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Getting the Most From Value Engineering
This article is based on the January 28th episode of the HVAC School Podcast: “How to Value Engineer Better w/ Alex Meaney,” Which you can listen to HERE.
Simply put, value engineering is the process of finding ways to cut costs out of a project WITHOUT creating quality issues. As Alex stated, 2+2 doesn’t always need to be 5 “just to be safe,” but it also shouldn’t be 3 to save a buck.
Value engineering requires tact, technical knowledge, and negotiation skills to a much greater extent than ordinary engineering. Good project managers know how to get the most out of value engineering because they understand how equipment quality varies and affects the installation’s result. They also know how to communicate their labor and equipment options to a builder. They aim to create a place to agree on an affordable, functional project.
We spoke with HVAC educator and duct design connoisseur Alex Meaney to help us talk about value engineering. Meaney is a senior trainer at MiTek and Wrightsoft, and he has made several appearances on the HVAC School podcast.
Low costs ≠ poor work
We must make it ABUNDANTLY clear that it’s not a good idea to forsake good work for the lowest possible price.
If a low-cost setup is likely not going to work, then there’s no point in going forward with the cheapest possible installation. Some companies may allow the installation to proceed, but it’s not in the client’s best interest. Maintenance costs will catch up with the low installation cost in the long run. In the end, your client probably would have been better off paying for more expensive but effective equipment from the beginning.
A value engineer has to understand the threshold where a unit cannot operate acceptably. As Meaney says, “I’m trying to find the cheapest thing that works. I am willing to walk up to the line of it not working, but I do not want to cross it. And that’s essentially what value engineering is supposed to be and should be.”
When a value engineer suggests a component with a higher initial cost than the most inexpensive option, they’re not trying to rip a builder or client off. Value engineering aims to cut costs while setting up an installation that works, even if it just runs at a minimally acceptable rate for a long time.
Get your clients to trust you
I’d like to follow up on the previous point about ripping people off. As that point suggested, you may receive some pushback from builders who see that you did not recommend the least expensive option in favor of a more expensive one. The builders may not understand that the added cost is an investment that will pay off in the long run.
How do you get them to understand and trust that your recommendations will truly give them the best value?
Simply stated, you have to learn to speak their language.
It’s easier said than done, but you must understand what your client values and speak to those qualities. It’s also important to make the builder feel informed, and the best way to do that is to provide them with all the options on the table.
Make them aware of the cheapest option, but also be transparent about the downsides. Value engineering is about learning what to sacrifice. If you make your client aware of the sacrifices, they can feel more confident in your knowledge and discretion.
For example, Meaney mentioned that you don’t want to use the cheapest blower you can find with a MERV 16 filter. It may be the best value option strictly from a price standpoint, but it won’t work well. Meaney suggests coming to the table with the most desirable “middle option,” which is more expensive but will usually work. He also recommends coming to the table with the most expensive and efficient option possible, even when you think there’s a near 100% chance that the builders won’t take it. (Sometimes they do! Always prepare to offer the best option.)
When you give your builders a more comprehensive range of options, they’ll be more likely to see the middle option’s value and not assume that you’re trying to rip them off by recommending a more expensive installation than the cheapest one possible.
Understand the differences between sales and consulting
There will be times when your builders won’t want to listen to you. They may be stuck in their ways and may see your recommendations as a means to get more money out of them.
Some of their distrust originates from sales culture. I don’t want to drag any particular sales profession through the mud here, but I’d like you to think about the last time you bought a cell phone, a car, or an enterprise software. I’ll bet that some of those salespeople listed all the products’ positive qualities, but you probably had to ask some pointed questions to get them to discuss the drawbacks. It’s not their fault; after all, their job is to get you to buy their product.
Consulting takes a different approach. When you consult someone, they list the pros and cons of the project or product. Consultants are not necessarily in their business for a sale. While their company will benefit from a sale, the consultant’s main job is to advise people and provide information.
Successful value engineering takes a consultative approach. You must be up-front about the advantages and disadvantages of different designs and equipment. In value engineering, consultation requires you to define your terms and find a point of agreement. Describe how specific designs and equipment may have changed over the years so you can get on the same page with your builders.
Don’t get too complicated too early
Even though it’s good to get into the details and be transparent with your clients, it’s best to start with what we call an “executive summary.” An executive summary is a big-picture overview of what a project will entail and require.
Be clear about what a job includes and what works, but be careful. It’s easy to overwhelm your clients when you provide all the numbers and nitty-gritty details at the beginning. It helps to create mental checklists about the products and services you bring to the table. That way, you can immediately explain how each option does or doesn’t “check the boxes” of what your client is looking for.
Meaney says that many builders are naturally big-picture-oriented, so it’s probably not a good idea to come out with all of the individual cost and functionality details right away. They eventually need to know those details to make an informed decision, but it’s best to keep it brief and broad in the beginning.
Take note of the designs that FAIL
Some systems are going to fail. That’s inevitable when you don’t have the budget to work with the highest quality equipment, a large mechanical space, or a prime location for the equipment.
However, a good tip for value engineering is to note the designs that failed and why they failed. If a client proposed a plan that failed, take note of the failure and acknowledge that the problem is not yours alone. You both must come together and figure out how to make a design that works.
If you can explain to a builder why their plan failed or is no longer feasible, they may be more willing to listen to your recommendations. There’s no guarantee that they’ll listen, but it’s pretty difficult to argue with the laws of physics.
Use your budget for quality work, not necessarily equipment
Value engineering’s key trait is being able to stretch inexpensive materials as far as possible. The only way to do that is by putting those cheap parts together with quality work.
In value engineering, it’s no secret that the budgets will be tight. However, the overall outcome of value engineering relies on the work that goes into them. Sure, you can’t use the smallest, cheapest fan with a thick filter. That won’t ever work, no matter how much good work you put into it.
However, you can use inexpensive materials and put them together well. That's a good way to get the most value for a small price tag.
Flex duct installation is a controversial example that we discussed in the podcast. They don’t have the best reputation overall, but that’s mostly due to widespread cases where techs have installed them poorly. Flex ducts are inexpensive, but they can work well if they’re installed correctly. Instead of spending more money on a different duct system, it might make more sense for a builder to spend their money on a flex duct system and a source of good labor.
Remember: the goal is NOT to win every job
In the end, value engineering is less about winning every job and more about finding the best possible solution for a customer on a tight budget.
There will always be companies that are willing to perform lousy work with a low price tag. You will inevitably lose some customers to those companies, but treat it as a blessing in disguise. You probably don’t want to work with builders who will try to knock down the prices on everything they want you to do… because they may also be the types of customers to turn around and blame you for the bad result that they sowed the seeds for.
The goal of value engineering is to make the most out of a small budget. The most important thing you can do is establish that you and the builders are on the same side. You do that by identifying common goals, and then you communicate ways to achieve those goals. Good value engineering requires you to provide options and be honest. When you do all those things, you’ll be more likely to produce a result that all parties are satisfied with.