Cost Effective Engineering

RT-112 Topic Summary
RT 112

Overview

Engineering is one of the most critical aspects of any successful project. Perception within the construction industry holds that current engineering practices are not cost effective. Project costs are scrutinized more and more every day, and engineering is no exception. Owners are trying to deliver projects that are faster, with less capital expended to gain every advantage that they can to maximize the return on their project investment.

This research focuses on new ways to improve engineering practices to make capital projects more cost effective. Included in this research is the review of innovative practices in-place by NUCOR, among other companies, that result in achieving overall business objectives at much lower engineering and capital costs, with faster schedules than are normally experienced in the construction industry. 

The research concluded that the measure of success for capital projects is not the percent of engineering costs, but rather how well the business objectives of the organization are met. To be effective, engineering needs to be truly aligned with the business needs of the organization. Clear communication of the expectations for the project and the project team is critical, with a focus on management of what needs to be done and who is best qualified to do it. To optimize and improve, the focus should be on an integrated optimization of the whole, not just improvement of the individual parts of the system. 

Key Findings and Implementation Tools

1 : Can 2% Engineering Cost be Achieved

This research concludes:

  • Yes, 2% engineering costs can be achieved for standard equipment-intensive projects; and
  • No, 2% engineering costs cannot be achieved for custom design process-intensive capital projects, but some reduction of costs may be possible.

The research also highlights that typical engineering cost as a percentage of Total Installed Costs (TIC) has been 5-10% for standard equipment intensive projects and 15-20% for custom design process intensive projects. (RR112-11, p. 121)

Reference: (RR112-11)

2 : Twenty Innovative and Non-Traditional Practices

The research identified 20 innovative or non-traditional practices that improve the cost of engineering grouped into 3 categories. An example of a practice within each category is shown below, while all the practices are detailed in the research. (RS112-1, p. 3)

  • Organizational Culture – 7 practices
    • Empowerment of employees and ownership of project creates environment that employees are more focused on the ROI of a project and avoid excess costs.
  • Contracting Strategies – 5 practices
    • Owner acting as the General Contractor or Construction Manager eliminates the markup of these layers.
  • Design Philosophy – 8 practices
    • Use of minimum specifications rather than detailed ones. Focus on performance.

Reference: (RS112-1)

3 : The ‘NUCOR Way’

What makes NUCOR unique is that they have institutionalized 10 practices that form the NUCOR core approach based on three fundamental drivers:

  1. Eliminate from the capital project delivery process anything that is not needed.
  2. Within the capital project delivery process, streamline and optimize all that is needed.
  3. Select whoever is best qualified to do any part of the job, and then let them do it.

Each of the 10 NUCOR practices is detailed in the research in terms of their potential benefits, potential risks and implementation requirements. (RS112-1, p. 5)

Note, the ‘NUCOR way” cannot be applied blindly to any organization. Before attempting to implement any of the practices reported here at either corporate or project levels, an organization needs to develop thorough knowledge and understanding of:

  • Its fundamental business drivers, which provide the context and framework for the application of the practices; and
  • Its culture, contracting strategies, and design philosophies

To replicate the success that NUCOR has achieved with 2% engineering requires a significant change in the culture of the organization and its contracting and design philosophies.

Reference: (RS112-1)

4 : Integrated Framework for Cost Effective Engineering

The research includes an integrated framework for cost effective engineering developed by the National Science Foundation and others. This framework contains detailed schematic representations of the different dimensions, components, and elements, and special processes and tool to achieve effective engineering. (RR112-11, Appendix E)
Reference: (RR112-11)

5 : Implementation Tool #1

RR112-11, An Overview of Practices for Cost Effective Engineering in the A/E/C Industry  

The strategies and practices described are embedded within approaches to the context of capital projects, contracting and team building, engineering design and technologies, productivity improvement and lessons learned. (RR 112-11, p. 75)

 
Reference: (RR112-11)
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Key Performance Indicators

Improved cost, Improved schedule, Reduced change, Improved engineering productivity

Research Publications

A Framework and Practices for Cost-Effective Engineering in Capital Projects in the A/E/C Industry - RR112-11

Publication Date: 05/1998 Type: Research Report Pages: 202 Status: Tool

2% Engineering -- Can It Work for You? - RS112-1

Publication Date: 03/1997 Type: Research Summary Pages: 22 Status: Supporting Product


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