2% Engineering -- Can It Work for You?
Owners are continuously seeking new ways to improve engineering practices in the execution of capital projects, particularly to make capital projects more cost effective. Thus, when a company such as NUCOR reports that it can achieve overall business objectives at much lower engineering and capital costs, and with faster schedules than normally experienced in the construction industry, it creates a great deal of interest in how a company achieves such results.
As a response to this interest, CII established Research Team 112, Cost Effective Engineering. The objectives of the research team were to compile, assess, and report on the innovative or non-traditional practices used by NUCOR. The research team expanded this original scope by additionally studying other organizations that are perceived to be “pioneers” in innovative practices that have led to low engineering costs. This report summarizes the principal findings of the research team’s investigation.
The research identified 20 innovative or non-traditional practices that can be grouped into three categories: organizational culture, contracting strategies, and design philosophies. What makes NUCOR unique is that within its capital project delivery process, it has been able to eliminate everything that is not needed, while at the same time streamlining and optimizing what is needed and selecting those best qualified to do the job. NUCOR also has been effective in using its unique organizational culture in applying non-traditional contracting strategies and design philosophies. The 10 practices that synthesize this approach are described in this report, along with the benefits and risks that may accompany them. Some of these practices also were found in different forms within some of the other organizations investigated.
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:
- Eliminate from the capital project delivery process anything that is not needed.
- Within the capital project delivery process, streamline and optimize all that is needed.
- 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.
