Value Analysis and Value Engineering

Why Value Analysis and Value Engineering Matter for the CCM Exam

Value Engineering is one of the most heavily tested cost-management topics on the Certified Construction Manager (CCM) examination because it sits at the intersection of several CMAA practice areas: Cost Management, Project Management, Quality Management, and Program Management. The CMAA Standards of Practice and the Cost Management Procedures treat VE not as an optional cost-cutting exercise but as a structured, function-oriented methodology that the Construction Manager is expected to plan, facilitate, and document throughout the project life cycle.

For the exam, VE questions test whether you understand (1) the proper definition of value, (2) the formal Job Plan sequence, (3) the correct timing of VE efforts, (4) the CM's role versus the designer's and owner's roles, and (5) how VE differs from simple cost reduction, scope reduction, or cheapening. Candidates who treat VE as just finding cheaper materials routinely miss these questions.

What Value Analysis and Value Engineering Are

Origin. Value Analysis was developed by Lawrence D. Miles at General Electric in the late 1940s, when wartime material shortages forced engineers to find substitute materials and methods that still performed the required function. Miles observed that the substitutes often performed as well or better at lower cost. The discipline was later formalized and is now stewarded by SAVE International (formerly the Society of American Value Engineers).

Core definition. Value is defined as the relationship between function and cost:

Value = Function (or Worth) / Cost

Value is improved by: (a) increasing function at the same cost, (b) maintaining function at lower cost, (c) increasing function while lowering cost, or (d) increasing function with a smaller proportional increase in cost. Value is not improved by reducing function to save money; that is scope reduction or cheapening, and the exam will test this distinction.

Value Analysis vs. Value Engineering. The terms are often used interchangeably, and on most exam questions they are treated as synonymous. When a distinction is drawn: Value Analysis traditionally refers to the review of an existing product, facility, or completed design to improve value, while Value Engineering refers to applying the methodology during design and development, before the item exists. Some sources also use Value Management as the umbrella term covering both plus the organizational program that supports them. On the CCM exam, if a question asks which term applies to the formal, function-based methodology applied during design, choose Value Engineering.

Key terminology you must know:
- Function: What the item or system must do, expressed as a two-word verb-noun pair (for example, support load, control temperature, provide access). Function analysis is the heart of VE and is what separates it from brainstorming or cost cutting.
- Basic function: The primary purpose for which the item exists; if it is lost, the item is worthless.
- Secondary function: Supporting, aesthetic, or incidental functions; often where unnecessary cost hides.
- Worth: The lowest cost to reliably perform the basic function.
- Cost: The actual or estimated cost to achieve the function as currently designed.
- Value Index or Cost/Worth ratio: Cost divided by Worth; a high ratio flags areas with poor value and VE potential.
- FAST Diagram (Function Analysis System Technique): A logic diagram that organizes functions along a How-Why axis to show relationships between basic and secondary functions.
- Life Cycle Cost (LCC): Total cost of ownership including initial, operating, maintenance, energy, replacement, and disposal costs. Proper VE evaluates alternatives on LCC, not first cost alone.
- VECP (Value Engineering Change Proposal): A proposal submitted by a contractor during construction under a contract VE incentive clause, typically with savings shared between owner and contractor.

How Value Engineering Works: The Job Plan

The defining feature of VE is that it follows a formal, sequential Job Plan. The exam frequently asks you to identify phases, place them in order, or identify what happens in a given phase. The SAVE International standard uses the following phases (older texts condense them into five or six, so learn the content of each rather than only the count):

0. Pre-Workshop (Preparation) Phase. Define objectives, select the team, gather drawings, specifications, cost estimates, and owner requirements, and schedule the workshop. The CM typically coordinates this.

1. Information Phase. The team gains a thorough understanding of the project: scope, constraints, owner criteria, cost model, schedule, and design intent. A cost model is built to show where the money is, often compared with historical benchmarks to identify high-cost areas.

2. Function Analysis Phase. Functions are identified and expressed as verb-noun pairs, classified as basic or secondary, costed, and compared to worth. A FAST diagram may be constructed. This is the phase that makes VE unique; a question asking which phase distinguishes VE from ordinary cost reduction is pointing here.

3. Creative (Speculation) Phase. The team brainstorms alternative ways to perform the required functions. Judgment is deliberately suspended; quantity of ideas is encouraged and criticism is prohibited.

4. Evaluation (Analysis or Judgment) Phase. Ideas are screened, ranked, and shortlisted against criteria such as cost, performance, schedule impact, constructability, maintainability, and owner acceptance. Weighted evaluation matrices are commonly used.

5. Development Phase. Surviving ideas are developed into fully documented proposals with sketches, technical justification, initial cost, life cycle cost comparisons, advantages, disadvantages, and implementation requirements.

6. Presentation (Recommendation) Phase. Proposals are presented orally and in a written report to the owner and design team for decision.

7. Implementation and Follow-Up Phase. Accepted proposals are incorporated into the design or contract; the CM tracks implementation, verifies realized savings, and documents results. Post-workshop reporting to the owner is a CM responsibility.

Timing: When to Perform VE

The single most important timing principle is captured by the cost influence curve: the ability to influence cost is greatest early in the project and diminishes rapidly as design progresses, while the cost of making changes rises. Therefore:
- The greatest VE potential exists during planning, programming, and schematic design.
- Formal VE workshops are commonly held at roughly the 30 to 35 percent design stage (schematic or early design development), when enough definition exists to analyze but redesign cost is still modest. Some programs hold additional studies at 60 to 65 percent and at 90 to 100 percent, though late-stage VE yields less and costs more in redesign fees and schedule.
- VE during construction occurs mainly through contractor VECPs under a VE incentive clause, with savings typically shared (often 50/50) between owner and contractor. The owner usually retains the right to accept or reject any VECP.

If an exam question asks when VE provides the greatest return or should ideally begin, the answer is always as early as possible, during conceptual or schematic design.

The Construction Manager's Role in VE

Under the CMAA Standards of Practice, the CM is responsible for planning and managing the VE program on behalf of the owner. Typical CM responsibilities include:
- Recommending to the owner whether a formal VE program is warranted and at what design milestones.
- Including VE provisions in the Project Management Plan and the Cost Management Plan.
- Assembling or recommending an independent, multidisciplinary VE team led by a certified value specialist (CVS). Independence from the original design team is preferred because fresh eyes are more objective and the designer is not asked to critique their own work.
- Providing cost estimates, cost models, and schedule information to the team.
- Facilitating coordination between the VE team, the designer, and the owner.
- Managing the owner's decision process on recommendations and tracking accepted items through design revisions and contract documents.
- Documenting the study and reporting realized savings.
- During construction, reviewing and making recommendations on contractor VECPs.

Remember the distinction of authority: the CM facilitates and recommends; the owner decides; the designer of record incorporates accepted changes and retains design responsibility. A CM does not unilaterally accept VE proposals or redesign the work.

VE Versus Cost Cutting, Scope Reduction, and Cheapening

This distinction is the most common exam trap. Compare:
- Value Engineering: Function-based, systematic, team-oriented, considers life cycle cost, maintains or improves required function and quality.
- Cost cutting: Reduces cost without function analysis; may sacrifice quality or performance.
- Scope reduction: Deletes elements of the project; the function is eliminated, not performed more efficiently.
- Cheapening: Substituting lower-quality items that reduce performance or life expectancy; often raises life cycle cost.

A question describing deleting a wing of a building, reducing finishes below the owner's standard, or eliminating a required system is describing scope reduction or cheapening, not VE, no matter how the question labels it.

Where Poor Value Typically Hides

VE teams look for unnecessary cost caused by: lack of information, habitual or outdated design practices, honest wrong beliefs, lack of time, overly conservative design margins, redundant systems, unnecessary secondary functions, specification of proprietary or over-specified products, and failure to consider life cycle cost. Recognizing these causes helps answer scenario questions about why a VE study was recommended.

Measuring VE Results

Results are documented as proposed savings, accepted savings, and implemented or realized savings. The return on investment of a VE program is typically expressed as savings divided by the cost of the study (including redesign fees). Be aware that schedule impact, redesign cost, and owner acceptance must all be weighed; a proposal with large first-cost savings but higher operating cost may be rejected on life cycle grounds.

Exam Tips: Answering Questions on Value Analysis and Value Engineering

Tip 1: Anchor every answer to the word function. If an answer option mentions analyzing or preserving function, it is almost always more correct than an option that simply mentions reducing cost. VE is the only cost technique defined by function analysis.

Tip 2: Know the Job Plan order cold. A reliable memory sequence is Information, Function Analysis, Creative, Evaluation, Development, Presentation, Implementation. If a question uses an older five-phase version (Information, Speculation, Analysis, Development, Presentation), recognize that Speculation equals Creative and Analysis equals Evaluation. Function Analysis is sometimes folded into the Information Phase in older schemes.

Tip 3: Early is always the answer for timing. Any question about when VE offers the greatest savings potential, the least disruption, or the lowest redesign cost points to the earliest design stage offered among the choices. If choices include construction phase, that is the answer for the least potential or highest cost of change.

Tip 4: Watch for life cycle cost. When a scenario gives both a lower first cost and a higher operating or maintenance cost, the correct VE evaluation considers total life cycle cost, and the proposal may be rejected despite first-cost savings.

Tip 5: Separate roles. CM facilitates and recommends; owner approves; designer incorporates and remains responsible for the design; contractor proposes VECPs. An answer that has the CM approving or redesigning is wrong.

Tip 6: Independent team is preferred. If asked who should conduct a formal VE study, prefer an independent, multidisciplinary team led by a qualified value specialist over the original designer alone. The designer should participate by providing information and reviewing proposals.

Tip 7: Spot the scope-reduction trap. Read scenarios carefully. Eliminating required elements, lowering owner-mandated quality, or deferring a needed system is not VE. If the question asks what the scenario best describes, choose scope reduction or cost cutting, not value engineering.

Tip 8: Creative phase means no judgment. If a question asks what is prohibited or discouraged in the Creative or Speculation phase, the answer is criticism or evaluation of ideas. Evaluation belongs in the next phase.

Tip 9: Remember the VECP savings-sharing concept. VE in construction is incentive-based; contractors share in savings. The owner retains the right to reject. Questions may ask the purpose of a VE clause: to motivate contractors to propose cost-saving alternatives without sacrificing function.

Tip 10: Use the value formula. If a calculation or conceptual question gives function and cost changes, apply Value = Function / Cost. Value increases when function rises or cost falls; a proposal that reduces both function and cost proportionally does not improve value.

Practice Questions

Question 1. During which phase of the VE Job Plan does the team express each project element as a verb-noun pair and distinguish basic from secondary functions?
A. Information
B. Function Analysis
C. Creative
D. Development
Answer: B. Verb-noun functions and basic versus secondary classification are the defining activities of the Function Analysis Phase.

Question 2. A CM recommends a formal VE workshop. At what point will it most likely yield the greatest savings at the lowest redesign cost?
A. 100 percent construction documents
B. Schematic design, approximately 30 percent complete
C. After bids are received
D. During the first month of construction
Answer: B. The cost influence curve shows greatest influence and lowest change cost early in design.

Question 3. To meet budget, the design team deletes the building's second elevator even though the owner's program requires two. This is best described as:
A. Value engineering
B. Value analysis
C. Scope reduction
D. Life cycle costing
Answer: C. A required function is eliminated rather than performed more economically; this is scope reduction, not VE.

Question 4. A VE proposal reduces first cost of the HVAC system by 8 percent but increases annual energy cost by 15 percent over a 30-year life. The CM should recommend that the owner:
A. Accept, because first-cost savings are the goal of VE
B. Evaluate the proposal on a life cycle cost basis before deciding
C. Reject all HVAC proposals
D. Direct the designer to implement it immediately
Answer: B. VE decisions are properly based on total life cycle cost, and the owner, not the CM, makes the decision.

Question 5. In the Creative Phase of a VE workshop, which practice is prohibited?
A. Generating a large number of ideas
B. Building on other team members' suggestions
C. Evaluating or criticizing ideas as they are proposed
D. Recording all ideas
Answer: C. Judgment is deferred to the Evaluation Phase to encourage free idea generation.

Question 6. Under a construction contract VE incentive clause, a contractor submits a VECP. Which statement is correct?
A. The CM must accept the VECP if it saves money
B. The contractor retains all savings
C. The owner may accept or reject the VECP, and accepted savings are typically shared with the contractor
D. The designer of record is relieved of responsibility for the changed design
Answer: C. The owner decides, savings are shared per the contract, and the designer reviews and remains responsible for incorporation.

Quick Review Summary
- Value = Function / Cost; improve value by improving function, lowering cost, or both, never by sacrificing required function.
- VE is function-based, systematic, multidisciplinary, and life-cycle oriented.
- Job Plan: Information, Function Analysis, Creative, Evaluation, Development, Presentation, Implementation.
- Earliest application yields greatest return; formal workshops commonly at about 30 percent design.
- CM plans, facilitates, documents, and recommends; owner decides; designer incorporates; contractor submits VECPs.
- Scope reduction and cheapening are not VE.
- Evaluate alternatives on life cycle cost, not first cost alone.

Master these points and read each scenario for the words function, timing, and decision authority, and you will handle any Value Analysis and Value Engineering question on the CCM exam with confidence.