By: Laura Hudson, Senior Solutions Associate, PhD
With water infrastructure needs expected to reach $300 billion over the next twenty years, it is vital that facility owners maximize the value of infrastructure projects, and reduce costs where possible. The industry standard for reducing capital costs is Value Engineering (VE), which promises to maintain or improve performance of assets while reducing costs using a function-based assessment of engineering designs. VE is often required for large scale projects using government grants or loans, to keep costs down and prevent waste.
However, VE has a bad reputation among treatment plant operators, and for good reason. VE is most effective when it is brought in early in the process, leaving sufficient time for process interviews and full functional assessment. VE design recommendations that might negatively impact operations and maintenance can then be caught before designs are finalized. In practice, VE is often employed toward the end of the design process with the goal to bring bloated projects within budget. Process interviews and function analysis get truncated when this happens, and operations and maintenance staff do not have enough input to prevent poor design changes from getting through. When used properly, VE is a valuable tool. When used simply to cut capital costs, it can cause increased Operations and Maintenance (O&M) costs, increased safety hazards, and decreased performance.
Facility owners looking for a better way to reduce costs should employ a Reliability Centered Design (RCD) review instead of, or in addition to, VE. RCD design review aims to reduce total lifecycle costs, streamlining equipment and designs to reduce operation and maintenance costs rather than simply capital costs. RCD is an off-shoot of Reliability Centered Maintenance (RCM), a maintenance and asset management strategy widely used at facilities with high consequences of failure, including nuclear, oil and gas, airline and NASA facilities. RCM focuses on asset criticality to improve O&M outcomes and reduce lifecycle costs. RCM employed early in the design phase can begin developing maintenance and asset management strategies that extend the life of facilities while also improving reliability. RCD employs RCM methodologies at the beginning of the design phase of new facilities, incorporating reliability principles into the design to increase the reliability of the system and make the initiation of an RCM program more efficient and effective.
The Value of Value Engineering
VE focuses on improving the value of services by performing a functional analysis of assets and/or systems. The key questions for VE are “what is the function?” and “what is the cost?” Although VE can yield impressive savings in capital costs, by focusing too closely on reductions in capital costs, VE often fails to consider the total lifecycle costs that might offset these initial savings. In theory, VE attempts to improve efficiency and decrease operating costs, but in practice, it is often used to shave excess expenses and bring over-budget projects in line with available resources.
For example, Plant A, a recently expanded microfiltration treatment facility serving a small community, came in over-budget prior to construction. VE was not used early in the process, where it may have offered the most savings, but was brought in at the end to bring costs within budget. This meant that VE was used simply as a blunt cost-cutting tool. At the headworks of the treatment facility, the VE process removed a redundant fine screen unit and removed all access platforms. The capital savings that was realized was approximately $200,000, which brought the capital costs within the budget. However, the VE recommendations increased the likelihood of a safety hazard due to difficult access to the unit for O&M service activities, and increased the risk of violation if there were a complete mechanical failure of the screening unit itself without an available redundant unit. The hidden impact of this application of the (so-called) VE is that it did not address the increased labor costs, critical spares required, need to identify risk of failure, dominant causes of functional failure, or risk exposure relative to safety. All these elements have direct impact to O&M lifecycle costs.
Of course, this is the wrong way to employ VE, but similar anecdotes abound. VE may seem to save money when it reduces capital costs, but the additional O&M costs often quickly eat up those savings. This kind of thinking, that VE is a cost-cutting tool, has become commonplace.
The RCD Difference
While the core drivers for VE are essentially to meet the required function at the lowest cost, the RCD methodology includes those same drivers (cost, performance) while also introducing the evaluation of risk. The introduction of risk (the probability of failure x the consequence of failure) is the key to identifying the systems and assets that are critical to sustaining the total system function and avoiding significant environmental, economic, and/or life‐safety consequences. The RCD methodology thus not only meets the objectives of VE, but also improves facility design by including a complete, unbiased review from the perspective of key O&M staff, management, and process experts prior to finalizing the design.
Rather than focusing on the individual functions of assets and swapping them out for less expensive components, RCD focuses on the functionality of the system as a whole. Most facility planning mistakenly treats O&M costs as separate from design and construction. Facilities are designed by engineers to fit design parameters set by regulatory permits. Once construction is completed, maintenance requirements and staffing are determined based on the constructed facility and its treatment goals. When the design phase is treated as separate from the business of running the finished facility, facility owners are allowing the design to determine the facility’s lifecycle costs, whether intended or not, by selecting equipment or configurations that may not adequately consider the impact on the end users.
To reduce total lifecycle costs, O&M costs must be recognized and assessed early in the design phase. Employing a RCD design review can help build reliability principles into facilities before construction begins, reducing maintenance, repair, and staff requirements without sacrificing treatment goals. The RCD process includes a complete review of the design from the perspective of key O&M staff, management, and process experts prior to finalizing the design. RCD identifies design issues that may lead to operability issues once the facility is constructed, and recommends changes that will yield savings over the lifecycle of the facility. In some cases, RCD recommendations may increase capital costs in the interest of reducing lifecycle costs. In other cases, RCD recommendations can remove unnecessary redundancy, overstocking of spare parts, and poor design, ultimately reducing capital costs.
When employing VE, facility owners should ensure that their practitioners are engaged in maintaining or improving value, not just cost-cutting. It is vital that engineers, O&M, and management stay involved in the VE process to prevent degradation of the design when making cost reductions. Although ideally VE includes input from O&M staff, management, engineers, and subject matter experts, often VE decisions are made solely by value engineers. Ensuring that all stakeholders are fully engaged is vital realizing value from the VE process.
On the other hand, RCD requires the input of these stakeholders as an essential part of its design review. Facility owners can be assured that the perspectives of O&M staff will be included and validated during the RCD process. Because RCD assesses the risk and criticality of equipment and process failures, facility owners are less likely to see unexpected negative consequences from RCD design recommendations. Rather, the stability of the facility, its assets, and its processes are supported by RCD. Although capital costs may not be dramatically reduced by RCD, the long term costs of running and maintaining the facility usually make up the difference within the first couple years, providing increased value to facility owners and ratepayers.
VE may be an unavoidable part of the design process, especially when required by funding sources. If this is the case, facility owners should consider using RCD to bolster VE, extending the value of their facilities with long term planning and systemic thinking. For more information on how RCD can help you increase the value of your infrastructure project contact our reliability specialists by emailing email@example.com or calling 281-598-1330.