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Value Engineering

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April 5, 2021

 

Value engineering is one of the most commonly misunderstood processes. Some equate it with cost-cutting, budget-cutting, and scope reduction. Others mistakenly believe that quality loss, elimination, and redesign are inherent risks involved with value engineering. So what exactly is value engineering and how does it apply to cost estimating?

 

The Origin of Value Engineering

The concept of value engineering was created at General Electric during World War II in response to shortages of skilled labor, raw materials, and component parts in the manufacturing industry. Because of the shortages, Lawrence Miles and Harry Ehrlicher of GE searched for substitutes. They discovered that some substitutions not only reduced cost but often offered a better final product with even more value than before. This happy accident transformed into a systematic technique they called “value analysis.” This process is now referred to as “value engineering” and is widely used throughout the construction industry today.

 

Value Engineering Explained

What Value Engineering Is NOT: Value engineering (VE) is not a design/peer review or cost reduction exercise and does not mean switching over to inferior or cheap products. Those are knee-jerk, unplanned reactions to going over-budget and often end up sacrificing quality for lower costs.

 

What Value Engineering IS: While value engineering does work to lower total costs, the primary goals of value engineering are to improve product quality and increase productivity. Value engineering is a creative yet organized multi-disciplinary analysis of alternate solutions that will achieve the minimum cost required to produce maximum performance. In other words, value engineering provides the highest possible value at the lowest possible cost. 

 

The Society of American Value Engineers (SAVE)—now known as SAVE International—is a professional society formed in 1959 dedicated to the advancement of VE and a better understanding of the principles, methods, and concepts involved. SAVE defines value as “the reliable performance of functions to meet customer needs at the lowest overall cost,” mathematically expressed as “function ÷ cost.” Function is what the product or service is supposed to do and cost is the expenditure needed to create the product.

 

The Three Stages of Value Engineering

The process of value engineering is broken down into 3 stages: (1) planning, (2) design, and (3) methodology and approach.

 

  1. PLANNING

The planning stage of value engineering involves performing a functional analysis of your facility or business operation and gathering information to better understand the objectives and criteria of the project. Topics to discuss include staffing, maintenance, budgets, and energy usage. Any changes to the VE program at the planning stage will have little to no impact on the project schedule and redesign costs.

 

NOTE: While VE can be implemented at any point during a project, a business will reap a higher return on investment the earlier it is applied. A project is more likely to experience net loss when VE is implemented during the construction phase.

 

  1. DESIGN

During the design stage, VE participants will generate creative ideas on all the possible ways to accomplish the required functions of a project. The more ideas, the better! Then the team will go through the list to differentiate impractical ideas from those that have the greatest potential for cost savings and specific value improvements.

 

  1. METHODOLOGY & APPROACH

After narrowing down which ideas are the most advantageous and cost-effective, the VE team will then select the best alternative(s) for improving value and expand them into workable solutions, which may require the use of sketches and design calculations.

 

Once workable solutions have been thoroughly developed and compiled into a written report, it’s time to present them to the project stakeholders. Review with them your recommended design solutions, proposed implementation schedule, the cost estimate, and the rationale behind each proposal. Be sure to clearly compare the original design method to the proposed change and include an evaluation of both the advantages and the disadvantages of your recommendation.

 

NOTE: The goal is to lower project costs while representing improved value to the client. However, bear in mind that the meaning of “good value” will vary from client to client and project to project.

 

How Value Engineering Relates to Cost Estimating

Value engineering should be a vital part of a cost estimator’s daily routine. Implementing VE ensures that a project is completed on time and within budget—the ultimate goal for any construction project. Since upfront construction costs are the highest, planning ahead is critical. Trimble, one of Charter Estimating’s partners, outlines several ways that a skilled cost estimator can incorporate value engineering into his process in their guide entitled “How to Add Value to Your Estimates with Value Engineering.”  

 

Choose Charter Estimating’s Electrical Cost Estimators for Value Engineering

All of our electrical cost estimators have earned several certifications in estimating and value engineering to refine their expertise and vary their skills in cost estimating. Outsourcing your electrical estimating to Charter Estimating will ensure that you maximize your project’s return on investment without sacrificing quality, all while staying within a realistic budget. Contact us today and receive 10% off your first estimate!