There is a right way to make a project cheaper
Last week ended on a warning: cutting the price to win work is a quiet way to bankrupt the company, because the head office cost does not fall just because the bid did.
But there is a disciplined way to make a project cost less — to build the same thing for less money, or finish it sooner without paying through the nose — and it does not touch the margin at all. It works on the cost, not the price. This week is about the two levers that do it, and the trap hiding inside each one.
The first lever attacks what you are building. The second attacks how long it takes.
Value engineering: function over cost
Value engineering sounds like a euphemism for cheapening things. It is the opposite. It rests on a single definition: value is function divided by cost. The function is what the thing has to do — hold up the floor, keep out the rain, carry the load. The cost is what you pay to achieve it. You raise value not by reducing the function, but by delivering the same function for less.
Take the superstructure reinforcement. As detailed, it is 107 tonnes of steel. An engineer looks again at the connection detail and finds a design that carries exactly the same load with 94 tonnes — a cleaner arrangement, less congestion, faster to fix. Same structural function, $18,810 less cost. The wall holds up identically. Nothing the building needs has been removed; only the waste has.
That is the discipline. Value engineering asks, of every element: what is this actually for, and is there a cheaper way to achieve that exact thing? It is not “what can we take out” — that is cost-cutting, and it removes function. It is “what are we paying for that the function does not require.”
The trap inside it
But value engineering has a trap, and it catches the people who are proudest of the saving.
Two ways to build the same element. The cheap one costs $45,000 today. The good one costs $62,000. Value-engineer on the tender price alone and the cheap one wins, and you book a $17,000 saving.
Now run it forward twenty years. The cheap solution needs $8,000 a year of maintenance; the good one needs $1,500. Over the life of the building the cheap one costs $205,000 and the good one costs $92,000. The $17,000 you “saved” at the tender costs the owner $113,000 to live with.
The cheapest thing to build is very often not the cheapest thing to own. Real value engineering optimises the whole life of the asset — capital cost plus running cost plus replacement — not the number on the day of handover. A contractor who only sees the tender will value-engineer the owner into a more expensive building and call it a saving.
“Cutting the price removes margin. Cutting the cost removes waste. One weakens the company; the other is the whole job.”
— THE DIFFERENCE THAT DEFINES THE ROLE
Anyone can drop a price. It takes a cost engineer to lower a cost.
The time-cost trade-off
The second lever is time. And the mistake almost everyone makes is to assume that finishing faster always costs more, or that going slower always saves. Neither is true, because every day of a project does not cost the same.
Think about what a month of a project actually costs. There is the direct work, which is roughly fixed — the steel is the steel whenever you fix it. But there is also the prelims, that $7,100 a month from Week 8: the site agent, the crane, the cabins, all burning money for every month the project stays open, whether or not anything is happening. And if you are late, there are liquidated damages — the penalty the contract charges you for every week past the deadline.
So finishing sooner has real value: every month you save is a month of prelims you do not spend and, if you were heading for a late finish, delay damages you avoid. On this job, crashing two months off the programme — extra gangs, a night shift, more plant — costs about $35,000. But it saves $14,200 of prelims and $24,000 of delay damages. Net, speeding up makes you $3,200. Here, faster is cheaper.
But only up to a point. Crash too hard and the numbers reverse: night shifts are less productive, congested gangs get in each other's way, premium-rate overtime piles up, and the crash cost overwhelms the saving. Drag on too long and prelims and overhead bleed you the other way. The cheapest schedule is neither the fastest nor the slowest — it is the bottom of the curve, the duration where the cost of going faster and the cost of going slower are balanced. Finding that point, deliberately, is the time-cost trade-off, and it is one of the few places where the planner and the cost engineer are doing exactly the same job.
Two levers, one principle
Value engineering and the time-cost trade-off look like different subjects, but they are the same move. Both lower the real cost of the work without touching the price the client pays or the margin the company keeps. Both refuse the lazy answer — take something out, or just go slower — in favour of the deliberate one: find the waste, and only the waste.
And both have the same trap: a saving that is real on the day and expensive over the life. The cheap detail that costs a fortune to maintain. The crashed programme that burns more in overtime than it saves in prelims. The commercial planner's skill is seeing past the number in front of them to the number that actually matters — the whole cost, over the whole life, not the saving you can announce this month.
Practical insight
Take the most expensive single element on your project and ask the value-engineering question properly: what is its function, and what is the cheapest way to deliver that function over the life of the building? Not the cheapest to install — the cheapest to own. If you have never asked it, there is almost always a double-digit percentage hiding in the biggest elements.
Then look at your programme and find the prelims cost per month. That number is what one month of time is worth before you even count delay damages. If you do not know it, you cannot make a single sensible decision about whether to speed up or slow down — you are trading time for cost blind, and the answer is different on every job.
Key takeaways
✔ There is a right way to make a project cheaper: attack the cost, not the price. Cutting price removes margin; cutting cost removes waste.
✔ Value = function ÷ cost. Value engineering raises value by delivering the same function for less — not by removing function.
✔ Re-engineering the rebar detail from 107 to 94 tonnes saves $18,810 with identical strength.
✔ The trap: the cheapest to build is often not the cheapest to own. A $17k tender saving cost $113k over 20 years of upkeep.
✔ Time-cost: every day does not cost the same. Prelims ($7,100/month) and delay damages make finishing sooner genuinely valuable.
✔ Crashing two months costs $35,000 but saves $14,200 prelims + $24,000 damages — net +$3,200. Faster is cheaper, here.
✔ But only to a point: the cheapest schedule is the bottom of the curve, neither fastest nor slowest.
✔ Both levers optimise the whole life, not the number you can announce this month.
What is coming next
We have taken the company's costs apart — direct, indirect, head office — and found the two honest ways to lower them. Now we put the money back together from the other side and ask the question the whole track has been building towards.
Out of every dollar the client pays, how much actually sticks to the company after everything — the direct cost, the prelims, the head office, the cost of the cash itself — has taken its share? That surviving sliver has a name, and it is the number that decides whether a contractor is a business or a charity.
Next week: contribution and margin — what a project actually leaves behind.
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