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Project Optimization vs. Value Engineering

If you’ve ever been involved in a Value Engineering process as an end user, you likely have a sour taste in your mouth. Despite all the good words and intents, it usually boils down to cutting program, quality, and cost, and it usually comes well after these decisions should have been made. Project Optimization on the other hand, seeks to homogenize project deliverables and expectations from the start of design all the way through occupancy.

Why Value Engineering Most Often Disappoints

Pressure to reduce cost for the first build will inevitably lead to reducing program requirements, substitution of specified products with those of lower quality, or even elimination of design features. These are all normal outcomes of Value Engineering.

Implementing VE after development, construction, or manufacturing is underway exacerbates the problem. When a change is implemented in the midst project fulfillment options are limited and any change comes at its most expensive time. The associated redesign, rework, and their associated lost time are every project manager’s nightmare.

Life cycle cost effects of these changes are most often not included in the analysis because the primary issue forcing the issue is first cost. For example, the average commercial building has a life expectancy of 50-100 years. Reducing first cost by substituting lower quality systems and components can substantially increase the operating, maintenance, and replacement costs over the life of the building, all of which come with higher costs due to inflation over time. Changes that cut needed program and/or quality in effect commit the organization to a higher total cost of ownership over the asset’s life span, often to the tune of millions of dollars.

Why Project Optimization Succeeds

The key to avoiding Value Engineering lies in correctly understanding the whole project environment (program, design, budget, schedule) and moving through the delivery process with a focus on each as the key deliverable.

Understanding program requirements is based in stakeholder engagement, identifying requirements, and deciding which can be included and which cannot. Key to this process is obtaining stakeholder sign-offs on decisions to include or exclude items on their wish list. A head nod, a “yes” or “no” does not suffice. Get signatures at each review step to avoid memory lapses, resurfacing agendas, and rankled feelings later on.

Scope the project completely and correctly. Doing so requires adequate time for developing concepts, soliciting pricing, constructability, and schedule information. This critical step is too often given inadequate attention which matures into late surprises that force VE reductions.

As the project progresses through various design stages, take the opportunity to update estimates based on evolving design and market issues. Include Total Cost of Ownership analyses at each point so decision makers can see the long term effects of the current state of design. The Association of Physical Plant Operators (APPA) has the best TCO model in my experience. Large universities have lots of money, large facilities, lots of competition for resources, and lots of high-powered financial oversight. They have to have their act together and have figured it out.

It goes without saying that project leadership must be capable, have the oversight and backing of executive sponsors, and be focused on managing the whole project to meet financial, quality, schedule, and process expectations. Do that well and you run a good chance of never hearing those dreaded words, “Value Engineering.”

Ken Burkhalter is a facilities and project management consultant, focused on strategic planning, capital projects, and organizational development. You can contact him at ken@kburkhalter.com.

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