Cost Effective Engineering

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)

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.

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.

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)

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. (RR112-11, p. 75)