# Presentation: 416479

## Presented to the
2nd Annual Program and Project Management Workshop
Presented by Terry J. Brennan
Center for Acquisition and Business Excellence

- 2nd Annual Program and Project Management Workshop
*Presented by Terry J. Brennan*
*Center for Acquisition and Business Excellence*

**U.S. Department of Energy**

***Overview of Proposed******Value Engineering Program***

- March 20, 2002

## Value Engineering (VE) is defined as an organized effort directed at analyzing the functions of systems, equipment, facilities, services, and supplies for the purpose of achieving the essential functions at the lowest life-cycle cost consistent with required performance, quality, reliability and safety.

***What is Value Engineering?***

**Value Engineering (VE) is defined as an organized effort directed at analyzing the functions of systems, equipment, facilities, services, and supplies for the purpose of achieving the essential functions at the lowest life-cycle cost consistent with required performance, quality, reliability and safety.**

*Source: OMB Circular A-131, Value Engineering, May 23, 1993*

- March 20, 2002

## The terms value analysis, value management, and value control are considered synonymous with VE.
VE is a technique directed toward analyzing the functions of an item or process to determine “best value,” or the best relationship between worth and cost.  In other words, “best value” is represented by an item or process that consistently performs the required basic function and has the lowest total cost.

***What is Value Analysis, Value Management & Value Control?***

**The terms value analysis, value management, and value control are considered synonymous with VE.**
**VE is a technique directed toward analyzing the functions of an item or process to determine “best value,” or the best relationship between worth and cost.  In other words, “best value” is represented by an item or process that consistently performs the required basic function and has the lowest total cost.**

*Source: Society of American Value Engineers (SAVE) International*

- March 20, 2002

**Notes:**
How does the value engineering work?
Value engineering brings together an independent multidisciplinary team of people who own the problem and have the expertise to identify and solve it. The VE study team works under the direction of a facilitator who follows an established set of procedures - the VE job plan - to review the project, making sure the team understands project specific requirements and develops a cost-effective solution. The VE job plan includes pre-study and post-study phases, as well as the value study itself, which is composed of six phases:
Information Phase: The study team agrees to the most appropriate targets for improvement such as value, cost, performance, and schedule factors. These are reviewed with appropriate management, such as the project manager, value study sponsor, and integrated project team, to obtain concurrence.
Function Analysis Phase: Function definition and analysis is the heart of value engineering. It is the primary activity that separates value engineering from all other "improvement" practices. The objective of this phase is to develop the most beneficial areas for continuing study.
Creative Phase: The objective of the Creative Phase is to develop a large quantity of ideas for performing each function selected for study. The quality of each idea will be developed in the next phase, from the quantity generated in this phase. There are two keys to successful speculation: first, the purpose of this phase is not to conceive of ways to design a product or service, but to develop ways to perform the functions selected for study. Secondly, creativity is a mental process in which past experience is combined and recombined to form new combinations. The purpose is to create new combinations which will perform the desired function at less total cost and improved performance than was previously attainable.
Evaluation Phase: The objectives of this phase are to synthesize ideas and concepts generated in the Creative Phase and to select feasible ideas for development into specific value improvement.
Development Phase: The objective of this phase is to select and prepare the "best" alternative(s) for improving value. The data package prepared by the champion of each of the alternatives should provide as much technical, cost, and schedule information as practical so the designer and project sponsor(s) may make an initial assessment concerning their feasibility for implementation. 
Presentation Phase: The objective of this phase is to obtain concurrence and a commitment from the designer, project sponsor, and other management to proceed with implementation of the recommendations.  An Implementation Plan and schedule are developed and agreed to by management and the integrated program/project team. 

## Since 1993, federal agencies and departments have been required to use value engineering “as a management tool to ensure realistic budgets, identify and remove nonessential capital and operating costs, and improve and maintain optimum quality of program and acquisition functions.”
This requirement was established by;
Public Law 104-106, Section 4306 - Value Engineering for Federal Agencies,
OMB Circular A-131 – Value Engineering, and the
Government Performance and Results Act (GPRA) of 1993.

***Why should DOE perform Value Engineering?***

**Since 1993, federal agencies and departments have been required to use value engineering “as a management tool to ensure realistic budgets, identify and remove nonessential capital and operating costs, and improve and maintain optimum quality of program and acquisition functions.”**
**This requirement was established by;**
- Public Law 104-106, Section 4306 - Value Engineering for Federal Agencies,
- OMB Circular A-131 – Value Engineering, and the
- Government Performance and Results Act (GPRA) of 1993.

- March 20, 2002

## DOE Order 4010.1A - Value Engineering, 5/14/92
Implements OMB Circular A-131 Requirements
DOE Order 430.1A - Life Cycle Asset Management, 10/14/98
Cancels DOE O 4010.1A, requires Process Tool, such as VE, be used to improve efficiency and cost-effectiveness
DOE Order 413.3 - Program and Project Management for the Acquisition of Capital Assets, 10/13/00
Requires use of VE to derive the lowest life-cycle cost of a capital asset

***History of VE at DOE***

**DOE Order 4010.1A - Value Engineering, 5/14/92**
- Implements OMB Circular A-131 Requirements
**DOE Order 430.1A - Life Cycle Asset Management, 10/14/98**
- Cancels DOE O 4010.1A, requires Process Tool, such as VE, be used to improve efficiency and cost-effectiveness
**DOE Order 413.3 - Program and Project Management for the Acquisition of Capital Assets, 10/13/00**
- Requires use of VE to derive the lowest life-cycle cost of a capital asset

- March 20, 2002

**Notes:**
January 1988 - OMB Circular A-131 issued.
May 1992 - DOE Order 4010.1A, Value Engineering issued.  Director of Administration and Human Resource Management (AD-1) has responsibility within DOE for implementation of OMB Circular A-131. Director of Facilities and Real Property Management (AD-14) responsible for administering VE program.
May 1993 - OMB Circular A-131 revised and reissued.
August 1995 - DOE (FM) issues DOE Order 430.1 (cancels DOE Order 4010.1A)
July 1998 - OIG issues first audit of Department’s VE Program.  Office of Field Management (FM) agrees with audit recommendations and will implement all corrective actions by November 1, 1998.
October 1999 - As a result of the termination of the Office of Field Integration, the outstanding 1998 OIG audit recommendations are transferred to the Office of Chief Financial Officer.  The Office of Engineering and Construction Management is established to lead the Department’s Project Management Initiative.
October 2000 - DOE 413.3 issued.  DOE is committed to use VE to derive the lowest life-cycle cost of a capital asset.
December 2001 -  OIG issues Follow-on Report of the Department’s VE Program
May 2002 - OMBE to release Departmental VE Policy, procedures, and guidance

## 1998 OIG audit report, titled “The U.S. Department of Energy’s Value Engineering Program,” stated:
The Department had not fully developed and implemented an effective VE program.
The Department’s success with VE was limited by inadequate policy and procedures; lack of annual plans, goals and objectives; lack of training in VE methodology; inadequate personnel devoted to the program; and insufficient management support for the program.
Application of VE should be expanded beyond construction projects.

***VE Program Assessment***

**1998 OIG audit report, titled “The U.S. Department of Energy’s Value Engineering Program,” stated:**
- The Department had not fully developed and implemented an effective VE program.
- The Department’s success with VE was limited by inadequate policy and procedures; lack of annual plans, goals and objectives; lack of training in VE methodology; inadequate personnel devoted to the program; and insufficient management support for the program.
- Application of VE should be expanded beyond construction projects.

*DOE/IG Report HQ-B-98-01*

- March 20, 2002

## 2001 OIG audit report, titled “Follow-on Inspection of the Department of Energy’s Value Engineering Program,” stated:
The Department had not fully developed and implemented the requirements of OMB Circular A-131.
1998 OIG Audit Recommendations not fully implemented.
Guidance and criteria not clarified regarding use of VE.
VE Program goals, objectives, and performance measures not developed.
VE Cost Savings/Avoidance not reported.
Use of VE not expanded beyond construction projects.

***VE Program Assessment***

**2001 OIG audit report, titled “Follow-on Inspection of the Department of Energy’s Value Engineering Program,” stated:**
- The Department had not fully developed and implemented the requirements of OMB Circular A-131.
- 1998 OIG Audit Recommendations not fully implemented.
- Guidance and criteria not clarified regarding use of VE.
- VE Program goals, objectives, and performance measures not developed.
- VE Cost Savings/Avoidance not reported.
- Use of VE not expanded beyond construction projects.

*DOE/IG Report IG-0536*

- March 20, 2002

## OMBE/CFO will establish the Department’s VE Policy;  
That meets the requirements of OMB Circular A-131 and is applicable to all the Department’s systems, equipment, facilities, services, and supplies.
Under Secretary for Energy, Science, and Environment and the Administrator, National Nuclear Security Administration will;
Designate a senior official who will be responsible for implementing and executing the Department’s VE Policy for programs and projects under their cognizance.

***DOE Management Decision***

**OMBE/CFO will establish the Department’s VE Policy;**
- That meets the requirements of OMB Circular A-131 and is applicable to all the Department’s systems, equipment, facilities, services, and supplies.
**Under Secretary for Energy, Science, and Environment and the Administrator, National Nuclear Security Administration will;**
- Designate a senior official who will be responsible for implementing and executing the Department’s VE Policy for programs and projects under their cognizance.

*Management Decision dated December 6, 2001 to DOE Office of Inspector General*

- March 20, 2002

## The Secretary of Energy has placed increased emphasis on limiting-the overall expenditures of the DOE to the minimum necessary to achieve the capability to fulfill its mission.
VE has become recognized as an effective contributor to this objective.
Improved Program & Project Management Practices will actively include VE techniques and processes.
The VE program is an integral part of the overall program or project delivery process and is not a separate entity designed to “second-guess” the Integrated Project Team or design authority.

**The Secretary of Energy has placed increased emphasis on limiting-the overall expenditures of the DOE to the minimum necessary to achieve the capability to fulfill its mission.**
**VE has become recognized as an effective contributor to this objective.**
**Improved Program & Project Management Practices will actively include VE techniques and processes.**
**The VE program is an integral part of the overall program or project delivery process and is not a separate entity designed to “second-guess” the Integrated Project Team or design authority.**

***VE Program Philosophy***

- March 20, 2002

## To help DOE live up to its responsibility to deliver capital assets on schedule, within budget, and fully capable of meeting mission performance and environmental, safety, and health standards.
To conform to the letter and spirit of Public Law 104-106, National Defense Authorization Act For Fiscal Year 1996 and OMB Circular A-131.
To not unduly impede the efficient and effective delivery of capital assets while meeting DOE objectives to obtain quality products, ensuring timeliness of performance, controlling costs, and mitigating adverse events.

***VE Program Objectives***

**To help DOE live up to its responsibility to deliver capital assets on schedule, within budget, and fully capable of meeting mission performance and environmental, safety, and health standards.**
**To conform to the letter and spirit of Public Law 104-106, National Defense Authorization Act For Fiscal Year 1996 and OMB Circular A-131.**
**To not unduly impede the efficient and effective delivery of capital assets while meeting DOE objectives to obtain quality products, ensuring timeliness of performance, controlling costs, and mitigating adverse events.**

- March 20, 2002

## Designate a senior management official to monitor and coordinate agency VE efforts.
Develop criteria and guidelines for both in-house personnel and contractors to identify programs and projects with the most potential to yield savings from the application of VE techniques.
Assign responsibility to grant waivers of the requirement to conduct VE studies.
Ensure that the funds necessary for conducting agency VE efforts are included in annual budget requests to OMB.

***OMB Circular A-131 VE Requirements***

**Designate a senior management official to monitor and coordinate agency VE efforts.**
**Develop criteria and guidelines for both in-house personnel and contractors to identify programs and projects with the most potential to yield savings from the application of VE techniques.**
**Assign responsibility to grant waivers of the requirement to conduct VE studies.**
**Ensure that the funds necessary for conducting agency VE efforts are included in annual budget requests to OMB.**

- March 20, 2002

## Provide training in VE techniques for agency staff responsible for coordinating and monitoring VE efforts and for staff responsible for developing, reviewing, analyzing, and carrying out VE proposals, change proposals, and evaluations.
Maintain files on projects/programs that meet agency criteria for requiring the use of VE techniques.  Documentation should include reasons for granting waivers of VE studies on projects/programs that meet agency criteria.  Reasons for not implementing recommendations made in VE proposals should also be documented.

***OMB Circular A-131 VE Requirements***

**Provide training in VE techniques for agency staff responsible for coordinating and monitoring VE efforts and for staff responsible for developing, reviewing, analyzing, and carrying out VE proposals, change proposals, and evaluations.**
**Maintain files on projects/programs that meet agency criteria for requiring the use of VE techniques.  Documentation should include reasons for granting waivers of VE studies on projects/programs that meet agency criteria.  Reasons for not implementing recommendations made in VE proposals should also be documented.**

- March 20, 2002

## Adhere to the acquisition requirements of the FAR, including use of VE clauses set forth in Part 48.
Develop annual plans for using VE in the agency.
Report annually to OMB on VE activities, as required by the Circular.

***OMB Circular A-131 VE Requirements***

**Adhere to the acquisition requirements of the FAR, including use of VE clauses set forth in Part 48.**
**Develop annual plans for using VE in the agency.**
**Report annually to OMB on VE activities, as required by the Circular.**

- March 20, 2002

## The department will utilize a two-tiered approach, as defined in the Federal Acquisition Regulations (FAR), to implement a viable and cost effective VE program.  The two VE approaches as described in FAR Part 48 are the “mandatory program” and the “incentive” (also known as voluntary) program:
In the mandatory VE program approach, the DOE requires and pays for a specific VE effort.
In the incentive approach, the contractor participates voluntarily and uses its resources to develop and submit Value Engineering Change Proposals (VECP). 

***VE Program Implementation Plan***

**The department will utilize a two-tiered approach, as defined in the Federal Acquisition Regulations (FAR), to implement a viable and cost effective VE program.  The two VE approaches as described in FAR Part 48 are the “mandatory program” and the “incentive” (also known as voluntary) program:**
- In the mandatory VE program approach, the DOE requires and pays for a specific VE effort.
- In the incentive approach, the contractor participates voluntarily and uses its resources to develop and submit Value Engineering Change Proposals (VECP).

- March 20, 2002

**Notes:**
DOE will employ a two-tiered approach, as defined in the Federal Acquisition Regulations (FAR), to implement a viable and cost effective VE program.  The two VE approaches described in FAR Part 48 are the “mandatory program” and the “incentive” program.  The “incentive” program is also known as the voluntary program. This approach is consistent with work that has already been accomplished by the Office of Procurement and Assistance Policy (ME-61), during development of a DEAR Acquisition Letter for VE in Site/Facility Management Contracts.  Most other federal agencies also employ the two-tiered approach outlined in the FAR.  A short synopsis of the two-tiered approach is presented below:
In the mandatory VE program approach, the DOE requires and pays for a specific VE effort.  The contractor must perform VE of the scope and level of effort required by the DOE. Under the mandatory program the contractor does not share in savings that are considered a cost avoidance.  The contractor does share in cost savings that are withdrawn from approved budgets and reallocated to other uses, but at a lower percentage than under the incentive approach.  The optimal time to apply the mandatory VE program approach is early on in a program or project lifecycle (prior to CD-2).
In the incentive approach, the contractor participates voluntarily and uses its resources to develop and submit Value Engineering Change Proposals (VECP).  A VECP is a contractual mechanism provided by FARs. It gives a financial incentive to get contractors and subcontractors to reduce the cost of systems, supplies, and services for contracts (fixed price sub-contracts, unit price contracts, etc.) in-progress. To qualify as VECP, a proposal must, at a minimum, require a change to a contract to implement, and save money. It must lower the overall cost; without degrading performance, reliability, maintenance, or safety. In the Federal government, a VE Incentive Clause is required in all contracts over $100,000 and can be requested in smaller ones (usually all contracts over $10,000). No obligation to accept a VECP is present and the risk for the contractor's development costs resides with the contractor.  If the Government accepts a value engineering change proposal, the contractor shares in savings and receives payment for its allowable proposal costs.

## OMBE
Develops, maintains, and implements policies, procedures and standards to improve the way the Department performs VE.
Monitor department’s VE Program and coordinate VE efforts (crosscutting/lessons-learned activities).
Establish minimum requirements for application of VE techniques during capital asset acquisition activities.
Coordinate input, consolidate data (annual planning, VE program accomplishments, future budget requirements) and submit annual DOE VE Report to OMB.

***VE Program Roles & Responsibilities***

**OMBE**
- Develops, maintains, and implements policies, procedures and standards to improve the way the Department performs VE.
- Monitor department’s VE Program and coordinate VE efforts (crosscutting/lessons-learned activities).
- Establish minimum requirements for application of VE techniques during capital asset acquisition activities.
- Coordinate input, consolidate data (annual planning, VE program accomplishments, future budget requirements) and submit annual DOE VE Report to OMB.

- March 20, 2002

## Under Secretary ES&E and Administrator, NNSA
Develop criteria and guidelines to identify  programs or projects with the most potential to yield savings from the application of VE techniques and execute VE Program.
Assign responsibility to senior management officials to grant waivers of the requirement to conduct VE studies.
Ensure funds necessary for conducting VE efforts are included in annual budget requests to OMB.
Maintain files on VE activities within their organizations.
Execute DOE VE Policy and FAR VE requirements.
Develop annual plans for using VE in the organization.
Report annually to OMBE on VE activities.

***VE Program Roles & Responsibilities***

**Under Secretary ES&E and Administrator, NNSA**
- Develop criteria and guidelines to identify  programs or projects with the most potential to yield savings from the application of VE techniques and execute VE Program.
- Assign responsibility to senior management officials to grant waivers of the requirement to conduct VE studies.
- Ensure funds necessary for conducting VE efforts are included in annual budget requests to OMB.
- Maintain files on VE activities within their organizations.
- Execute DOE VE Policy and FAR VE requirements.
- Develop annual plans for using VE in the organization.
- Report annually to OMBE on VE activities.

- March 20, 2002

## OMBE - Office of Procurement And Assistance Management
Develop and issue Acquisition Letter for VE for Site/Facility Management Contracts.
The purpose of the Acquisition Letter is to provide Contracting Officers guidance on the application of VE to site/facility management contracts (referred to as “major contracts”)
Provide FAR expertise to OMBE and other departmental elements.
Implementation of VE program approaches as described in FAR Part 48 are the “mandatory program” and the “incentive” (also known as voluntary) program

***VE Program Roles & Responsibilities***

**OMBE - Office of Procurement And Assistance Management**
- Develop and issue Acquisition Letter for VE for Site/Facility Management Contracts.
- The purpose of the Acquisition Letter is to provide Contracting Officers guidance on the application of VE to site/facility management contracts (referred to as “major contracts”)
- Provide FAR expertise to OMBE and other departmental elements.
- Implementation of VE program approaches as described in FAR Part 48 are the “mandatory program” and the “incentive” (also known as voluntary) program

- March 20, 2002

## OMBE - Office of Training and Human Resources Development
Provide training in VE techniques to agency staff responsible for coordinating and monitoring VE efforts and for staff responsible for developing, reviewing, analyzing, and carrying out VE proposals, change proposals and evaluations.
Ensure funds necessary for conducting VE training are included in annual budget requests to OMB.
Report to OMBE annually on the status of department-wide VE training activities completed and planned in subsequent years.

***VE Program Roles & Responsibilities***

**OMBE - Office of Training and Human Resources Development**
- Provide training in VE techniques to agency staff responsible for coordinating and monitoring VE efforts and for staff responsible for developing, reviewing, analyzing, and carrying out VE proposals, change proposals and evaluations.
- Ensure funds necessary for conducting VE training are included in annual budget requests to OMB.
- Report to OMBE annually on the status of department-wide VE training activities completed and planned in subsequent years.

- March 20, 2002

## PEP must include;
Determination of whether the projects meet DOE requirement for conducting a  formal VE Study, and
Formal Plans, if required, to conduct formal VE studies.
CDR should include on a tailored basis;
Systems Engineering Plan defining Value Engineering requirements, and
Assessments of and strategy for Value Engineering.   For projects having a TPC greater than $5M, formal plans and actions are required.  

***VE Requirements DOE M 413.3***

**PEP must include;**
- Determination of whether the projects meet DOE requirement for conducting a  formal VE Study, and
- Formal Plans, if required, to conduct formal VE studies.
**CDR should include on a tailored basis;**
- Systems Engineering Plan defining Value Engineering requirements, and
- Assessments of and strategy for Value Engineering.   For projects having a TPC greater than $5M, formal plans and actions are required.

- March 20, 2002

## VE Program Implementation Schedule

***VE Program Implementation Schedule***

- March 20, 2002