When I say Value Engineering (VE), the first thing you think of is a fun, collaborative process wherein all parties share ideas about how to increase the value of the project by improving the design... Right?
If not, read on.
The VE process is an inevitable part of every project — in fact there are often multiple cycles of the process within a single project — and it frequently isn’t called VE. Instead, it’s an incredibly common request: make this project cheaper. This isn’t inherently negative. Budgets are a necessary, important part of every project, and acknowledging that fact is the first step to creating projects that deliver amazing results and great value. My colleagues and I at Morlights have learned a few valuable lessons about how to manage a project budget, how to efficiently and effectively navigate value engineering requests, and how to ensure that, throughout the process, design doesn't become secondary to cost.
1. (Really) understand the client’s goal.
What does “done” look like? It sounds rudimentary, but is often overlooked. Not only do we state the goal out loud, but we also informally require that the client sign off that the effort we’re undertaking is actually what they want from us. One thing we’re clear about at the outset is what we want: to deliver exceptional design, meet all client goals andsave client dollars. This process makes that possible.
2. Know your budget before you’re asked to VE.
In our VE efforts, we will ask bluntly, "Are we over budget? If so, what is the budget?" Once we have established the budget for all items or systems we’re specifying, we can evaluate our design’s cost against the client’s budget. And no matter how cool and high-profile the project or how large the budget, there are a lot of questions to ask. Is that number for luminaires only? Does it include electrical installation? Pipe and wire? What about engineering costs? Is my fee included in that budget? Lastly, how do you intend to procure the equipment? Will there be a GC overseeing and providing everything? Will you be purchasing equipment directly yourself? Maybe something somewhere in between?
3. Take charge of your costs.
We always keep the budget in mind when designing, and often know rough costs for the elements we are designing. However, imperatively, at the end of each major design phase, we at Morlights will budget the lighting equipment. That is the first major step in taking ownership of the VE process. You must actually know what your design costs, before any VE takes place.
After each major release, you should also have the construction team (or estimators) budget the project. More often than not, those budgets don't match. Sometimes, it is a contractor's ambitious markup expectations that raise project cost above the Morlights estimate. Sometimes, they just didn't fully understand the design. Whatever the cause, Morlights’s knowledge of actual product costs allows us to reconcile the contractor’s proposal against our estimates.
The fourth key item sounds almost the same, but trust me, it isn't:
4. Verify construction team pricing — carefully!
I cannot tell you how often I hear from the client that their contactor can "save them 20% of the cost of the lights if we switch the project to XYZ manufacturer.” To that comment, our response is always, "That sounds great. Please have them send us the quote for the project as specified, so that we can evaluate their baseline costs." Unfortunately, all too often, this is a first shot across the bow at owners in an effort to steer a project to the construction team’s preferred products or manufacturers.
While there may be value for the construction team in using products that they are more familiar with, the value for the owner and end user is having a project delivered that: A) meets the owner’s needs, B) functions as intended, and C) provides the look and feel ownership approved.
Morlights approaches this conversation as a great prompt to get those baseline numbers — including line-by-line pricing for each specified product — from the construction team, which we can work from to create a clear comparison between our costs and the costs they are quoting.
5. Budget mismatch? Time for VE.
I don't recall ever budgeting a project where the construction team came back with lower costs than I had been provided by the manufacturer. Overcomplicated procurement systems in the lighting industry, as well as markups along the supply chain, mean that those prices are nearly always higher than the manufacturer’s quoted price. If the construction team’s pricing doesn’t match our pricing, that’s our first VE target.
Fortunately, this is often the easiest of all the VE processes — it is as simple as informing everyone that the design team has budgeted the project, and therefore knows what everything costs. Once that process is complete, hopefully your project is now on budget? No? The budget got reduced, so you need to cut deeper? That never happens...but when it does, start over with item number 1 again.
6. Evaluate the design from the users’ experience.
The next VE target considers the typical occupant or patron’s movements throughout the building. Consider automatic systems that affect their stay, like automated shades. Now, which items will occupants never see, and which systems will they never interact with? What can be done to cut those costs? Everything they won't see, touch, or that won’t otherwise affect their stay is a potential place to trim cost. In that way, we can actually reduce costs without adversely affecting the project quality. This is one way we increase the project value.
Now the project is on budget, right? No? Oh, OK...
7. VE is over. Now what do you want to cut?
We consider VE “over” when the project is as lean as it can be, while still providing the design that the client requested. That doesn't mean we are done with the effort; it just means that we make it very clear that we are moving into a redesign phase. We are no longer working toward delivering the design as originally conceived. This will typically mean working with the architect or owner to evaluate which area (or experience) can be done more economically. This may require adjusting the facility programming — even removing an element that everyone loves. Here’s where it’s important to remember that a building cannot be built without the money to pay for it. Do what you have to do.
8. Start over.
Now, you have a new design. You must budget that new design, as well as have the construction team budget it. It is very possible the first few steps here will need to be done a few times to make everything line up.
9. When VE is complete, say so out loud.
When the process is over, the job is on budget with an approved design, the design team’s project costs match those of the construction team, and ownership has approved those costs… you are done. Congratulations. However there is one important final step: You must publicly and in writing inform your client and ownership that the VE phase is complete.
This project statement not only highlights your hard work, it’s a final opportunity for your client to chime in. I have worked on many projects that went through several rounds of VE, as budgets were reduced. Sometimes, the budget would get reduced again before I completed the previous VE effort. Saying, "We have successfully delivered the project, as requested, for the project budget of $XXX, and the contractors’ pricing is in-line with this budget," is a final opportunity for a client to tell you if the goalpost has moved. Additionally, this document can be referenced to show that the project was, indeed, on budget at one point, after an extensive VE process.
10. I'll leave you with one parting bonus tip.
Call everyone, and ask them for a lower price. I'm amazed at how often I can get a better price just by asking. It doesn't always work, but the price never goes up for trying, so give it a shot.
So, there it is: my tips and tricks for how to manage a project budget and navigate a value engineering effort. Hopefully, these tips will help you navigate your project budget challenges.
Cheers!
Casey Diers
Senior Designer
Morlights