1 Introduction

In China, the annual investment on real estate projects is more than one trillion Yuan, accounting for over 20 % of investment in fixed assets, which plays an important role in the national economy [1]. However, China’s real estate industry profits are declining, and a majority of real estate enterprises face a dilemma as to how to improve profit margins by controlling costs. The value engineering plays an important role in the overall cost control of real estate. Seen from the data generated at home and abroad, the application of value engineering in the real estate industry achieves the cost savings of engineering projects in 5–10 % [2]. Also, some scholars state that the influence of rational design program at design phase to the project life-cycle cost accounts for 75–95 % [3]. Therefore, the cost management at design phase is the key to achieve the beforehand control and management, the expression of entire management philosophy, and also the most important phase for cost management in whole process.

In recent years, value engineering has been widely used in the real estate industry, and has gradually become a new and effective method to reduce the costs in the management process. It is an organized and creative activity which is mainly denominated in the functional analysis of operation as the core, with the purpose to enhance the value of operation, striving to achieve the necessary functionality of operation with the lowest costs [4]. This paper takes t the observatory world project by CSCEC as an example, and utilizes the concepts of value engineering management, to make the detailed analysis on cost management of this engineering project at design phase.

2 Concepts and Basic Principles of Value Engineering

Value engineering is a process of discovery, analysis and solution to problems. Myers is the first to define the value engineering, who thinks that the value engineering is a complete system to identify and dispose of those factors which do not work but increase cost or workload in the products and processes services. The system uses a variety of existing technologies, knowledge and skills to effectively identify the costs without contributions to users’ needs and requirements, in order to improve the products, processes and services [5].

Value engineering analysis is a structured problem-solving process based on functional analysis to improve the system value [2]. The term “function” mainly refers to a property owned by the study object of value engineering to meet certain requirements, which is equivalent to the connotation of use value, namely the function is a concrete pattern of manifestation for the value [6]. The “cost” involved in the value engineering is actually the input of value resources, including labor value or use value, and it differs from the cost in general sense is that the costs in value engineering include use costs by users and there is minimum value in the product life-cycle costs. In value engineering, the value is often defined as a ratio between functions owned by object and all costs of obtaining such functions. The basic principle is expressed as follows:

$$V = F/C$$
(1)

In the equation, V represents the value of study object, F represents the function of study object, and C represents the cost of study object.

As seen from the Eq. (1), value engineering emphasizes the matching between functions and costs, to achieve the changes on value of study object by altering function or changing costs. Specifically, it is mainly to decompose and analyze the functions of study object, quantify the functions of each part, and determine the evaluation coefficients of each function which can be used as the allocation parameters for expected costs of functions in value engineering.

3 Application of Value Engineering in Cost Management of Real Estate at Design Phase

3.1 A Project Profile

This paper takes the observatory world project by CSCEC (hereinafter referred to as “Project A”) as an example of analysis. This is a typical business club project, located in the intersection of Dongfang Road and Yingqian Road in Development Zone of Weifang City, which is designed to meet the leisure, fitness, entertainment and other high-end demands of customers. This project has the building area of 8000 m2, including one underground floor and three aboveground floors, with the height of 4.5 m.

3.2 Analysis on Cost Affecting Factors at Design Phase of Project A

There are many cost affecting factors at design phase of project, with the largest impact on the total cost of project. According to the geographical location and building requirements of the observatory world project, in this paper, the cost affecting factors at design phase of project are divided into the following aspects:

  1. 1.

    Program Design

In the program design, it is required to decide the architectural style and shape of the project, and different programs will produce different results and different costs. For example, the traditional European-style architecture has a special structure, and the exterior wall and roof are designed with more decorations with more lines, so the costs will be relatively higher.

  1. 2.

    Size of Dwelling Units

The larger residential unit has the relatively lower cost, while the smaller residential unit has the relatively higher cost. For the larger residential unit, the proportion of external wall and construction area is smaller, and the engineering quantities for interior wall, decoration and installation are less, while the expenses for foundation, roof cornice, doors and windows, sun visor and construction tripod will be reduced accordingly.

  1. 3.

    Residential flat shape

When the residential shape is simpler, the external wall is shorter, and the cost is lower; on the contrary, the complex and irregular shape has more external walls, and the cost is higher accordingly.

  1. 4.

    Storey Height

Due to the increase of residential storey, the engineering quantities for all walls will be more, resulting in the increase of engineering quantities for wall masonry, internal and external wall plastering, pipelines, etc., and the cost is higher accordingly. It is appropriate that ordinary residential storey height is generally about 2.9 m, and the underground garage height is generally 3.6 m.

  1. 5.

    Standards of Materials and Equipments

The higher construction materials and equipment standards will cause the higher costs. There two brands for elevators purchased by CSCEC Real Estate Company: KONE and Mitsubishi, and the price difference for functional elevators is 30,000–50,000 Yuan. In addition, the materials of wires, cables and pipes also have the greater impact on the costs. For example, the copper cables can be replaced by aluminum and copper cables which are generally cheaper on the market.

  1. 6.

    Design Parameters for Construction Drawing

If the basic parameters related to structure design are too conservative, it will result in the increased construction costs. In this project, the construction drawing design parameters include: seismic fortification classification, site classification, fortification intensity, basic seismic acceleration, basic wind pressure, surface roughness, value of various loads, load reduction, modulation coefficient of bending moment within beam end, amplification coefficient, groundwater levels, etc. In addition, it needs to avoid the super high-rise design for more than storeys, and the design of basement on the rock foundation.

  1. 7.

    Underground Parking Spaces and Average Area of Parking

If the underground parking ratio and the average area are too large, it will directly lead to a substantial increase in underground construction and installation costs. For example, in the project of Xinjiang by CSCEC Real Estate Company, for 163 underground parking spaces, the underground construction and installation costs are 2600 Yuan/m2, and the average area of parking is 43.9 m2, If with the quota design, such spaces can be reduced to 32 m2, and the reduced costs of construction and installation are 163 × 2600 × (38 − 32) = 2.54 million Yuan.

3.3 Cost Management at Design Phase of Project A

The basic principles of cost management at design phase: select the best design institutions through bidding; clearly define the achievable quota design criteria, require the designers have the concept of cost saving through contractual measures, and assist in the design institutions to find the practical and economical solutions; and determine the appropriate design program, construction technology and materials and equipments grade through value engineering analysis. Avoid two extremes of pursuing the design effect at all costs or reducing the costs regardless of product quality.

By a combination of management status at design phase for Project A by CSCEC and responsibilities of all departments, this paper summarizes the cost management process at design phase of Project A, as seen in Table 1.

Table 1 Cost management at design phase of project A
Full size table

3.4 Cost Management Optimization Program at Design Phase of Project A

An important stage in the use of value engineering method is innovation of program. Specifically in Project A, the value engineering method at design phase is targeted at different design programs, to find the cost improvement direction, promote internal excavation, make the design innovation, and reduce the costs of construction and installation without reducing the functional use. The cost optimization methods at design stage of Project A include the following three aspects:

  1. 1.

    Construction

The depth-width ratio of high-rise residential unit is controlled at 6 or less as much as possible, that is the ratio of residential floor eaves height and residential depth. As specified in “Specifications for High-rise Residential Unit”: in the seismic fortified area at 6° or 7°, the depth-width ratio of shear wall structure and core tube structure should not be greater than 6, and the depth-width ratio of frame shear structure is not more than 5 m. The larger depth-width ratio will result in the significant increase in construction and installation costs for construction and building. The depth-width ratio should not be larger in the design of house model.

The window area ratio is controlled at 0.2–0.25, that is the ratio of exterior window area and room construction area. This ratio should be minimized while ensuring lighting and ventilation and other basic functions.

The exterior windows in different materials have the larger price differences: the average unit price of ordinary windows and doors is 350 Yuan/m2, the broken insulation is about 500 Yuan/m2, and plastic window is about 300 Yuan/m2.

The small-scale residential area shall not be designed with the supporting swimming pool, because the swimming pool has the higher maintenance costs, but the usage is generally fewer.

  1. 2.

    Structure

The residential floors are factors that affect the costs of construction and installation, and the fewer floors will have the lower costs. Without prejudice to the use of households, it should be as few as possible, to control at about 2.9 m, and it can be controlled at about 3.6 m for underground garage.

The construction and installation cost for basement is up to 3500 Yuan/m2, so that reduction of underground construction area can reduce a lot of costs. In particular, the number and average size of underground parking spaces have a direct impact on the construction area of underground garage. The underground parking ratio can be as low as possible, and the average area of underground parking spaces can be controlled at about 32 m2.

It is appropriate for net distance of column grids of underground parking spaces in 7.5 m. Too large distance can result in waste and the increased costs, while too small distance cannot form the effective parking spaces and thus resulting in greater waste.

Generally, the ascending order of costs for structure is: brick-concrete structure, special shaped column frame, short-pier shear wall, pure shear wall structure. The increase of anti-seismic level to short-pier shear wall in the design will cause the largest increase in costs.

The foundation bearing capacity is the key to the ground treatment approach. On the premise of ensuring safety, it requires the investigation institutions to provide the data of bearing stratum foundation bearing capacity which is not conservative but as high as possible.

An increase of 300 mm for the average overburden thickness of underground garage roof will result in the increase of construction and installation costs by about 30 Yuan/m2. Many real estate projects of CSCEC real estate projects are involved in about 1.5 m, but 1.2 m can generally meet the requirements of underground pipeline installation. In the basement ceiling, try not to arrange the fire exits and large seedlings.

For the foundation pit supporting, it needs to optimize the programs as much as possible on the premise of ensuring the safety. The costs for soil nailing wall support are much higher than anchor bolt support.

  1. 3.

    Installation

Wires, cables and pipes, etc. are the hidden works with little effect on the function, so it can be completely optimized. For example: for the embedded wire tubes, the costs for galvanized wire tubes are several times higher than PVC pipes; for the hydrants and sprinkler water supply pipes in galvanized steel tubes, the thicker galvanized steel tubes are more expansive than the national standard galvanized steel tubes.

Pump house, fire-fighting and other equipment rooms in the most suitable location can shorten the distance between each line, reducing the construction and installation costs.

The basement in natural ventilation design will reduce the construction and installation costs for a large variety of air ducts, draught fans and installation.

3.5 Cost Control at Design Phase of Project A

The final phase for the application of value engineering methodology in Project A is how to effectively control the costs, namely the achievement of target costs at design phase. In this paper, the value engineering analysis is carried out by taking the sub-projects of Project A as the object, and the improvement order of all sub-projects is determined as per the amount of cost reduction. The civil engineering are divided into four functional items, including pile foundation engineering, underground main construction, aboveground main construction, and facade engineering. The function scores for sub-projects and cost per square meter assigned to whole construction area are seen in Table 2.

Table 2 Function scores and cost per square meter assigned to whole construction area
Full size table

Depending on the target cost and quota design requirements, to control as per 95 % of total cost in 2600 Yuan/m2, namely target cost is cost per square in 2470 Yuan/m2. Firstly, to calculate the function index and cost index of each sub-project based on function scores and costs, and calculate the value index. Secondly, to assign the target costs as per function index, and calculate the amount of cost reduction. The results are seen in Table 3.

Table 3 Value index and amount of cost reduction
Full size table

As is apparent from Table 3, it is required to take the appropriate way to reduce costs of pile foundation engineering, underground main construction, aboveground main construction and facade engineering. According to the amount of cost reduction, the costs for sub-projects are improved in the following order: underground main construction, pile foundation engineering, aboveground main construction, facade engineering.

4 Conclusion

The application of concepts of value engineering in cost control at design phase of real estate projects is conducive to promoting and improving the cost management [7]. In this paper, on the premise of clarifying the targets at design phase of Project A by CSCEC, through the use of cost control method at design phase of projects, the value engineering methodology based on target cost is used to determine the cost optimization and improvement direction. This methodology can save a lot of costs for Project A on the basis of ensuring the original functions and value levels for all sub-projects. The development of real estate project is an extremely complex and systematic engineering for whole process. In order to ensure the effective control of overall project costs, the effective cost control management to other phases of project is also indispensable. Therefore, it is necessary to continuously study how to adopt the appropriate methods for the effective cost management at the decision-making, tendering, construction and other phases of real estate projects.