Getting Real About Value Engineering

“Value engineering” is perhaps the most overused and under-realized term in the design/construction industry today. It has become the catch bucket for any exercise that involves reducing costs.

By definition, value is the ratio of function to cost. Value is increased by improving function or reducing cost. A great example: the benefit analysis of solar shading provided by extending the overhang of a roof. Using Building Information Modeling (BIM) and special software programs, we can determine the optimum energy savings obtained from shading by applying the most cost-effective roof extension (the ratio of function to cost). Our analysis identifies the point of diminishing return – the point when the increased cost of the roof begins to yield lower shading benefit. This is value engineering.

In contrast, most references to a “value-engineering exercise” are in reality a “cost-reduction exercise.” It involves compiling a list of items (or functions) to eliminate from the project, thereby reducing cost. This is not necessarily a bad thing to do. In fact, it is often an unavoidable part of any project since needs and wants are almost always greater than budgets. However, calling it “value engineering” is a misnomer because the function is eliminated along with the cost.

It is important to recognize that value can be lost with the cost reduction. This often occurs when a function that yields a long-term benefit (reduced energy or operational cost) is eliminated to provide an initial cost reduction. A clear understanding of the difference between “value engineering” and “cost reduction” helps avoid decisions with unintended consequences or “de-value engineering.”