In the 42 years I have been in this business, we have found very few clients that say to us, You know, we’ve just got more money than we know what to do with—you just go ahead and do whatever you think is best. For these clients, the term Value Engineering is not a priority. For everyone else, its entirely critical to the financial success of the project.
What is Value Engineering?
Value Engineering (or VE for short) is just that: the process of engineering the value (or cost) of a project to fit your short and long term financial goals.
It’s easy to do if you have the right software and know how to use it. It can save you anywhere from 10-30% on construction costs. It’s really a no-brainer, IF it’s the focal point for the entire Pre-Construction and design process right from the start.
3-Step Value Engineering Process
There are just three steps in any well-designed VE process, and the important thing to know here is that it’s simply not possible to deliver all three steps without the commitment from the Construction service provider to both complete Transparency in estimating and invoicing, as well as an entire business model dedicated to the principle of client advocacy.
In addition, it takes a commitment AND a signed contract from the project designer to make costing an integral part of the design process. Because why wouldn’t anyone do that?
However it proceeds, these 3 steps always occur in the following order during the Pre-Construction Process, and they begin early in that process:
1. Determine Major Project Elements
Breaking the project down into its major parts. Kitchen, Bath, Deck, Structural repair, Utilities, dividing the project up into whatever elements will inform the financial choices every client must make.
When you know the individual cost for each element, it’s easy for the software to arrange them in a matrix that instantly allows clients to explore different project scenarios, create project phasing over time, or remove certain elements altogether.
Few decisions, large impact on project costs.
2. Scope and Finish Options
Each of the surviving elements are then fine-tuned over hundreds of line items. dozens of options for windows or flooring and including or deleting minor scope options
Each of these line-item choices may only represent a very small percentage of the project, many of them less than 1%, but over hundreds of line items, many small decisions can add up to a big effect on the budget, while potentially still keeping the essential project intact.
This is no small accomplishment, and can only be done if you have the right software that is configured for market-based pricing from the subs themselves instead of unit-based pricing on square footage costs.
But in addition to the software, you also need to be working with a business model that is entirely transparent. You simply cannot supply that level of detail without it. It’s just too hard to hide too many things like that, and any attempts just becomes silly at that point.
But in addition to transparency, the business model must also be dedicated to advocacy. That brings us to the third and final VE step.
3. Competitive Bidding at the Subcontractor Level
Lets just say that you could get three different General Contractors to be completely transparent, apples-to apples, and option-rich in their bid packages (good luck with that). When comparing them side-by-side, you found yourself saying, I really like the electrical price of Contractor #1 and I’d love to have Contractor #2s roofer, and I’d really like to use the painter from Contractor #3!
Unfortunately, in this outdated scenario, you have to take the aggregate of all the subs prices under a single contract and choose one General Contractor to go with.
However, in a business model committed to client advocacy made possible by the right transparent estimating software from the 21st century, you CAN have the electrician of Contractor #1, the roofer of Contractor #2, and that painter of Contractor #3 and that is why value engineering is so vital to any project that you are considering starting in this industry’s day and age.