Value Engineering versus Cost Cutting

by Jonathan McGaha | June 8, 2011 12:00 am

The VE process has been around for a long time. First created by either accident or necessity by Lawrence D. Miles, a staff engineer for General Electric in 1947, the process set out to reduce the cost, increase productivity and improve the quality of the good or service that was being brought to market. The United States Department of Defense defines VE as “an analysis of the functions of a program, project, system, product, item of equipment, building, facility, service or supply of an executive agency, performed by qualified agency or contractor personnel, directed at improving performance, reliability, quality, safety and life cycle costs.” If the goal of value engineering is to strike the perfect balance between cost and value, then why is increased value so seldom found as a result of a VE exercise? There is no one answer to this question because, in my experience, people in the industry use their own definitions and variations of the process.

A Difference of Perspective

If you ask your team to provide a definition of value engineering, the answer you receive will likely vary, sometimes drastically, depending on which member of the team you ask. An architect once told me the act of value engineering is nothing more than design assassination. Most all of the contractors I know think VE is a cost-reduction effort because the owner does not want to pay for what the designers put into the plan and specifications. More often than not, owners believe their delivery team is responsible for analyzing each element of the project and acting accordingly to deliver the highest quality for the lowest cost. In other words, every member of the team is starting the exercise from a different vantage point. There is no common definition or goal other than reducing the cost.

The Context of the VE Exercise

Just recently, I was asked to participate in a value engineering exercise by the owner of a large development. The quantity surveyor working with the project team requested ideas from individual members of the team in order to assemble a potential list of items that the owner would be provided for consideration. Once the list was created, the team was asked to participate in a group exercise to review and draw conclusions about each potential VE item. Some of the items contained on the list and their associated cost impact are as follows:

On the surface, eliminating any of these items may seem to be reasonable and the combined savings is significant. However, the team was asked to participate in a value engineering exercise. Each of these items needed to be evaluated in a larger context if the owner was to receive both an increased value and a decreased cost through this exercise. Some questions they should have considered include the following:

• Several alternate materials can be used as screening elements on a building other than bronze, but the environment in which the building is built may impact the longevity of the material. The team could paint metal to look like bronze but how often will the owner be required to repaint the screen to keep it looking new?
• There would be a large savings to the project if the on-site renewables were removed from the project scope, but the owner made a commitment to the community and has advertised that at least 10 percent of the building’s energy needs will be offset through renewable energy sources. The team could save on the first costs of the project, but what will that decision do to the owner’s reputation?
• Replacing stone with a look-a-like GFRC façade may not make much of a difference to the contractor, and it would definitely reduce the construction costs, but ask for the architect’s opinion on this VE item, and I would venture to guess that you will get quite a different response. In addition to the aesthetics of the building, the owner is investing in a building made of more robust materials that will last long into the future. Are we constructing the building just for today or for those that may not yet even be born at the time of project completion? No one who sees a building after it is built knows all of the alterations and compromises that were made to the design before it was built.
• Reducing the width of the canopy could result in a reduced first cost, but the canopy also serves as a shading device for the windows on that side of the building. Reducing the width of the canopy may affect other elements of the design such as the glass selection and the size of the mechanical
  systems in the building, not to mention the scale of the building. The team may save on that line item, but could pay more for other elements and systems.
• Downgrading the mechanical systems will save money from the construction budget, but how much more will the owner spend on utilities every year the building is in operation? Saving $14,000 on the mechanical system could be a quick fix to a construction budget, but energy costs are not going down any time in the near future, and inefficient mechanical systems could have a huge negative impact on the owner’s bottom line every year the building is in operation.

Clearly Define the Goal

The next time your team is asked to participate in a value engineering exercise, take a moment and make sure that every participant knows and understands what the expected outcome is. Having everyone on the team start from the same place and work with the same definition will go a long way in helping to strike that ultimate balance between the project cost and what the owner values.

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Thomas Taylor, a 29-year veteran of the construction industry and noted expert on sustainability, is the general manager of St. Louis-based Vertegy. His recent book, “Guide to LEED 2009: Estimating and Preconstruction Strategies,” provides step-by-step information about the LEED 2009 for New Construction process. To learn more about Vertegy or Taylor’s new book, visit www.vertegyconsultants.com[1] for more information.

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