Value Engineering: Process or Focus?
In a few short weeks, I will mark 40 years since I first walked into an architect’s office, the sun rising on the dawn of my career. At 17 years old, I had no idea where that path would lead and looking back it was everything one could have hoped for. As I am closing in on the final third of my career I would not have changed a thing in my entire career. At this stage, I guess one might say I am an “elder statesman” in my profession. That almost sounds like a distinguishing title, as titles go anyway. As a particular subject once again presented itself in my practice, I began to think back on my career, bringing feelings and thoughts reflective of the sentiments I just expressed. So much for reminiscing, now let us move onto the subject I wanted to discuss.
Mentoring and teaching have always been a driving attribute of my career. I learn something, and just have an incessant need to share it with others. That is part of what I have always viewed as the passing of the torch to the next generation of professionals. I want to discuss an often-abused concept, value engineering (VE), that can be a very effective tool or a potential cancer in the construction industry that can greatly cost the entire society. Like many things in life, wielded properly VE can be an incredibly powerful tool. Inappropriately applied it becomes a burden on the entire society by creating facilities that become money pits and nuisances. Often these lemons are sold to an unsuspecting buyer as caveat emptor. As a side note, I often question to what extent does non-disclosure become unethical, not just illegal, and how much of an insight into some people’s true character. I am sure we have all been there at some time when we felt like we really got the short end of the deal.
Responsibility of Building Owners, Designers, and Constructors
There are very few that can make the claim that a part of them can live on this rock for 100 years or more. The building industry is just one of those very few industries where workers can really make such claims legitimately. Think about it, as long as that building you worked on exists, a part of you will exist on this planet. WOW!!! Few can lay claim to such legacy and be accurate. This perspective should drive professionals within the building industry to a new level, a longer-term, sustainable ideology and practice. Unfortunately, that is not always the view of those in the building industry. In a previous article, I referred to this short-sightedness phenomenon. As I stated in that article, the following quote was provided in the 1984 American Institute of Architects (AIA) national convention and I find this so important that I want to quote that article again:
“Far too often, you, the Architect, against your better judgment, go along with your clients… permit yourselves to be intimidated by developers, builders, and owners who want to make quick profits at the expense of our entire society… Unfortunately, I’ve come to this conclusion after building for many years and making many mistakes and discovering on my own that the greater the investment in ‘the top line’, the greater the results on the bottom line. I think you (the Architect) should have told me this a long time ago.”
Herman Chanen, President, and Chairman of the Board
Chanen Construction Company
1984 AIA National Convention
Published in Architecture Record, June 1984
This quote illustrates the very cancer potential that VE can become if it is used with the wrong focus and process. I will discuss these two in a moment. Before we get into that part of this discussion, I want to begin the discussion by placing glasses on that will help us understand the ramifications of these VE decisions.
The Real Reason for VE
No sugar coating or illusion is required, there is no such thing as a limitless budget in anything, but especially in construction. To be clear let me say that another way; there is no such thing as a limitless budget! I hope that is crystal clear to everyone reading this. As such, there will NEVER be enough funding to do everything you may want to do when building a facility. These facilities will be expected to have a live span of 40 or 50 years, and more than likely they will be expected to survive over 70 years in many cases. That is four, five, may be even seven decades. Does that reinforce a vivid life timeframe in your mind? Now you can get a real feel of what I said earlier about legacy.
With the need for longevity and having limited funds, it becomes imperative that value is increased for each and every system investment in a facility. To say it in another way, most every building system will be replaced at least once during the lifetime of that facility. How do we make those investment decisions best? The best way is through life cycle costing, but that is a discussion for another time. Apart from life cycle costing, the most common way to control cost is through value engineering (VE). I have seen VE brought into a project through two basic methods. The first, as a part of the entire planning / construction process from due diligence when buying the real estate through occupation of the completed facility. The second, when it has been determined that the construction costs have exceeded the established budget. The first is a proactive approach, the second is reactive. Who would like to guess which one will bring about the greatest and best results?
Either of these approaches will have the same short-term goal, reducing initial costs. The unknown is which one will have the largest detriment to the facility as the building ages. May I remind each reader that just like the human body, buildings age. This is an unescapable truth. Just as it costs more as we age, i.e. doctor appointments, glasses, etc., the same holds true for buildings. VE can potentially become a cancer when it shortens the life expectance of the facility or increases the aged costs above what would normally be expected for a facility of that comparable age and type. Think of this way, if the roof is supposed to last 20 years, and at year 10 the roof has to be re-coated to get the roof to the 20-year mark, what exactly did you pay for when you paid for that “20 year” roof to begin with. I discussed this in another article about warranties.
In many sources that describes what VE is supposed to be, one concept seems to be the most uniform throughout those descriptions, being to reduced initial construction cost expressed in terms of value. I have infrequently seen the value terms expressed in a life cycle cost, but that is really the way this value should be expressed. Most commonly I have seen these values expressed in terms of immediate direct initial costs savings, exclusively. It appears that the main reason for the latter method is as a direct result of when the VE is introduced to the process, most commonly, at the end after budget exceedance has been established. This starting point might be the foreshadow of the balance of this discussion as we progress to the focus versus process parts of this article. Focus being the fixation on cost cutting as a result of budget exceedance. Process being the establishment of balance between the long-term and short-term needs of the facility and organization.
VE as a Process Tool
When VE is introduced into the entire planning process, it has the greatest potential of becoming a very powerful tool. This is when the VE process becomes focused on value results. I find that goal unattainable apart from a life cycle consideration, and it turns this analysis into a great indicator if the owner has started with an appropriate initial budget. The public sector often falls short in this respect as political decision-makers focus on dollars and often discounts politically uncontrollable forces acting on the market. Often what is decided on costs by the legislative branch do not align with what the market establishes as real costs and as a result, sub-standard construction is required and allowed to complete politically important projects. For instance, while science has determined tomatoes to be fruit, Congress tried to change that view with the Tariff Act of 1833 which declares tomatoes to be vegetables. Sadly enough, the Supreme Court indulged Congress’ actions in its ruling supporting the Tariff Act in 1893. I will leave those facts to stand on their own without comment, at this time.
When introduced through the entire life of the project VE can identify potential initial and life-cycle cost savings that may reduce the financial burdens of a facility throughout its life expectancy. That is what real VE is about. This is when VE becomes part of the process and not just an afterthought. In this case, VE can become a balancing force between the long-term life-cycle costs and the initial construction costs. Now the power of the VE is beginning to shine.
VE as a Focus Cancer
The most common time I have seen VE used is between design and construction, when it has been discovered the budget is not large enough for the project as designed. VE has become an after thought to the project. This is not just representative of poor planning, but piss poor planning. Can I say that? Oh well, too late, I already did. Not to be offensive to anyone, but this is representative of the absolute worst type of planning, or lack thereof. Someone failed to anticipate something so now some solution must be derived for that oversight and if it is given an appealing name, it may not look as foolish as it otherwise would. This type of VE often fails to account for all issues when being used. For instance, to reduce project costs it is determined that the roof drain lines (designed to carry the rain water from the roof away from the building to the retention area) are replaced with scuppers and downspouts (that drained rain water immediately adjacent to the building). Now this may not be a problem on another project, but this project has expansive soil, so when the soil gets wet it expands and forced the walls to lift up. That decision, on this project, will create costs of huge dollars to be spent a decade later to correct the structural failures because the expansive soil got wet. How effective was that VE decision? Most do not even track VE decision to record these events because of the timeframe after construction.
Often when anything is done at the last minute and rushed, the best decisions are never made, as crucial factors are often overlooked. Quite frequently the owner, that is not knowledgeable, or experienced with such decisions is the one making these types decisions, further augmenting the ramifications. Frequently there are time pressures to make these determinations quickly because the delay in time could be costlier, and the long-term results are almost inevitably compromised. You should start to see the potential domino effect.
Considerations for VE
One of the first questions that must be asked is what is the goal of the VE. Before one gets to the budget issue, it must first be asked, what is the value being returned for the VE. If the VE is not returning value, then maybe it is not the correct course of action. If the determined value returned is only to reduce construction costs, then the next answer sought must be was the original project budget appropriate to begin. Often an owner does not want to hear any of this as it might reflect that the owner did not do something correct to begin with. If VE is introduced through every step of the process, then the VE should have some other reason above the initial budget.
Stop to think, just like the human body, buildings age. What other parallels could exist? Consider this, if you ask a nutritionist, bariatric specialist, athletic trainer, or someone of that nature, they will all tell you that cutting calories to reduce weight is very effective to a certain point, at which muscle starts to disappear. I can tell you from my experience, I see that all the time. If a client attempts to build a project with a budget 20% the cost per square foot for a building type, the building will not function appropriately or last as long. It may even become a money pit. Consider that.
As Herman Chanen discovered and talked about in 1984, there is a basis for seeing VE as a possible cancer, but if wielded well it can be a very powerful tool. It is the owner’s responsibility to make sure the team uses VE effectively, and the best way is to not make decisions on issues that the owner has little expertise and experience, delegate those decisions to the experts hired by the owner. If VE is going to be used on a project, integrate the VE throughout the entire project, not just when the budget is exceeded.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2017 Dan Demland