Value Engineering, pt. 2

In part one of this article on value engineering we reviewed the shortcomings of some attempts at saving money. Short-sighted attempts to save money often end up costing more in the long term and even in the short term. But the budget crunch maintains its pressure and we need to vent somewhere. What are some effective tactics to make wiser decisions about value engineering that don’t end up causing more harm to the bottom line?

Full funding for some trumps partial funding for all. Jim Collins in Good to Great describes many markers of organizations that exhibit long-term success. One is that such organizations fully fund certain projects while setting all other projects aside. Another way of putting this is that it is better to provide 100% funding to 80% of the projects rather than provide 80% funding to 100% of the projects. While the dollar amount may be equivalent, more impact can be had from superior execution of a select few projects rather than half-hearted commitment to a multitude of projects.

This doesn’t necessarily mean that each discipline gets cut down to 0%; there are many instances when we are constrained by a Minimally Viable Product–the MVP of our field. That could look like having the low-voltage infrastructure in place for a full camera system in a church, but only installing a center, locked-down PTZ camera direct to a streaming encoder on day one. The cost of the other cameras, switcher, iso-recs, etc. are deferred and put toward robust lighting, audio or other disciplines. Put another way, fully funding the priorities while holding back on others is the practical choice: in five years you either calmly upgrade one system or scramble to replace all of them.

Target equipment with diminishing returns of cost to performance. It’s predictable: the correlation is strong between cost and performance. A thoughtfully chosen piece of gear typically has all the functionality to meet the client’s needs and then a little extra as headroom for future use cases. When the VE viper rears its head, commonly we step down to the next level of equipment. Typically this means the gear can do what needs to be done 95% of the time, but that last 5% is beyond its capacity.
Most sports crown only one MVP, but in our field the Minimally Viable Product shares the trophy. A well-informed consultant will seek out a Maximally Valued Product–a product that meets all of the client’s needs without providing performance far beyond that need. Think of this as the opposite end of the spectrum from Minimally Viable Product. The well-informed consultant will also be aware of the shape of the correlation between cost and performance and take advantage of that shape to maximize performance against cost.

If we were to plot this on a graph, we’d see that some products have diminishing returns of cost to performance. For instance, in a short-throw projector situation, stepping up to a lens that allows you to get just 18” closer to the screen may be four times as expensive. Other products have increasing returns on price. For a laptop that needs to maximize on-board storage, the added cost of greatly increasing the storage may only represent a small percentage increase over the total cost of the machine.

When we recognize the shape of these correlations, we can target equipment that has diminishing returns of cost to performance. We can get large reductions in costs with minimal compromises on performance. If we were to target equipment with increasing returns, we would have to sacrifice considerable performance before recognizing any meaningful returns to the budget.

Be honest with performance tradeoffs. All of this may give the impression that there is no hope of maintaining the integrity of a system while saving on costs. However, there are effective measures one can take to make minimal sacrifices while delivering a cost-effective option. For some gear, cheaper options actually deliver higher performance, although this comes at the expense of reliability, warranty, long-term support or other factors beyond mere performance. Whether the tradeoff is in those fine-print factors or in the visible performance metrics, there is a tradeoff nonetheless.

At the end of the day, we must be honest about what those tradeoffs are. Instead of meeting your day-one goals with room to grow, you may have a system that doesn’t do all that you want. Instead of all of the systems you want, you may have to set a system aside. Instead of the system that sets you up for the next fifteen years, you may have some elements you’ll need to replace in five. Instead of having a trim, robust system that’s easy to run, you may have to spread those costs out over the long term in operational expenses.

When those tradeoffs are named, stakeholders can honestly assess their values and resources and make the right calls to maximize the return on their investment. From the owner’s perspective, that honestly manages expectations and allows preparation for dealing with the resultant shortcomings. From the installer’s perspective, honesty reduces risk and garners trust. On that latter point a counterexample may illustrate. If you promise no loss of performance for a fraction of the original cost, the owner will naturally question why the original proposal and cost were given in the first place.

Value engineering may be rough seas for designers, project managers and clients alike, but these are navigable waters charted by others before. Fund your priorities fully rather than shortchanging everything equally, target the gear where a step down costs little in performance, and name every performance tradeoff honestly. The budget crunch stops being a threat to the system’s integrity and becomes a set of deliberate, defensible choices. These decisions mark the difference between cutting corners and steering a wiser course.