The Many Benefits of Value Engineering

By DH Glabe & Associates / August 31, 2017

Let's face it, most companies could stand to operate in a stronger, more effective manner. Be it time wasted in meetings or too many resources used, these mistakes can be costly.

In the construction world, value engineering is a great way to combat that waste. Created during World War II by General Electric, this process is all about helping businesses become more efficient.

And if you're a contractor, there's one universal truth: your process could be more efficient. And what does efficiency lead to? More money.

Read on to learn why it's time to invest in value engineering services.

Value Engineering Advantages

Bidding & Value Engineering

While faster timelines and teamwork are great (we will dive into that later on), let's first focus on the overall goal here: profits. And by investing in value engineering services, you'll ensure that your company is adding more to the bottom line than ever before.

A revelation to many companies is that value engineering is not just achieved during the project, but it can be even more effective before bid time.  It's shocking to see how many companies wade into a bid simply winging it: “Sure, that beam is probably big enough for that wall”, or even better “Yeah, we should be able to get away with only one crane for that critical lift.”

Wouldn’t it be nice to know what it will actually take to build your project before you bid it?  Two outcomes will be achieved in this exercise.  First, no cost surprises during construction – raise your hand if you ever “won” a bid you wish you would have lost! Second, increased bid winning percentages – bid confidently knowing you can build the project faster and cheaper than your competition, no more “padding” necessary.

“But if I lose the bid, how am I supposed to account for the engineering costs?”  This is the line in the sand that separates the sophisticated contractors from everyone else, and where we need to think about the big picture.

The smart contractor will look at the cost of value engineering in the bidding phase as an expense, not as a cost of goods sold (COGS).  Trying not to go into an accounting lesson here, but an expense is just like any other general or administrative cost such as paper or pens for the office.  COGS are actual project costs like materials and field labor. Why is this distinction important?

Smart contractors expense the value engineering because they know that they will not win every bid.  They set an annual budget for it and spread this expense into their overhead. They do this knowing that they will get a far greater return than this amount over the course of an entire year. A recent client example looked something like this:

  • - $ 25,000 engineering investment
  • + $100,000 annual project cost savings
  • = $ 75,000 annual net profit (300% ROI)

Does an investment that yields 300% seem like something you want? I’ll assume so given the fact the most recent interest rate on a “high yield” savings account is 1.15%.

Conversely, other contractors instead look only at the immediate result, and view the up-front engineering cost as COGS. “I spent $2,000 on pre-bid engineering and I lost the project, now I just have to eat it. I’m never doing that again!”

Think of the absurdity of that statement.  Imagine yourself walking into Caesars Palace, winning a bet, and then Caesars abruptly shuts down the casino. Crazy, right?  A Casino will never do this because they know over the long run, they will win that money back – and then some. Losing even 100 bets means nothing because they will win 110 bets back!

Similarly, companies in the ENR Top 50 don’t stop spending money on pre-project engineering because they lose some bids here and there. Instead they forge ahead knowing that over the long run, they will have a great return on their investment!   

The choice here is what type of contractor do you want to be?  Great contractors, and great companies for that matter, think about the long run and focus on the big picture.  Big picture focus = big profits. 

Overall Scheduling Outlook

Worried about how adding engineering services could impact your schedule?  Don’t be.  One of the key performance metrics that is reduced by value engineering is overall project duration.

If the engineering takes two weeks to complete but shaves four weeks off your schedule – this is a win for you and your project.

The trick is to not focus on the immediate schedule impact – think in the long-term when evaluating your options. Just as mentioned before, you must focus on the big picture.

Your Clients Get a Better Result

Construction is ultimately about creating what the client has envisioned. Focused value engineering will by definition provide your client with the same outcome for lesser cost. Depending on contractual obligations, the contractor may pass on or keep the savings.

From a customer service perspective, owners always appreciate the contractor who is considerate and mindful of their specific needs.  Building owners will be much happier with the result if you provide them with a value engineered structure that minimizes maintenance costs.  Modest value changes such as adding some additional cheap roof anchors can save them tens of thousands of dollars over the life of the building in window washing costs.

Simply presenting your client with value options will ensure them that you are constantly focused on their best interests. 

Your Team Will Come Together

Value engineering can be a team building experience. Bringing the project group together to solve a complex problem will galvanize relationships. You will also find out who your superstars are as the best members of your team will rise when presented the challenge.

By the end of your value engineering experience, your team will be stronger and morale will be higher.

Start Saving Money Today

Ready to take the next step from simply being good, to instead being great? We would love the opportunity to help take you to that next level.

Get in touch today to learn how you can leverage all the value engineering services DH Glabe & Associates has to offer.

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