
by accessing and discovering the meanings provides by axioms and inter-relationships in
ontologies of other domains.
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6.Process GuidelinesThe paper highlighted the difficulties of taking a completely quantitative approach and the
uncertain possibility of developing an ontology which would be agreeable to all stakeholders as a
basis for communication and setting out the criteria for project evaluation. To take advantage of
the above approaches without conflicts, some guidelines about the process should be established.
A few helpful process guidelines are discussed in this section.
6.1Integrated ReportingThe essence of one report is the integrated presentation of financial and non-financial
information and the relationship between different types of performance outcomes. The benefits
of such a program would be enormous. Investors and securities regulators would get a clear view
on what companies regard as their key performance metrics. This would be useful input in future
efforts to simplify financial reporting, codify standards for nonfinancial reporting, and begin to
establish guidelines for companies to publish a single integrated report. In identifying and
reporting in a single document the truly material financial and nonfinancial metrics and
relationships between them necessary to understand a company's past performance and future
prospects, an integrated report will reduce the complexity that comes from detailed information
of little value and the cost of issuing multiple reports. Integrated reporting is a way of solving
two problems at once: the burden of increasing complexity and cost of financial reporting, and
the growing demands for nonfinancial information.
Putting all performance information into One Report in an integrated way challenges all
stakeholders to take a more holistic perspective. Shareholders cannot just focus on short-term
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profits; they need to understand that a company's ability to earn profits over the long term will
require investments that come at a short-term cost, or even value transfers that preserve its
legitimacy and continued existence in order to earn profits in the future. Conversely, other
stakeholders need to understand that companies need to make a profit in order to survive and
grow.
6.2Trial and DesignDesign of infrastructure projects can benefit immensely by taking input from all stakeholders in
the early phase of the project. In order to accommodate the criteria and concerns of all
stakeholders effectively, condition that encourage the possibility of agreement among
stakeholders must be encouraged. This is not only determined by better information and
visualization of outcomes but more by an ability to align different perspectives of stakeholders.
One way of proceeding toward a unity of agreement in which stakeholders concur by letting each
group behave as itself any fusion will be natural and expansive rather than restrictive or imposed,
the resulting organization being more the result ofante posteriori affectualadjustment than an
a priori rational regulation. Such a method is termed a trial and design method. A trial-design
method of evaluation does not require values being subjected to a Cost-Benefit Analysis (CBA):
one where the engineer becomes an architect. The architect takes an outline of the clients
values and needs specification, draws up a series of draft alternatives and then consults with the
client and other stakeholders as the process develops. Rather than use any finalized CBA
weightings, evaluation takes place through a series of increasingly informed client and
stakeholder choices, each of which requires active and responsible involvement. The trial design
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method invests in sustainability as an organic process rather than a series of one-off
considerations that foreclose upon opportunities unforeseen at the inception of the brief.
6.3Project Appraisal based on AxiologyTools like BIM which are based on taxonomies and product models face one inherent limitation
that prevents the maximization of project value. These systems are unable to support decision
embedding and recording of design intent (a feature that is supported to a limited extent with
product data models). This lack of documentation often leads to errors in design when
downstream decisions are made based on conflicting assumptions. This can have several
disadvantages. For example, it makes change management highly cumbersome. Changes in
project design to meet new requirements may be valued differently by various stakeholders and
decisions cannot be made unless the value concerns of all parties are satisfied.
Design of infrastructure projects can benefit immensely by taking input from all stakeholders in
the early phase of the project. In order to accommodate the criteria and concerns of all
stakeholders effectively, a value model must be defined to provide the framework for global
optimization at the requirements phase of the project. A value-driven approach (by defining a
value model ex-ante) can be important in overcoming the limitation in design process which
typically follows a cycle of first modeling the system, analyzing the impacts, making changes
and again analyzing the impacts. Such a framework will include a formal axiology or a theory of
values for lifecycle operations of infrastructure projects.
The programmatic study of values or axiology is concerned chiefly with the nature of value. It
involves three tasks: (1) the grounding of a genetic conception of value to provide a unified
basis for the wide diversity of contexts in which the evaluation takes place, (2) the study of the
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phenomenology of valuation in general, and (3) the development of a system of value axiomatics
codifying the universal rules of valuation. Furthermore, axioms enable the language designer to
express his general intentions quite simply and directly, without the mass of detail which usually
accompanies algorithmic descriptions. Finally, axioms can be formulated in a manner largely
independent of each other, so that the designer can work freely on one axiom or group of axioms
without fear of unexpected interaction effects with other parts of the language.
7.SummaryAlmost all approaches discussed in this paper call for a need for greater integration. The
integration can be at various levels and the deeper and richer the integration, the more holistic
will be the project evaluation. Broadly these can be classified as follows
1. Environment economy and equity are not necessarily independent silos that are evaluatedindependently
2. Allowing stakeholders (including NGOs) to discuss and share multiple concerns andhopefully achieve consensus
3. Enabling integrated governance for global supply chain4. Overcoming the traditional barriers of civil engineer versus environmental engineer5. Replacing the linear process of project design followed by impact studies and social interest
groups
Some of these approaches have been implemented in some pilot projects around the world and
these needs to be studied in detail with respect to financial statement of companies, pubic
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approval and environmentalists protests. Research in this area could study the effect of different
project governance approaches for gathering stakeholder input and allocating costs and benefits
continuously to different affected populations over the lifecycle of a project In general a
combination of all approaches will work better than any single approach since they can mutually
cancel out individual limitations
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