Well, the bad news isn’t really news, it’s something we all have known – construction materials are expected to increase as much as 6% in 2024. Unfortunately, we can’t control the transport and labor costs, supply chain dynamics, or high-interest rates. But, now for the good news, there is a strategic approach that enables developers to maximize value while minimizing costs – Value Engineering.
Maximizing the value and efficiency of commercial real estate projects is now a necessity. Value Engineering (VE) within project management serves as a strategic approach to achieve cost management. By systematically analyzing and refining every facet of a project, from its design to its construction, VE aims to enhance performance, quality, and sustainability while minimizing unnecessary costs.
Implementing VE effectively requires a comprehensive strategy. Early integration of VE into the project lifecycle is crucial for achieving maximum cost savings and performance optimization. This ensures that VE principles are woven into the project’s fabric from its inception.
At the heart of VE lies Function Analysis, where core project functions are identified and prioritized based on stakeholder importance. This process ensures that resources are allocated efficiently to meet essential project objectives. VE encourages an entrepreneurial mindset, fostering creativity and innovation to unearth alternative, out-of-the-box solutions, that provide superior outcomes at reduced costs.
Another exercise of VE is Lifecycle Costing, which involves considering the total cost of ownership over the project’s lifespan. This includes not only initial construction expenses but also ongoing costs such as maintenance, operation, and replacement. By accounting for these factors upfront, project managers can make informed decisions that optimize long-term value.
Effective risk management is also integral to VE implementation. Identifying and mitigating potential risks associated with changes is essential to prevent adverse impacts on project schedules, quality, and compliance.
Data-driven decision-making also plays a role in risk management. Utilizing analytics and modeling tools can identify opportunities and assess the impacts of proposed changes accurately.
Establishing Key Performance Indicators (KPIs) enables the monitoring of VE effectiveness and its influence on project outcomes and can monitor improvement throughout the project.
A collaborative approach is essential for maximizing VE’s effectiveness in commercial real estate projects. Engaging stakeholders from various disciplines, including architects, engineers, contractors, and clients, allows for the leveraging of diverse perspectives and expertise. This alignment with project goals facilitates buy-in for VE initiatives and ensures that they contribute meaningfully to project success.
Ashlee Cohen, CAPM, LEED GA, CDT, Project Manager II, out of Watchdog’s Los Angeles, CA office, utilized Value Engineering to provide cost savings. Ashley provides the following insight:
“Vendor collaboration is key to a successful value engineering process. The project manager should rely on the expertise of the entire design team and general contractor for recommendations to preserve the client’s vision. This is greatly influenced by the dollar or “percentage of contract” value in savings needed to move forward with the project.
A project that needs less value engineering may be easily achieved with simple finish or product swaps. This is extremely beneficial in the “high value” budget line categories such as construction, furniture, equipment, and audio-visual/tech. An example of “low hanging fruit” could include choosing less expensive furniture, audio-visual equipment, lessen material quality, reduction of millwork or specialty lighting fixtures. For many clients, the furniture, fixtures and equipment scope is sometimes considered “nice to have” and can easily be eliminated, reduced in quality or added later.
The team should consider removing larger pieces of scope if needing to value engineer a higher dollar value amount. As a first step, the client, architect, and general contractor should discuss what can be eliminated while preserving project goals as much as possible. I would always recommend the team start by reviewing the higher construction trade divisions – this is typically the mechanical, electrical, plumbing, millwork, and finishes. It is common to eliminate entire rooms, removal of all decorative millwork or stone, reduction of pantries, ancillary spaces, or infrastructure. On the owner’s side, furniture quantities could be removed, major technology elements, graphics, or signage.
After the eliminated scope is identified it is up to the general contractor to collect pricing. The list should be broken out, like a “menu” so the client can determine what items are worth eliminating for cost savings. After pricing is collected, the team will have a subsequent meeting to choose what items will be finalized. This will determine the final value of engineering savings. The AOR & EOR will then need to update all drawings to reflect the updated scope of work. Depending on the severity of the scope change, new permits may need to be filed. Although value engineering can be a tedious process, it is worth the work to achieve our client’s financial goals.”
Value engineering enables developers to maximize value while minimizing costs. By integrating VE principles into project management practices and fostering a culture of continuous improvement, developers can achieve greater efficiency, sustainability, and competitiveness.
