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Financial Implications of Disaster

July 25, 2002 Value Based Planning Using VE/VA/VM

Value Base Planning Using Value Engineering / Value Analysis / Value

Management Presented By: Fred McAuley, Jr.





What is VE / VA / VM?

•Value Methodology (also called Value Engineering, Value Analysis or Value Management) is a powerful problem-solving tool that can reduce costs while maintaining or improving performance and quality requirements.

•It is a function-oriented, systematic team approach to providing value in a product or service. The value methodology helps organizations compete more effectively in local,national and international markets by:

- Decreasing costs - Increasing profits

- Improving quality - Expanding market share

- Saving time - Solving problems

- Using resources more effectively

“Value methodology easily produces savings of 30 percent of the estimated cost for manufacturing aproduct, constructing a project or providing a service. The return on investment that public and private organizations derive from implementing VM programs averages 10 to 1. That is, for every dollar invested in a VM study - including participants' time and implementation costs - $10 in net savings results.”

- S.A.V.E. International





U.S. Law Mandates VE Use in the Public Sector:

•The 1996 Defense Authorization Act (Public Law 104-106) states that each executive agency must establish and maintain cost-effective VE procedures and processes.

- Definition: “. . . [T]the term „ Value Engineering’ means an analysis of the functions of a program, project,

system, product, item of equipment, building, facility, service, or supply of an executive agency, performed by

qualified agency or contractor personnel, directed at improving performance, reliability, quality, safety, and life

cycle cost.”

•The 1995 National Highway System Designation Act requires states to carry out a VE analysis for all federal-aid highway projects with an estimated total cost of $25 million or more.

•The 1993 Office of Management and Budget‟s OMB Circular A-131 requires federal agencies to use the value methodology as a management tool to reduce program and acquisition costs.

"Value engineering is a proven management tool that can be used by agencies to streamline operations, improve quality

and reduce contract costs.“

- Franklin Rains, U.S. Office of Management and Budget





How Does the Value Methodology Work?

•The value methodology works through a VE/ VA/ VM study that brings together a multidisciplinary team of people who own the

problem and have the expertise to identify and solve it. A VM study team works under the direction of a facilitator who follows an established set of procedures - the VM job plan - to review the project, making sure the team understands customer requirements and develops a cost-effective solution. – SAVE International

Definition of Value Engineering: “An organized study of functions to satisfy the user’s needs with a quality

product at the lowest life cycle cost through applied creativity”. - USACE





“VE Study Job Plan”

I -- INFORMATION PHASE - Project Familiarization

II-- SPECULATION PHASE - Creative Brainstorming

III -- ANALYSIS PHASE - Critical Judgment

IV -- DEVELOPMENT PHASE - Develop Alternatives

V -- PRESENTATION PHASE - Present Alternatives

(Continues)





“F.A.S.T. Diagram”

Verb-Noun

Function

Verb-Noun

Function

Verb-Noun

Function

Verb-Noun

Function

Function Analysis System Technique

Generating a Function Picture





Higher OrderFunction

Basic

Function

Required

Secondary

Function

Beyond

Study

Scope

Required

Secondary

Function

Functions that

Happen All the

Time:

Scope of Problem Under Study

Functions that happen all the time and/or arecaused by some other functions

How Why

W h e n

Design

Objectives:

“F.A.S.T. Diagram”





Weighted Value Evaluation

Given: System #1 vs. System #2

Cost (LCC) - #1 $$ < #2 $$$ Performance - #1 < #2

Risk - #1 = #2 Safety - #1 < #2 Appearance - #1 = #2

Cost (LCC) Performance

System #1System #2

Risks

A-2

Appearance

A-3 A-1

C-1 D-B B-E

Safety

A-1

C-2 D-3

D-2

1 6 3 2 7

1 9 4 3 10

3 3 27 3 8 2 9 3 40 4 87

3 3 36 4 8 2 12 4 30 3 89*

Weighted Evaluation Form from: Value Engineering: Practical Applications, for Construction, Maintenance & Operations By Alphonse Dell‟Isola, PE (RSMeans Copyright 1997)

Shown in Red

“Analysis Matrix”





Function + Performance + Quality Best Value Worth ≈ Cost

What are We Defining – Cost, Worth or Value?

•Function, Performance and Quality Must Meet the Owners Minimum Requirements

•“Best Value Worth “ can be Defined as the Least Cost to Accomplish the Functionto an Acceptable Degree

•Note that Increased Costs Lowers Best Value Worth - Unless there is an Equal or Greater Increase in Function, Performance or Quality

•Also note that Funding Limits and Shortfalls May Stop Progress, Delay Schedules or End Project Implementation





Aransas National Wildlife Refuge –

•Can a Value Engineered Project Capture a National Honors Award? Yes! •Do Environmental Projects have Risk? Yes!





Aransas National Wildlife Refuge - Environmental and Commerce Interests Partner to Protect Habitat – What‟s at Risk?

~120 Pairs of Whooping Cranes – ANWR is Sole Winter Habitat 13 Miles of Gulf Coast Intercoastal Waterway Pass through ANWR Risk Assessments Identify Probability of Petro-Chemical Spill at Once in 8,000 Years

High Winds Break Barge Tows – Barge is Run Aground - at Risk Spilling Contents during VE Study VE Study Identifies Alternative Means of Responding to Spill Risk (Alternative Protective Boom Anchoring System and Support by Hazard Response Contractor)





U.S. Embassy Dar es Salaam

August 7, 1998

Can Tightly Controlled Projects be VE‟ed?

U.S. State Department, OFB – Two New East African

Embassies, Dar es Salaam $50 Million & Nairobi $80 Million - Using an Accelerated Design/Build Procurement

•Very Prescriptive and Risk Based Criteria & Schedule Driven

•New American Embassies Undergo VE Studies Capturing Both Improvements and Savings: $2.2 for Dar es Salaam, and $4.4 Million for Nairobi

•Additional VE Studies Performed on Design/Construction Contracts

U.S. Embassy Nairobi, KenyaAugust 7, 1998

New U.S. Embassy Nairobi, Kenya

New U.S. Embassy Dar es Salaam





Life Cycle Highway Safety Cost ModelTotal First Cost $72.82 Million (Accident Damage/Loss Cost $82.92)

Accident

Damage/Loss

53%

Construction

Cost

39%

Construction

Supervision

1%

Maintenance

6%

Engineering 1%

What Color is Your Money? –

•Can a Capital Construction Project Consider other Economic Interest?

•Enhance Public Safety and Address Risk Cost to Construction Cost for Whole Economic Picture

•Does this Capture Total Net Savings? Yes, . . .Benefit $‟s > Cost $‟s

Accident Costs Justify Capital Improvements –Guardrails,Rock Cuts & Side-slope Cut/Fill, Grades and Curves

Credit: Steve J. Taylor, P.Eng., M. Eng., CVS, Totten Sims Hubicik Assc.,

SAVE International - Proceedings 1999 (*These Next Two Slides)





Rock Line – Original Grade

Rock Line – Original Grade

Standard Rock

Excavation Face

VE Proposed Rock Excavation Face

Earth Fill Over Rock Face

10M Clear Zone

10M Clear Zone

Original Design and VE Proposed Design

(Net Savings $4 Million – Accident Loss Reduction)





Old Problems are New Problems:

Formerly Utilized Sites Remedial Action Program (FUSRAP)

•

Created to address radiological contamination at sites used by DOE‟s predecessor agencies, the ManhattanEngineer District (MED) and the Atomic Energy Commission (AEC) from the 1940s through the 1960s

•The waste at FUSRAP sites consists mainly of low levels of uranium, radium and thorium on building surfaces and in soil. Much of this residual radioactive material resulted from processing ore to recover

uranium and thorium during the 1940s, 1950s, and 1960s

•The Army Corps of Engineers assumed control of the Formerly Utilized Sites Remedial Action Program or FUSRAP in October 1997 from the Dept. of Energy

•VE Studies Addresses Risk Based Cleanup of Sites and Saves $56 Million





Where Do I Get Help Identifying Risk? How Do I Respond?

Identify Vulnerability & Risk

Develop Schedules & Plans – Commit Resources Addressing Risk

Seek out Training for Staff, Engage Consultants

Add VE / VA / VM to Your Process – Resolve Problems and Reinvest Savings – Net Optimized Solutions





When VE is Performed

Savings From VE Proposal Implementation

Cost or Savings

Net Loss

Resistance Curve

Acceptance Curve

Early Pre- Design Construction Dwgs & Construction O&M

Plan Design Development Documents

Plan for VE - Why is Earlier Better?





Why Do You Plan Programs and Projects Using VE / VA / VM? • Demonstrates Compliance with Law - VE Reports to OMB and Congress, . . . Shows

Respect to Taxpayers, . . . Good Use of Resources

• Advertises Costs Effectiveness, . . . Builds Public Confidence, . . . Demonstrates Compliance with Law

VE Validates Scope, Performance, and Costs

• Scope ~ Build it, . . . they will come, . . . Users and Community Needs Must Be Met! Life Cycle O&M Too!

• Total Integration and Creative Opportunities for Project Changes are Identified

• Costs ~ Reassessment of Baseline Costs, . . . Recapture Contingencies, . . . Optimization of Resources Assures Schedule and Project Execution

• Level of Performance is Identified ~ Impact and Risk is Defined for Proposed Change, . . .that Supports the Decision Process

• Significant Cost Savings/Avoidance ~ Reinvest First Cost Savings as Life Cycle Savings

• Problem Solving & Review (Quality Assurance & Transfer Innovative Technology)

• Better Coordination (Designers - Consultants & In-House, with End-Users & Operators)





Plan Ahead for Effective VE / VA / VM Efforts

•Schedule Time, Personnel and Commit Resources

•Select the Best People for Your Team

•Empower the VE Team to Gain Momentum – Create Opportunities

Put Your VE / VA / VM Team to Work For Your Program and Projects!!!

Keep A Positive Attitude to Change!!!

“OPPORTUNITYISNOWHERE”





Fred McAuley, Jr., General EngineerUSACE / OVEST

100 W. Oglethorpe Avenue

Savannah, GA 31401-3640

Telephone: 912-652-5715 (FAX 5956)

[email protected]

“How to Contact Me”





VE/VA/VM Points to Contact: http://www.thomas.loc.gov/cgibin/query/C/c104:.temp/~c104MIXp0Y

(Public Law 41 USC 432 - Thomas Law Library )

http://www.whitehouse.gov/omb/circulars/a131.html

(OMB Circular A-131) http://www.mrps.doi.gov/ve1.htm

(Department of Interior, Office of Managing Risk and Public Safety)

http://www.usbr.gov/valuprog/home.html

(Department of Interior, Bureau of Reclamation)

http://www.fhwa.dot.gov/mine/index.htm

(Department of Transportation, Federal Highway Administration)

http://www.hq.usace.army.mil/cemp/e/ev/policy.htm

(US Army Corps of Engineers)

http://www.value-eng.org/vmbenefits.html

(SAVE International)





Thank You,

Any Questions?