VALUE ENGINEERING

‘Value engineering’ (VE) is defined as a systematic and organised approach to provide the necessary functions in a project at the lowest cost. It refers to the value management activities that take place once the major value drivers for the project have been identified and agreed upon through Value Planning. Accrding to the Office of Management and Budget in Sharma & Belokar (2012), VE is an organised/systematic approach directed at analysing the function of systems, equipment, facilities, services, and supplies for the purpose of achieving their essential functions at the lowest life-cycle cost consistent with required performance, reliability, quality, and safety. The Society of Japanese Value Engineering (1981) defines VE as a systematic approach to analysing functional requirements of products or services for the purposes of achieving the essential functions at the lowest total cost.

VE is often done in a multi-stage ‘job plan’ that is systematically followed. Four basic steps in the job plan are:

• The information gathering stage – This asks what the requirements are for the object. Function analysis, an important technique in value engineering, is usually done in this initial stage. It tries to determine what functions or performance characteristics are important. It asks questions like: what does the object do? What must it do? What should it do? What could it do? What must it not do?
• The alternative generation (Creation) stage – In this stage value engineers ask; What are the various alternative ways of meeting requirements? What else will perform the desired function?
• The evalluation stage – In this stage all the alternatives are assessed by evaluating how well they meet the required functions and how great will the cost savings be?
• The presentation stage – In the final stage, the best alternative will be chosen and presented to the client for final decision.

Stages of value engineering

VE follows a structured thought process to evaluate options as follows.

What value engineering is not

VE is not just ‘good engineering’. It is not a suggestion program and it is not routine project or plan review. It is not typical ‘cost reduction’ in that it doesn’t ‘cheapen’ the product or service, nor does it “cut corners.” VE simply answers the question “what else will accomplish the purpose of the product, service, or process we are studying? (Sharma & Belokar, 2012).

The importance of value engineering

VE, as an effective problem solving technique, began with a creative, team-based approach, which allowed the generation of alternatives to the existing solution. Because the General Electric Company were manufacturers, the term ‘engineering’ was seen as being more appropriate at that time, than ‘management’. VE is essentially a process, which uses function analysis, teamwork and creativity to improve value (Miles, 1972). According to Mcdowell (1996), VE is a reiterative activity through which value analysis is applied at progressively more detailed and technical aspects of the projects. This technique is then expanded to all type of business or economic sector, which includes construction, service, government, agriculture, education and healthcare.

Value engineering promotes the substitution of materials and methods with less expensive alternatives, without sacrificing functionality (Investopedia, 2017). It is a ‘systematic approach to delivering the required functions to the required quality at the least cost.’ It is, therefore, a method of ensuring that the client gets the best possible value for money in terms of safety, performance and delivery targets. It is focused solely on the functions of various components and materials, rather than their physical attributes. 

Value engineering is a conscious and explicit set of disciplined procedures designed to solve problems; and identify and eliminate unwanted costs, while improving function and quality. The aim is to increase the value of products, satisfying the product’s performance requirements at the lowest possible cost. In construction this involves considering the availability of materials, construction methods, transportation issues, site limitations or restrictions, planning and organisation, costs, profits and so on. Benefits that can be delivered include a reduction in life cycle costs, improvement in quality, reduction of environmental impacts, and so on.

Value engineering is a creative, organised effort, which analyses the requirements of a project for the purpose of achieving the essential functions at the lowest total costs (capital, staffing, energy, maintenance) over the life of the project. Through a group investigation, using experienced, multi-disciplinary teams, value and economy are improved through the study of alternate design concepts, materials, and methods without compromising the functional and value objectives of the client.

VE is a systematic method to improve the ‘Value’ of goods and services by using an examination of ‘function’. VE uses intuitive logic (a unique “how” – “why” questioning technique) and the analysis of Function to identify relationships that increase Value. Value, as defined, is the ratio of Function to Cost. Value can therefore be increased by either improving the Function or reducing the cost. It is a primary tenet of VE that quality is not reduced as a consequence of pursuing Value improvements. 

The summary of the importance of VE above means that, VE involves:

• identifying the main elements of a product, service or project;
• analysing the functions of those elements;
• developing alternative solutions for delivering those functions;
• assessing the alternative solutions;
• allocating costs to the alternative solutions; and
• developing in more detail the alternatives with the highest likelihood of success.

The benefits of value engineering

VE is an exercise that involves most of the project team as the project develops. It is about taking a wider view and looking at the selection of materials, plant, equipment and processes to see if a more cost-effective solution exists that will achieve the same project objectives. The VE process therefore produces the following benefits:

• Opportunity to explore all possible alternatives
• Forces project participants to address “value” and “function”
• Helps clarify project objectives
• Identifies and prioritises client’s value objectives
• Implements accepted proposals into design
• Provides feedback on results of the study

Often VE reduces costs by eliminating wasteful practices. This can be done in several areas:

• Material substitutions – Unnecessarily expensive inputs can sometimes be replaced by less expensive ones that function just as well. If a product has a life span of ten years, then using a material that lasts thirty years is wasteful. In a perfectly value engineered product, every component of that product will function perfectly until the product is no longer useful, at which time all components will deteriorate.
• Process efficiency and producibility – More efficient processes can be used and the product can be redesigned so that it is easier to produce. Reducing unnecessary parts, unnecessary precision, and unnecessary production operations can lower costs and increase manufacturability, reliability, and profits. Process engineering can be used to increase process efficiency.
• Modularity – Subassemblies that are designed and developed once and reused in many slightly different products can reduce a project’s engineering and design costs. For example, a typical tape-player has a precision injection-molded tape-deck compartment. This component can be produced, assembled and tested by an independent manufacturer and sold to numerous companies as a subassembly. The tooling and design expense for the tape deck is shared over many products that can look quite different.
• Market driven product improvements – A product with more features than customers want is inefficient. Customers will be paying for features that they don’t want to pay for. Value engineering can determine how to produce a product that exactly matches the wants of a major segment of the market. When a customer needs more features, these can be sold as options.
• Energy efficiency – Value can be created by making a product or process more energy efficient for the user. This is particularly true in heating and air conditioning systems, transportation vehicles, industrial equipment, and other systems that use much energy.

Roadblocks to cost effectiveness

When Value Engineers talk about reducing costs, they are usually referring to either total life cycle costs or the direct costs of production. Total life cycle costs are the total expenditures over the whole life span of the product. This measure of cost is most applicable to expensive capital equipment, and includes manufacturing costs, installation costs, maintenance costs, and decommissioning costs. Individual expenditures must be discounted to reflect the time value of money.

VE recognises that social, psychological and economic conditions exist that may inhibit good value. The following are some of the more common reasons for poor value (Sharma & Belokar, 2012):

• Lack of information usually caused by a shortage of time. Too many decisions are based on feelings rather than facts.
• Wrong beliefs, insensitivity to public needs or unfortunate experience with products or processes used in unrelated prior applications.
• Habitual thinking, rigid application of standards, customs, and tradition without consideration of changing function, technology, and value.
• Risk of personal loss, the ease and safety experienced in adherence to established procedures and policy.
• Reluctance to seek advice, failure to admit ignorance of certain specialized aspects of project development.
• Negative attitudes, failure to recognize creativity or innovativeness.
• Over specifying, costs increase as close tolerances and finer finishes are specified. Many of these are unnecessary.
• Poor human relations, lack of good communication, misunderstanding, jealousy, and normal friction between people are usually a source of unnecessary cost. In complex projects, requiring the talents of many people, costs may sometimes be duplicated and redundant functions may be provided.

References

Cooper, R. & Slagmulder, R. (1997). Target costing and value engineering. Portland, Oregon, USA, Productivity Press.

Cullen, S.  W. (2016).  Value engineering. http://www.wbdg.org/resources/value-engineering  

Designing Buildings Ltd (2017). Value engineering in building design and construction. https://www.designingbuildings.co.uk/wiki/Value_engineering_in_building_design_and_construction

En.wikipedia.org (2017).  Value engineering. https://en.wikipedia.org/wiki/Value_engineeringSHARE

Engineering.wikia.com (2017). Value engineering. http://engineering.wikia.com/wiki/Value_engineering

Investopedia, LLC (2017). Value engineering. http://www.investopedia.com/terms/v/value-engineering.asp

Mandelbaum, J. & Danny, L. R. (2006). Value engineering handbook. IDA paper P-4114, pp. 37,54,73

Mcdowell, T. ( 1996). Value management: Surviving in the millennium via diligence rewarded. Management Accounting.

Miles, L.D. (1972). Techniques of value analysis and engineering. Mcgraw-Hill.

Sharma, A. & Belokar, R.M. (2012). Achieving Success through Value Engineering: A Case Study. Proceedings of the World Congress on Engineering and Computer Science 2012 Vol II WCECS 2012, October 24-26, 2012, San Francisco, USA.  http://www.iaeng.org/publication/WCECS2012/ WCECS2012_pp1330-1333.pdf

Society of Japanese Engineering (1981). Guidebook for ve activities: a basic ve manual. http://www.sjve.org/download/914/stream/ 1981.

The Tavistock Institute (2000). Value engineering in practice. http://constructingexcellence.org.uk/wp-content/uploads/2015/03/C2-ve.pdf