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“Oh no,” is a common reaction when owners and architects hear the phrase value engineering. However, the intent is not to ruin the design of the project; the intent is to maximize the project’s value. When done correctly, value engineering is a positive process for your construction project.

What is Value Engineering?

Value engineering has become an important element of every construction project. It is an evaluation of a building and its systems and components relative to costs. The goal is to achieve the desired function at the lowest overall price, consistent with the client’s program. Value engineering does not necessarily decrease costs; rather it finds the best product or process for the cost. For example, adding a special feature, function or space when we mobilize may save money and add value versus providing it at a later date.

When is VE Most Effective?

Value engineering is best performed in the schematic or design/development phase. At this time, it is cost effective, saves time, minimizes program impact and sets project expectations at a realistic level. Project A and B perfectly demonstrate this idea.

Case Study: Project A v. Project B

We completed design/development estimates for two projects within a month of each other one summer. Both projects came in over budget. Project A opted to value engineer before completing the final design, whereas Project B did not. Final estimates for each were completed in December.

Project A: Embracing VE

In July, the schematic estimate for Project A came in $1.2 million over budget, or 8.5%. The owner decided to explore value engineering options. Over four weeks, we worked with the architect and owner to identify VE alternatives, offering 43 items to the owner. The accepted ones were incorporated into the architect’s final drawings. When the project went out to subcontractors to bid, the final budget came in $1.1 million less than the schematic estimate. If the owner chose to take more money out of the project, it would have been a fairly easy to do. In the meantime, construction could get underway with no delays.

Project A committed to decreasing the price after the schematic estimate was complete. The owner made the difficult decisions of how to save money before moving on to completed drawings.

Project B: Refusing to VE

In August, the schematic estimate for Project B came in $1 million over budget, or 6.25%. Our suggestion to value engineer the project before finalizing the drawings was declined. The owner believed when the final number was put together in December, the subcontractors’ pricing would reflect a discount because of the slower time of year. This assumption was partially true, however, over the next several months instead of looking at ways to reduce the scope, the owner continued adding to it. In December, when the subcontractor hard bids were returned, the final number remained $1 million over budget.

Project B decided not to reduce scope after the schematic estimate, leaving the owner with completed drawings for a project that was 6.25% over budget. Instead of beginning construction, the owner had to look for ways to decrease the cost of the project. By this time, the owner was sold on the design and was hesitant to give up anything. To reduce the cost of the project, the owner had to look at lowering the level of finishes: deleting wainscoting, switching to a less expensive carpet, etc. Had the owner looked to VE after the first estimate, options could have included more macro type items, such as slightly reducing the square footage of the building or laying out the electrical and mechanical systems in a more cost effective way.

Summary

Two projects, where external factors such as market conditions, timing and price variations were constant, have two very different outcomes. One owner embraced value engineering and the other eschewed it.

When it’s your turn to have the VE discussion, what will you do?

This article was written by Norm Fournier, Vice President of Operations