Value Engineering for a New Market

As the industry gears up for 2007, builders are reevaluating how they produce homes in an effort to respond to a changing market. Not all housing news is bad — builders seem to be adjusting quickly, and NAHB says builder confidence is growing — but they do want to make proactive long-term plans for success in 2007.

"Pressure is on builders from the home-buying public, which expects more now," says Jerry Wade, president of Artistic Homes in Albuquerque, N.M. "We need to give buyers more in terms of amenities as well as comfort, durability and energy efficiency and still build homes cost-effectively if we plan to succeed."

Artistic Homes, in Albuquerque, uses value engineering to accomplish projects. Value engineering is a building best practice that involves collaboration among teams in the home building company.

Artistic Homes, which for years has successfully catered to the niche market for high-performance homes in New Mexico, recently completed designs for a 285-home project of 3,000- to 3,500-square-foot homes for Albuquerque's luxury market. The homes carry many of the best-known names in manufacturing.

"After bringing brand names into the project," says Wade, "we knew we had to streamline production in order for the project to be profitable."

Wade turned to an old strategy for help: value engineering.

Putting the Value Back in Value Engineering

The home building industry has used value engineering for decades to reduce overhead, streamline production, and improve home quality. In recent years, however, value engineering has been diminished to a crude process of cost reduction. Just before moving homes into production, builders often send plans to their contractors, asking them to "take some costs out." But because contractors are rarely included in the early design stages, builders lose many of value engineering's intended benefits. Costs that one trade reduces might increase costs for another, negating any efforts at cost reduction. Opportunity to improve products shrinks because trades don't have the opportunity to work with one another or with the design team.

Time weighs heavily on builders, so it's easy to be shortsighted; most builders find it easier to move forward with production instead of ironing out wrinkles in the design. As a result, few builders take full advantage of value engineering. In most of the home building industry, value engineering's original promises of lower overhead costs and higher product quality remain largely unfulfilled.

To apply the full weight of value engineering to Artistic's luxury product, Wade included the entire construction team in designing the Albuquerque homes; he was convinced that collaboration would yield vital benefits. "We wanted input from trades and suppliers up front that could pave the way for seamless construction in the field," Wade recalls. "Our goal was to reduce overhead and shorten the production cycle while giving our customers an exceptional product."

Streamlined Production and a Better Product

Partnering with architecture firm 3D Building Solutions, Wade worked closely with all of the trades and suppliers in the project. "Each contractor reviewed the plans carefully and pointed out issues I hadn't considered," recalls Steve Baczek, the architect from 3D who designed the homes. "I updated the design to consider those issues, often asking a group of trades to provide a second review when I made a critical change that would affect their installations." The benefits of communication became apparent right away, says Baczek. "The Andersen installer was able to purchase windows that could be installed with the least amount of hassle given the design. For instance, he could include prefinished drywall stops, reducing the amount of time needed for on-site labor." Baczek also used value engineering principles to increase construction quality. "The Andersen installer said that sliding glass doors are prone to leaks, because usually there's no roof hanging over them; they're going to catch a lot of rain," says Baczek. "So I made sure there was a roof over every door in the home. Now, the flashing package can function as a backup instead of taking a beating every time it rains."

"We wanted input from trades and suppliers up front that could pave the way for seamless construction in the field," says Jerry Wade of Artistic Homes' 285-luxury-home project in Albuquerque.

Value Engineering in the Field

The collaborative aspect of value engineering shouldn't stop when production begins. While building the Albuquerque project's first four homes, Baczek worked on-site with the construction team to troubleshoot issues with the framer, mechanical contractors and exterior trades. "I spent an hour with the framing contractor, discussing the design; he told me it was the longest conversation he'd had with an architect in 20 years," says Baczek. "I've learned that when the builder and design team work directly with the trades, they prevent them from getting frustrated and installing the bare minimum in order to get the job done, get paid and get off the site.

Architect Steve Baczek worked with trades on-site to troubleshoot. "I spent an hour with the framing contractor, discussing the design; he told me it was the longest conversation he'd had with an architect in 20 years," says Baczek.

Following through with value engineering in the field also ensures important aspects of the design are realized, says Baczek. "During construction of the first four homes, I was on-site each day, saying things like, 'If you run a duct down that hall, the electrician won't have enough room to install the correct number of recessed lights.' Instead of applying linear thinking to construction, with installations crisscrossing each other, members of the construction team can integrate their installations. As a result, we can streamline production and deliver a better product."

The Payoff

Because Artistic homes applied value engineering principles during the design phase as well as during construction of the first four homes, it can streamline production on the remaining 281 homes, Baczek says. For Wade, the benefits of value engineering have confirmed what he's been saying for years: "There's a lot of untapped knowledge in most construction teams, but you have to dig for it early on and carry the process through in the field. When you do, everyone has a high investment in the end product, and the results are increased productivity in the short term and better-satisfied customers in the long term."

Michael Dickens is the CEO of BuildIQ, which provides online training on best practices in home building.