Value Engineering – The Risk of Cutting Corners

The term “value engineering” was coined shortly after WWII because of the material shortages the war left behind. The true intent of value engineering is to reduce the cost of a product without diminishing its value. Unfortunately, most “value engineering” today has little to do with value and everything to do with reducing the cost of a project. Reducing cost may sound like a great idea, but in many “value engineering” exercises, the value is reduced along with the cost. This is fine if the owner of the project is fully informed of the reduction in value. However, many times the value is reduced more than the cost, which leads to a cheaply built and sometimes non-functional project that often may end up in litigation. So, how does one tell the difference between true value engineering and cost cutting?

There is no doubt the cost of everything involved in building a project is increasing. Add to that, the cost of shipping materials to one of the most remote places on earth, and it may seem prohibitively expensive to build anything. That is why it is important to have a realistic view of what a project will truly cost. Starting the design process with a realistic budget and a design team that is sensitive to end-costs will help to minimize the need to slash prices and reduce the quality of the project. When a project is designed around particular materials, the resulting value is almost always better than starting out with a grand design that gets reduced to a shadow of the original intent by a shoddy “value engineering” exercise.

COUNTING THE COST
Value can be built at almost any reasonable level of construction cost. Value is one of those terms that can mean different things to different people. One person might value the form of the project – things like the level of finishing or the quality of the furnishings. Another may value distinctiveness – do you use Italian marble or man-made stone? One might value the robustness of the structure or the type of material used in the infrastructure. Another may prefer a robust electrical system and cheaper finishes. True value is achieved when the finished product meets the needs and expectations of the client.

WHEN IS VALUE ENGINEERING APPROPRIATE?
Value engineering is always appropriate when it is done in the spirit of its intent – reducing the cost without diminishing the value. An example of this is changing structural systems or finish materials due to availability of materials and/or labor. Sometimes steel is a value and sometimes concrete is a value. Stone is a readily available material in Hawai’i; however, in the Midwest man-made materials are more prevalent. Another example is changing brands. This is one area that requires careful consideration. Some brands are equal in quality, and some are not. There is a popular air conditioning brand that is considerably less expensive than other brands but selecting this brand will reduce the life of system by about half. If the cost is less than half, this would be value engineering, but if the cost is not less than half, the use of this brand would be considered cost cutting.

WHAT IS COST CUTTING AND HOW IS IT DIFFERENT?
Many times, what is being passed off as value engineering is just cost cutting. Cost cutting is accomplished by ruthlessly cutting expenses out of the project. Value engineering proposals will often suggest reduced electrical capacity, substituting aluminum conductors for copper, reducing the quantity and quality of lighting fixtures, substituting cheaper brands of plumbing fixtures, substituting laminate for solid surfaces, etc. This is not true value engineering because the value of the project is being reduced along with the cost. Most of the time this process is being done with the lowest bidder, therefore the full value of the materials being removed is not reflected in the pricing. The project ends up being a skeleton of what was imagined, and the price reduction is less than the value reduction of the project.

CAN CHEAPER BE BETTER?
Nowadays, most products have a cheaper alternative that is virtually indistinguishable from the original. Most of the time, the cheaper products will have a shorter life, but this may be appropriate for the type of installation. Retail, for example, is usually remodeled every five to seven years. In this case, it would be appropriate to use products with a shorter lifespan. It is important to be sure all products being used are appropriate for use in the United States. Some faucets, for example, do not have the required check valves for backflow prevention. This can cause hot- and cold-water crossover issues. Cheaper lighting fixtures may also have harsher colors or uneven distribution patterns.

THE TAKEAWAY
The most important thing to know about your next project is what is realistic in terms of cost. Costs are on the rise and estimates from a few years ago are most likely not valid today. To reduce costs without reducing value, it’s important to understand that true value engineering happens during the design phase, not after. Once the design phase is complete, most attempts at “value engineering” become cost-cutting by cutting corners.

Hiring licensed and experienced design professionals will go a long way toward mitigating the risks of overdesign while identifying opportunities to reduce costs without sacrificing performance, reliability, or longevity. Design professionals are in the best position to evaluate materials, systems, constructability, and long-term lifecycle costs before they become expensive changes in the field. Contractors’ suggestions for cost reductions can provide value, but they must be carefully vetted to ensure any reduction in quality is more than offset by the savings achieved.

Ultimately, value engineering is not about building the cheapest project – it is about building the one with the best value. The greatest risk is not overall project cost; it is unknowingly giving up performance, durability, safety, or maintainability for savings that are not worth the tradeoff. The cheapest project is rarely the least expensive over time. Every cost reduction must be weighed against the long-term consequences. Value engineering must be done during the design process, not at the end.  A qualified, licensed design professional must be involved in the entire process to ensure every cost-saving decision is an informed one. When value matters, hiring the right design professional is the best investment you make in your project.