Guide | Finding the value engineering ‘sweet spot’
Guide | Finding the value engineering ‘sweet spot’
Value engineering is one of the most commonly misunderstood processes in the field of construction cost management and control. In this article, we explore what it means to engineer value and how it can benefit your next project.
What is value engineering?
Most people mistakenly believe that value engineering is a method used by Quantity Surveyors to reduce the cost of construction. Others believe it’s the same as cost-cutting, budget-cutting or scope reduction. In fact, value engineering is defined as “a systematic approach that seeks to enhance value by eliminating unnecessary cost while maintaining function” (Value Engineering by Stuart Green and Peter Popper, 1990). It aims to develop an optimum value for both initial and long-term investment and put simply – select the best options, for the best prices without compromising on time or quality.
Along with establishing and managing the budget, Quantity Surveyors are experts at value engineering. They play a crucial role in managing value across the lifecycle of a project, specifying the financial resources required to achieve project objectives and expertly guiding their client and all stakeholders through the process. As an independent voice, they bring fresh ideas and an outside view of alternate solutions from other similar projects.
What are the benefits?
Value is a relative concept – different project stakeholders will have different perspectives on effective value engineering and its benefits. Generally speaking, the benefits can be divided into two key areas;
- Cutting unnecessary or excessive costs
- Stakeholders can reduce project cost by focusing specifically on the functional requirements of a project and considering what alternative approaches can be adopted. This limits unnecessary or excessive costs that may have been built into the project specification as a result of unchallenged assumptions.
- Creating efficiencies
- When early consideration of design, buildability and maintainability is encouraged, different project team members can discuss ideas in a structured manner and seek more efficient or effective ways of achieving the required project outcomes, improving the subsequent asset management.
While the ultimate beneficiaries of value engineering are the project’s client and asset owner, the interim beneficiaries are members of the project delivery team as they explore and identify better ways to achieve desired outcomes. This can lead to a stronger, more committed team – empowered through multi-disciplinary teamwork.
Finding the ‘sweet spot’
Value engineering can be applied at any stage of a project, but the earlier it is applied, the greater return you’ll see on the time and effort invested. If you want to find the value engineering ‘sweet-spot’, then you must implement the process in the very earliest stages of a project; preferably around Concept or Schematic design stage. The opportunity to influence the out-turn costs of a project reduces as it progresses.
When there is early consideration and integration with stakeholders, the project will be developed with fewer redesigns and a better understanding by all parties of the desired outcome. Any changes to the project at the planning stage have very little if any impact on schedule and redesign costs.
When appointed in the early stages of a project, a Quantity Surveyor can advise if value engineering should be adopted. They might also suggest that tender submissions submit value engineering ideas with the associated cost savings. At the same time, your Quantity Surveyor should have a list of ideas that they want tenderers to price for value engineering purposes.
Value engineering doesn’t have to stop there. During construction, your Quantity Surveyor can guide the appointed contractor to continually review the construction process, methods and materials for value engineering opportunities. Contractors can be provided financial incentives to propose solutions that offer enhanced value to the owner and share in the economic benefits realised. When value engineering savings are split between the contractor and project client, the percentage split should be predetermined and agreed at the tender award stage. Any proposed changes should be thoroughly considered and not negatively impact the overall design, building function and schedule.
The right approach
Value engineering is generally undertaken in a workshop environment that facilitates information gathering, brainstorming, evaluation, development and presentation, followed by implementation and auditing.
A typical breakdown of the value engineering process would include:
The focus of this stage is to build the teams knowledge and understanding of the project. They should understand what factors have influenced the development of the design, the projects key function, as well as stakeholders objectives and definition of value.
During the creative or speculative stage, a brainstorming workshop should be held to understand all the areas for potential value improvement. This workshop is focused on ideas generation or ‘optioneering’ to think of as many possible ways to provide the necessary function with improved value.
The criteria for evaluation should be defined. Ideas should be sorted from the most to least feasible and ranked in order of the greatest value saving while identifying the advantages and disadvantages when compared to the baseline project.
In this phase, you take ideas and expand them into workable solutions. A Quantity Surveyor working closely with the design and planning teams will then review the options and engineer the most effective solution. Any construction scheduling adjustments should also be reviewed and considered. Any costs gathered from suppliers or contractors should be examined and challenged.
Once the value engineering study has been completed on all options, a report should be produced outlining a recommendation. There should be formal approval or rejection of the proposal by an authorised approver – the action for approved ideas, and the reason for the rejection of an idea should be recorded for reference.
Implementation & Audit
Once value engineering proposals have been agreed, they should be recorded within the cost plan/estimate and also implemented into all drawings and specifications. Any proposal needs to ensure that the management team has enough time to incorporate any specification, design or methodology change into the project concept. If adequate time is not given, the value improvement may not be realised.
The above process and workshops involve a multi-disciplinary team including but not limited to the following: the client, the project manager, the engineer (structural and MEPF), the quantity surveyor, the architect/designer, suppliers and contractors.
With the above being said, there are some inherent risks that must be guarded against during (or even before) the value engineering process, such as the following:
- the value engineering exercise is undertaken too late for changes to be effective;
- inadequate or incomplete information results in incorrect and unreliable assumptions;
- insufficient participation by project team members/stakeholders;
- senior management provides insufficient support and a lack of leadership buy-in;
- the extent and scope of services regarding value engineering is not clear in the project team consultancy contracts;
- insufficient time is allocated for the process.
If these risks are recognised at the time, then action can be taken to control, manage and mitigate such risks, ensuring the value engineering process has the best chance of success.
When done correctly, value engineering can provide tremendous benefit. The functionality of a project is often improved and cost savings, both initial and lifecycle, are realised. It should never be approached as a cost-cutting exercise or come at the risk of quality. Our Quantity Surveyors are experts in value engineering and will proactively drive the process with all stakeholders to ensure true value and project objectives are achieved.