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Application of Value Method Procedures in Non-engineering Processes

Sam Martin, PE, CVS

 

Abstract Using Value Methodology procedures within the Bureau of Reclamation (Reclamation) for design and construction projects is well established. However, its use for administrative, procurement, and other processes is relatively uncommon. Although the Office of Management and Budget (OMB) Circular A-131 indicates that Value Engineering should be used as a management tool in all operations, for many agencies it remains conspicuously underutilized. Reclamation has recently increased its use of the Value Method to conduct value studies on non-engineering applications. This paper briefly describes some of these studies, and the benefits obtained.


Background

After issuance of OMB Circular A-131 in 1988, the Department of Interior (Interior) determined it would fully implement Value Engineering (VE) on all construction projects with a projected award more than $500,000. Interior formally implemented this in 1991 by issuing Part 369 of the Departmental Manual (DM), updating it after the 1993 release of OMB A-131. Accordingly, until recently, most technical managers and project leaders for construction related projects accepted that a value study would occur on their project during its design. After seeing the benefits from their first study, most of these people have become very receptive to the use of VE for design and construction projects.

Since 1992, through the application of VE, Reclamation has consistently achieved an overall 6-8 percent reduction in projected contract award expenditures. This overall reduction is for all Reclamation-funded projects exceeding $500,000, whether studied or not. This success in the construction program was principally due to management acceptance of its use on those types of projects.

Currently, General Administrative Expense funds and "indirect expense" accounts support the overall Program, and individual projects pay for their studies. Due to a reorganization in late 1994 and its delegation of responsibility, Value Program staff must convince the project leader and management that a value study is worthwhile. They often require convincing evidence that the projected value study benefits are "real" and significantly exceed the projected value study cost.

Most administrative and procurement officials have been less exposed to the benefits, and hence, are less open to the use of the Value Method on their programs. Many of these managers have not heard of the process. Others are unaware of its potential benefits and are unfamiliar with the costs of a value study. Traditionally, the project or process benefiting from the value study pays the cost of conducting it. For administrative or procurement processes, a proposed study may complete directly with salaries for funds. Therefore, administrative and procurement mangers do not perceive that immediate benefits are obtainable through a value study. An additional consideration affecting acceptance is that an administrative or procurement related activity may have an associated legislated or "hidden" agenda. The intent of these agendas may have good motives behind them. However, in such situations the responsible individuals or organizations may prefer that the agenda be less open to scrutiny. Value studies, by virtue of their very design, will usually expose these agendas. The issues of potential loss of funds for salaries, potential affects on management prerogatives, and the lack of a mandated requirement that includes a penalty for nonperformance have delayed the adoption of the Value Method for use on non-construction related programs, projects, activities, and processes.

Overcoming Obstacles

Reclamation Value Program staff are using training, presentations at meetings, and personal contacts to inform administrative and procurement officials of the benefits possible by using the Value Method in their operations.

One problem identified in the administrative and procurement arena was the word "engineering" in Value Engineering. Accordingly, Reclamation is adopting the less specific terms of "Value Methodology" and "Value Method" for the procedures, the general term "value studies" for their application, and the term "Value Program" for the overall activities.

To assist in understanding the process used in a certain application; avoid potential misconceptions regarding the intent; and define the activities associated with specific value studies, Reclamation has defined four distinct types of value studies. These definitions are consistent with industry definitions. They allow Program staff to quickly define the limits of value studies used for controversial issues. Of course, all the studies use the same general Value Method. They utilize the procedures somewhat differently for a specific application, and have different criteria/limitations and team selection criteria. Definitions for four types of value studies are:

  • Value Engineering Study. This is a value study of an engineering or construction related activity. An independent, multi-discipline team conducts it. Such independent teams are formed using team members which have not had significant prior involvement in the project under study. The most common timing for the value study is at the concept (25-40 percent of design complete) phase, prior to management briefings and decisions that set the direction for final design.
  • Value Planning Study. This is a value study performed at the initial phases of a program, project, process, or activity. The purpose of this type of value study is usually to determine mission and identify possible alternative directions. It often optimizes both the mission objectives and the operations to get the project initiated (e.g., procured, programmed, designed, and organized). Scoping, re-invention, criteria/limits, and other similar types of specialized value studies are considered subsets of this type of study.
  • Value Management Study. This is a value study that involves management of resource issues. In some situations, this type of study may involve answering a specific mission charge or question for management. Consequently, the value study team may be directed, depending on the "charge" to the team, to not consider the question of whether going a particular direction is best. Management or the administration may set the direction, and the "charge" to the value study team is to find alternatives to implement this direction at the greatest value obtainable.
  • Value Analysis Study. This is a value study performed to study processes, procedures, or repetitive program activities. As defined by Reclamation, such studies may also involve answering a specific mission charge or question.

These definitions allow reviewers of a study to quickly understand its scope and limits. To ensure the opportunity to achieve the highest value, Reclamation Value Program staff attempt to keep management or administration directed mission charges flexible enough to allow innovation. Further, VE studies, by definition, remain totally independent.

Presently, Value Program staff make most of the recommendations for administrative and procurement processes that could benefit from studies. Unfortunately, identifying processes with a high potential for return may require inquires outside of the internal Program organization. This often generates territorial concerns. It is possible that this could be negated by training of appropriate administrative and procurement staff to identify for themselves which of their internal organization processes could benefit from a value study. However, due to the competition for re-training in program "mission" areas, management is unwilling to commit to this training until it is fully demonstrated that the benefits of value studies exceed the costs for their particular area of application.

There is also an apparent reluctance to use engineering staff to facilitate or lead their team members for administrative and procurement studies. Again, due to the lack of acceptance, there is also a lack of commitment to train administrative or procurement staff to facilitate value studies. Hand-in-hand with this problem is the need to develop a means to inform administrative or procurement staff of the available resources and how to obtain assistance.

Examples of Process Related Value Study Results

Since 1994, Reclamation has conducted about 15 value studies on processes related to administrative or procurement issues. Further, Reclamation has set the direction for several construction related projects through use of Value Planning types of studies. Most of these Value Planning studies were in addition to VE studies at concept stages.

Examples of some of the non-construction studies and their principal results are:

  • Interior-wide Value Engineering Indefinite Quantities Contract. Completed in December 1993, this study developed and examined selection and measurement criteria for an indefinite quantity contract for Value Engineering and Cost Estimating Services for Interior. The study used the criteria analysis to identify issues for use in subsequent negotiations to select a contractor. The value study clarified selection issues and generated a consensus among decision makers.
  • Reclamation Service Center, Building 67, Personnel Relocation and Floor Renovation. Two studies were initially proposed. The first proposed study was an examination of the relocation of organizations in the building necessitated by a 1994 reorganization. The second study was to examine the renovation and required layout of the floors for the relocated groups. Management determined that a generalized floor renovation and layout study would be done first (August 1994), with the organizational relocation study to follow. Because of this generalized study, management adopted proposals that generated about $1,600,000 in cost avoidance over 10-years and fostered a generally improved staff satisfaction with the renovation effort. However, after completion of the renovation study, management canceled the study for organizational relocation.
  • Reclamation Library, Videotape, and Photographic Resources. This was a Value Analysis study completed in January 1995. The team was asked to identify: 1) the major services provided by the library, 2) the essential needs served by library services, 3) if a library was the best way to meet the identified essential needs, and 4) recommendations of the way to meet the identified essential needs. The value study resulted in decisions to retain the library, replace some services with higher value products, improve access for some services, discontinue some services, and improve service capacity by doing more cross-training and increasing the required expertise for one staff position. Beyond the many non-monetary benefits attained, the study proposals adopted saved about $426,000 over a five-year period.
  • Mni Wiconi Criteria/Limits Analysis. This specialized value study was facilitated for the Oglala Sioux Tribe, Rosebud Sioux Tribe, Lower Brule Sioux Tribe, and West River/Lyman-Jones Water Districts. Reclamation has facilitated several planning and concept value studies for the overall Mni Wiconi Project. These studies involve multiple entities ranging from the above clients only; to the above clients, two states, several counties, Reclamation, Corps of Engineers, and a host of others. The purpose of the criteria and limits analysis was to bring the clients and stakeholders together, speed the acceptance processes, and set the stage for more than $260,000,000 (1992 prices) in construction related work. Many subsequent activities, including nearly ten value studies performed to date, have used the results from this March 1995 analysis.
  • California Undersea Aqueduct Reconnaissance Report Technology Update. In the mid-1970's, Reclamation conducted a feasibility study to examine the potential for building a system to deliver Northern California fresh water to the southern part of California. Part of the water would meet United States obligations to Mexico for quantity and quality of Colorado River water. Due to client inquiries, regional personnel requested an update of the previous work and its costs. Due to several technical and political issues, the chance of obtaining funding for a project of the magnitude of the Undersea Aqueduct was considered remote. The value study approach was selected to help improve study performance and keep the costs of revisiting the concept low. Completed in June 1994, in addition to significant savings in study related costs, the value study demonstrated that it was possible to reduce the aqueduct delivery cost from $4,460 per acre-foot to $3,380 per acre-foot. Further, the costs to provide water by alternative desalination technology appeared to be significantly less than use of an undersea aqueduct and had much less environmental risk. The value study results satisfied concerns that an undersea aqueduct concept should be revisited by the Government.
  • Seismic Safety Alternatives. Executive Order (EO) 12941 implements a part of the Earthquake Hazard Reduction Act of 1977. In preparation for subsequent upgrading to improve seismic safety, it requires agencies to inventory, screen, and evaluate existing Federally owned or leased buildings regarding seismic resistance. Interior managers decided to use a value study to examine the EO requirements and recommend various methods to implement Interior's EO response. The study was essentially complete in November 1995. It improved knowledge and consensus among the staff expected to be involved in implementing the EO, identified many resources and cooperative opportunities available to reduce the cost of doing the work, and generated cost information for use in budget requests. Further, the study and its subsequent presentations, assisted Interior in generating management awareness and administrative support for Interior's EO compliance activities.
  • Interior-wide Value Engineering Reporting Process to OMB. Reclamation offered its part of their OMB report to Interior as a class project for a December 1995 Society of American Value Engineers certified Module I Workshop. Although, the team expertise was limited and a complete value study of the process and requirements was not possible within the confines of a class type study, this study did produce valuable ideas for future study and discussions. One proposal with potentially high value was to provide Internet access to agency Value Program database records. Each agency bureau or office could update their record regularly. This would make it more available to OMB, agency heads, and the public. Further it would negate the need for end-of-year or other hard copy reports. However, before implementing this process, OMB and at least five of the main reporting agencies should perform an analysis of the function and value added for the data involved.
  • California Gulch Superfund Site, Operable Unit 6 Removal Action. The local community had concerns about the progress of site-wide operations and other issues. To help address these concerns, Region 8 of the Environmental Protection Agency decided to use a value study in place of its Engineering Evaluation and Cost Analysis EE/CA process for the Leadville, Colorado Operable Unit 6 site. The study cultivated a consensus between governmental entities, improved acceptance of the community of the involved remedial activities, and may allow development of an earlier site-wide environmental quality criteria that meet the Superfund designation objectives. While final determination of the results will not be complete for some time, the value study has the potential to reduce the costs of the EE/CA activities by more than 40 percent and the cost of the removal activity by as much as 80 percent ($14,000,000).

Summary

Using the Value Method outside of the traditional engineering activities is beginning to gain acceptance within Reclamation. However, significant effort to inform the leadership and management of the benefits available through the Value Method remains. Although the recent progress is encouraging, Reclamation Program staff are careful to avoid confusion and retain support of the people responsible for the engineering related value studies.

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