Avoiding Value Engineering

Value Engineering occurs because a project is not budgeted and designed correctly in the first place and has to be revisited resulting in a waste of time, energy and money and the probability of costly design coordination errors is increased. The more time and focus spent on the initial stages of any project before formal design begins can greatly improve project delivery and eliminate the need for VE.  

In my opinion project development needs to be an additive process: start with the bare essentials (the "have to haves") and then add to it if the proforma can accommodate increases in scope, amenities and product quality. Furthermore, any additions should carry their own weight and add value to the project or be rejected if they don’t.  Why increase scope or finish level if it doesn’t pay for itself in added revenue?

The difficult part of the process is to get the bare essentials (the “have to haves”) right to start with. The issue in many cases is that everyone wants to start drawing and designing prematurely.  The initial step is to create a Program that spells out in detail what is needed and right sizes these needs.  The essential pieces include:

• The Vision: At a high level, what is it that the team wants accomplished. Is there a specific market, some specific site attributes or other criteria that are special to the project and a driving reason to develop? This needs to be articulated and used as a touch stone to assess all future decisions. The vision is critically important and needs to be addressed with focus and adequate time and effort.   Build sufficient pre-design time into any project schedule.
• Market Analysis: In order to craft a vision, a detailed study of the market you are building for is necessary. Understanding the needs of the end user is a necessary resource required to arrive at a sound vision.
• Site Analysis: Another resource necessary to create the vision is a detailed site analysis. What does the project need to (or should) respond to environmentally (views of and from the site, noise, access, transportation, arrival, topography, neighbors and other variables)? Is there anything special about the site that the vision needs to emphasize?
• Spatial Program: What are all the required pieces and how big do they need to be. How should they fit together (adjacencies)? Any clear height requirements? If you need a two story, larger entrance feature as part of the vision, include it now. If you don’t need one, don’t include one, and don’t let the architect draw one in.
• Building Program: Describe how you want the building itself as a whole to relate to the site and neighborhood. Is there a specific feature the vision suggests; should the building(s) be higher in some places? Do you need exterior wall articulation (bump outs and recesses) at some elevations or locations? Describe where you don’t want to spend any money (abutting an alley). The Program does not need to be developed without design guidance; the land planner and the architect can and should be included early on in the development of this written narrative, and can assist by testing certain ideas in a very conceptual bubble diagram manner, but the team needs to be careful not to develop anything too far too early, until the programming phase is complete.
• Finish levels: I believe that finishes don’t necessarily drive costs that much. If the buildings are efficient and have been well designed, finish improvements when limited to high impact accent locations don’t significantly drive costs. However, at this point define the type of finishes that are needed to align with the vision and identify particular impact needs. Also, be careful to gauge the overall quantities of finishes; if you want a higher level at certain impact locations, say so, but if you repeat a finish 475 times in each apartment, be careful not to over specify and drive costs beyond what is required.
• FF&E: Think through the types of amenities necessary and what you need to provide. Be thorough and once again consistent with the vision.
• Site Furnishings and Landscaping: Don’t rely on rules of thumb budgets but understand what you need to provide to align with the vision. These elements are many times left to the end when there is nothing left in the budget and gaps occur in the final delivery.
• Engineering Considerations: Are there certain systems necessary to meet the vision. What is the appropriate level of climate control? What are the technology requirements? Do any geotechnical or other considerations exist that require “have to haves” regardless of the scope of the above ground program.  
• Proforma: I have placed this last, but in reality it is an iterative piece that is developed initially and then refreshed along the way. Based upon the vision and the program discussed above, you can establish revenues and conceptual construction costs. A competent estimating group can create a fairly accurate conceptual budget if provided sufficient detail in the Program. The better job the team does at defining the Program the less chance there is of significant budget misses that trigger VE later in the process.

Once the Program is complete, the hard cost budget prepared and everything included in a proforma,  the team can determine if the project is feasible and make necessary adjustments before significant design funds are spent. When the Program and the proforma are aligned and meet necessary financial thresholds, the design team can start to spend resources and create the project.   If the Program was inclusive, accurate and right sized to the vision and the design team fits it in an efficient manner, then subsequent budgets (conceptual, schematic and design development) should be aligned and any minor adjustments (either value engineering or value add increases to scope accretive to yield) can be made.

As noted earlier, the architect and land planner are not excluded from this early process, but need to be an integral part of it in conjunction with the other stakeholders and team members. However, they should not start to graphically design until the needs of the project have been defined.  Their early role is to add their subject matter expertise to the development of the Program.

That’s my two cents watching projects both successful and not so successful develop over my career. The secret is to spend the necessary time early in the process to define a well thought through Program before anyone becomes enamored with a design that doesn’t fit the Program, does not meet financial thresholds, and needs to be subsequently stripped to meet the budget.