Return on Investment
A 33:1 return on investment saved may sound like a reckless claim, but it isn't. We try to be diligent in how we define and claim savings. The list below shows our Value Program performance for several fiscal years. We have excluded savings on projects or activities funded by other agencies even though we did the studies. Following the list we discuss in more detail what we mean by "savings" and how we measure it.
In FY 2011, the most recent year reported, Reclamation awarded 36 contracts (subject to value study) with a combined dollar value of $284,220,734. The value study savings associated with these awards is $25,495,114 (not including value engineering change proposals of $595,672). Reclamation reported a cost savings of 9.2 percent. (DOI cost savings goal is 4 percent.) The return on investment for FY2011 was 19:1. Over the last 5 years, the savings have been even more significant:
Cost Savings (incl. VECP) $191,103,669 Cost Avoidance $28,468,000 Total Savings + Avoidance $219,571,669 Contractors' Share of Savings $1,672,765 Total Value Program Costs $6,621,584 Return on Investment (ROI) 33:1
We define savings (for project studies) as the difference between (1) the cost to build the project before the study was conducted and (2) the cost to build the project after the approved study recommendations are incorporated and the project is ready to advertise. Within reason, other factors affecting cost (i.e., other design changes) are discounted.
For planning studies we typically use "avoidances" rather than "savings" to describe the difference between pre- and post-study cost estimates. Where an activity is in a concept or planning stage, funds typically have not been appropriated and the term cost avoidances is more correct than cost savings.
Last updated: 5/10/13