Value engineering is an approach to construction that opens up opportunities to happier customers and greater profit on your jobs. Let’s dig into what it is and how you can use it on your projects.
Key Takeaways
- Value engineering is a practice that encourages finding ways to increase the value realized in a construction project.
- This practice benefits both you and the owner.
- Collaboration and communication are essential in finding new value engineering opportunities throughout the course of a project.
What is Value Engineering
Value engineering is the practice of increasing the value realized from a construction project. That could mean finding an alternative permanent material or product that has higher quality and will make the end result last longer, providing a substitute material or design idea that meets the same quality standards for a lower cost, or developing alternative means and methods for constructing the design that reduces the overall construction costs.
Benefits of Value Engineering
Often, value engineering is thought of as a practice that mostly benefits the owner, but general contractors stand to benefit substantially by implementing value engineering as a standard process in their projects. This applies during preconstruction, as well as during the course of construction.
Increased cost savings – As a result of value engineering, you can often reduce construction costs by substituting materials that provide the same function, but have a reduced cost. Depending on the contract delivery method, you may be able to pocket the savings or come to a negotiated split in savings with the owner. For example, you might substitute corrugated HDPE drain pipe for Schedule 40 PVC pipe for a french drain. While the design calls for the PVC pipe, you may know that the corrugated drain pipe will meet the necessary structural load capacities needed for the design and will cost a fraction of the price.
Reduction of construction schedule – Many value engineered alternatives have the potential to reduce the scheduled duration of an activity. This allows the project’s overall schedule to accelerate and ultimately reduce general conditions of a contractor staying on a project. Taking from the previous example, not only does the corrugated drain pipe cost less to procure, it also is far easier to work with during an install. The ends of the corrugated pipe sections interlock without separate pieces or adhesives, and they are lighter and easier to move than the heavier PVC pipe, which requires each section of pipe to be glued together. This slight improvement in productivity gets multiplied out over the entire scope of work and can result in dramatic increases in production rate.
Improved relationship with the owner – Relationships are extremely important in construction, and saving the owner on costs while providing the same or better value to the overall project goes a long way in building a good relationship with them. Saving the owner costs on one part of the project might allow them to spend more budget on another part. Accelerating the schedule might allow the owner to meet a milestone that otherwise might not have been achievable. Ultimately, owners tend to take notice when general contractors can provide them with a cost savings or improved schedule, and that often leads to the owner doing more business with you in the form of future projects.
Value Engineering Methodology
While the benefits of practicing value engineering on a construction project are evident enough, value engineering as a process can be thought of as a systematic implementation of some of the following approaches on every project:
1. Information Gathering
From preconstruction throughout the course of construction, make sure that the project management team not only has access to the most current and relevant project documents, but also that those documents are organized and allow for all members of the project management team to operate effectively. This includes drawings, specifications from across all AHJs, stakeholder requirements, and can include cost estimates, the contract, and addenda to the contract. Each team member on a project management team brings a different perspective and set of experiences to the project and equitable access to the right information can allow different ideas on how to reduce cost, reduce scheduled activity duration, and increase the project’s overall efficiency to flourish.
2. Functional Analysis
Understanding the intended function of different elements of the project is an essential part of the value engineering process. If the members of the project management team understand the intent of the original design from a functional perspective, they may have an idea that can meet the same intent in a more efficient way. Using our example of the substituted drainage pipe, the contractor understands the purpose of the french drain and knows that the corrugated pipe will function in the same way as PVC, but for a smaller price tag.
3. Cost Breakdown
Having a good grasp on the detailed cost breakdowns allows for a quick understanding of the value of alternatives. This not only includes a detailed cost estimate of the activity or material as outlined in the original design, but also having the same level of cost estimate for the potential alternatives. This starts with a detailed quantity take-off from the drawings and accurate material pricing and labor production rates. Knowing the costs of each of the different options not only allows the contractor to make quick, informed decisions based on cost, but also allows you to easily communicate that cost savings as value to the owner.
4. Creativity Phase
This is the magic stage of value engineering, drawing on the experiences and collective knowledge of the entire project management team. Holding design review meetings and having constructability working sessions are good ways to bring together different team members and collaborate on different ways to accomplish the project, while still meeting the same functional requirement specified in the contract documents. Often, some of the best value engineering ideas originate from the craft labor in the field. Foremen and superintendents may have encountered similar situations on different projects and often have very valuable ideas on how to complete part of a project more effectively. Ideas from all levels of the project team should be considered to provide a more robust range of alternative solutions.
5. Evaluation and Selection
Once different constructability ideas or methods for an activity or part of the project have been presented, you can then begin systematically evaluating which proposal provides the most value to the project. The definition of value may differ slightly from one project to the next, with some situations placing more value on accelerated schedule, while other times cost savings will take precedence. Ultimately, though, all of the proposed alternatives should be evaluated based on their impact on project cost, performance, quality, and schedule. Finding the solution that best fits the specific needs of the project ultimately holds the most value.
6. Implementation
Once a value alternative has been evaluated and decided upon, adding that change as an update to the contract documents, and disseminating the updated documents to all of the stakeholders, is the next step. This step is critical because, like any change to the contract documents, if members of the project team aren’t informed in a timely manner, the changed documents can cause confusion in the field and lead to potentially costly rework, effectively negating the added value that the alternative solution offered in the first place.
Implementing Value Engineering on Your Jobs
In order to start reaping the benefits of value engineering on your projects, look at some of the following ways you can get your teams working together to find elusive areas of value:
- Encourage collaboration – Value engineering will ideally start during preconstruction, because that is the time during where the design documents are reviewed extensively and more detailed cost estimates, as well as subcontracts and purchase orders, are created. As value engineering is an evaluative and collaborative process, having working sessions with various members of the project team can be highly beneficial and can foster the right environment for that breakthrough creative idea to be formed.
- Ensure good communication and document control – Having well-established lines of communication and documented control processes will encourage more value engineering. This starts with good internal communication among your project management team, making sure that visual and written information is easily shared and understood between different team members. Document control, in particular, the RFI process, is very important to value engineering. Value-engineered solutions are often proposed to the owner in the form of an RFI, which asks if a proposed alternative is acceptable. The RFI is not only the vehicle to communicate the value proposition to the owner, but an RFI response can also amend the contract documents to include the value proposition in a formal way that can be relied upon by the entire project team moving forward. Making sure that the project management team has a good flow of both internal and external communication is critical to value engineering.
- Scrutinize the project details – By creating detailed construction work plans and understanding all of the aspects going into specific work activities on projects, team members will start seeing areas of potential increased efficiency and will understand the intended function of the original design, and the materials included therein. This allows for those areas of added value to be identified and for viable alternative solutions to be presented and evaluated.
Use Value Engineering to Provide Better Work and More Profit
Overall, value engineering represents a progressive approach to construction projects that seeks to find areas of hidden value within the project and exploit them to the benefit of you, the owner, and other contractors. It also represents a philosophical approach to projects in which efficiency is optimized through the lens of reduced costs, accelerated schedule, a higher quality final product, and decreased workload on the entire project team. By using these strategies, you can begin to see value engineering pay dividends on your construction projects.
Further Reading: Foundations of Construction Management for SMBs