Practical Management: Add 20 Percent To Your Bottom Line With Value Engineering

Ask your employees for ideas to cut costs, streamline processes or increase productivity.

As you continue to add the “20” to our calendar year date, you can also add 20 percent to your efficiency and bottom-line profits. Most of you will be pleasantly amazed at the untapped potential in your own employees.

Back in the ’30s, ’40s and ’50s, contractors respected the intelligence, previous work experience and ingenuity of all their employees. Our statement back then was, “There isalwaysa better way!”

We called it upward communication or feedback and encouraged sharing ideas:

1.Some simply asked, “What do you think?”

2.We taught foremen to give two options with each task assignment. For example:

Would you rather use a stepladder or get a rolling scaffold?
You can pre-fab this on the ground or install it in pieces.
Do you want to install your pipes before or after they put up the duct work?

3.Many companies had a suggestion box at their office and gave financial rewards for good ideas.

Unfortunately, most of this idea-sharing faded away during the ’60s. It became acceptable that “management would do the thinking and make all the decisions” and the “workforce” would do the “installation.”

I’m not really sure when, but someone came up with a new name and a brilliant workable solution. They now call it “value engineering.”

One of my clients told me he was trying it and was pleased with the results. I looked for those words in my Webster’s 9th New Collegiate Dictionary but they were not there. I then found this definition in my NAWIC’s Construction Dictionary:

“Value Engineering: A branch of engineering where the objective is to effect economy in the cost of constructing a project. Evaluating any object’s function and bettering the object in terms of dollars and functional objectives.”

I loved it! This is the message I continually stress in all of my consulting and seminars but I never use all those fancy words. My interpretation is very simple and to the point: “There is always a better way. Find it before you start.” Eliminate those costly words, “We could have” and “We should have.”

The Value Of Value Engineering

Although many contractors have initiated value engineering in their bidding procedures as well as jobsite practices, we don’t see any real excitement or hear any bragging about the results or savings. They overlook the fact that we are in a money-making business and should always evaluate what it costs vs. what it will earn.

Let’s look at how easy it would be for you to use our “add to 20” theme to create real excitement and bragging about your value-engineering program. Naturally your program must be started at the top, but all the involvement, excitement and bragging will come up through the ranks. You will finish with extra money, but I don’t recommend bragging about that. Just put it to good use!

Your key to involving all your employees on this profit-producing practice is to give them 20 percent of the savings. Keep in mind that is only 20 percent of the money you would have otherwise wasted.

This effective motivation is calledrecognition and appreciation. Why would anyone continue to do or give something extra if it were not appreciated?

Your first value-engineering opportunity comes with estimating, bidding or negotiating a project. All employees on your payroll - office, shop, warehouse, jobsite - should receive this open invite to share their input.

Some employees may choose after-hour access at your office or borrow plans to take home or to their jobsite. As I stated earlier, you will be pleasantly amazed at this untapped potential.

Your employees will relate this project to similar projects they have worked on. Your single biggest profit potential will be deciding how much of that project could be prefabricated in your shop or at the jobsite.

VE Opportunities

Many contractors conduct a pre-start conference when they are awarded a contract. Typically, the estimator turns over his knowledge to the project manager, traveling superintendent and jobsite foreman. This provides another opportunity for dollar-saving value engineering.

But your biggest and best opportunity occurs every hour of every day on every jobsite. Instead of those big words - value engineering - I still prefer a simple, “What can we do better?” All you have to add is, “We will give you 20 percent of what you can save.”

Your next question is, “Does this require extra paperwork?” The answer is yes, but very little:

For all the input you receive during bidding and pre-job office functions, you simply need to put a note in that employee’s file: Jim Jones VE 20 - Install PVC instead of cast iron on Burger King bid. This assures motivational recognition and appreciation that will keep the ball rolling.

You will receive far more cost-saving ideas on your jobsites and you certainly cannot trust memories. Fortunately your jobsite foreman or supervisor already maintains a daily log that you review weekly.

If you use a log with a printed list of questions, you can add: VE 20 by ____________________recommending ____________________. Employees must be told their information will be evaluated and entered into their personnel file.

All that’s left now is counting your money; isn’t that what you dreamed about and hoped for since you started your business?

You should utilize a double analysis of each VE 20 savings. Your foreman or superintendent should evaluate what was accomplished vs. what would have otherwise been necessary. They need to include how much time was saved at the jobsite, and your office and shop overhead costs. You may also have savings on tool and equipment rentals.

Your estimator should then review their findings and establish actual dollar numbers for your savings. You need to be fair as well as a little generous, remembering that your deserving employee will only receive 20 percent.

Of course, you may not be able to reward employees who help value engineer a project that you are bidding. Their ideas and suggestions will create no cost savings unless you are awarded a contract.

Thankfully they are aware of those consequences and clearly understand but appreciate the opportunity to work with and learn from your estimating and bidding team. If you are awarded a contract, you will need to execute the very same VE 20 evaluations we described for jobsite suggestions. More time will be involved, which makes that critical documentation of each employee’s ideas so important. You could possibly forget whose ideas produced your savings, but they certainly will not!

Saving all this time and money is well worth the extra effort for any contractor. In addition, you are eliminating the costly line between your management staff and your workforce. They are now communicating and cooperating as a real team.