Value Engineering

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Last Updated:September 22, 2023

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What Is Value Engineering?

For many of us, hearing this term would mean different things in the business world. For individuals in the construction business, it means cutting costs.

For others, it could mean enhancing products and services, but what does it really mean, and what is the core fundamental amongst all these definitions?

Value engineering could do many different things, yet the core idea is the same. Cutting costs is a broad term when it's execution time.

For instance, will cutting costs occur through eliminating features, or would it happen through laying off employees? It has many approaches, yet the main title is the same.

Cutting costs on a product, project, or service will require a deep understanding of these objects' design and their associated costs.

The cost-cutting stage could happen either after the prototype delivery or before the initial designs, which is usually the case.

For this term, cutting costs will focus on product design, functionality, and alternatives. This means that the core idea of this "engineering" process is to redesign the elements that collectively make a product or a service while still delivering the outcome desired provided to the market by the providers.

One of the central conflict points about this term is that some label it as a product/cost-improving approach rather than a cost-cutting method.

The argument starts even before labeling this term; it begins with "isn't improving product costs the same as cutting costs" for some, it is the same, but for others, it is far from that.

Key Takeaways

Value engineering is a systematic approach to minimizing the costs of products, services, or projects while maintaining their intended functionalities and quality.
The primary goal of value engineering is to reduce costs through alternatives like materials and methods without compromising the core purpose.
Quality is a crucial element alongside cost reduction, ensuring that changes do not undermine the intended functions and long-term value.
Value engineering evaluates the entire lifecycle and maintenance costs, accounting for upfront savings versus long-term expenses.
The value engineering process involves stages like information gathering, function analysis, creativity, evaluation, development, presentation, and implementation, ensuring a comprehensive and informed decision-making approach.

Understanding Value Engineering

It is a fact-based, systematic, and practical approach used by professionals to minimize the costs of products, services, or projects while still delivering the intended functionalities.

It is an approach that will assist in minimizing expenses associated with production and product creation while not changing the core functions.

The basic idea is to allow businesses to perform their tasks, deliver their products, and conduct projects while minimizing costs but not sacrificing functionalities.

The approach will put elements like materials and methods adopted to perform tasks and find alternatives under the microscope.

These alternatives would provide the business with materials performing the same functions. Still, their physical attributes wouldn't be the same as the first ones before the value engineering method was used. Usually, the alternatives are less expensive.

This approach can be made on new or existing products during the designing phase to minimize expenses and increase functions to boost the value of the products.

The value of an object is defined as the ultimate cost-effective approach to making an object without reducing its purpose.

This concept came to life in the 1940s at General Electric, in the middle of WWII. There was a shortage of materials needed in the company due to the war.

Purchase engineer Lawrence Miles and others decided to consider alternative materials and elements since there was a robust shortage. These alternatives were surprisingly cost-effective and provided similar performance.

Main elements in value engineering

There of the main elements are:

1. Cost Reduction

Minimizing costs is the primary driver of various value engineering processes. The team applying this method will provide ideas of less expensive materials or systems for your product or project consideration.

Whether finding a similar component that is less expensive or changing an unnecessary add-on, these provided opinions and suggestions can offer a high value for your project or product to be manufactured.

Nonetheless, without including the next element, this product engineering would have the method of cost-cutting.

Adding the next element, quality will ensure that the cost-cutting edge in this approach will not eliminate the value and intended function to be delivered by the project or product.

2. Quality

Proceeding with your value engineering options will require you to include quality. This term can mean many things, and it can mean the quality of the components you are purchasing, the quality of the execution teams, or the quality of the environment in which you create your products.

Usually, components and equipment with a high price tag are justified to be labeled with this tag because of their quality and performance.

High-priced components and equipment could mean you could charge higher prices for your products. They may also have a positive impact on the productivity of your teams using these tools.

Products with higher quality could translate to a higher value than low-cost products. So you should always consider the quality of your alternatives, whether components, teams, or environment, as they will impact the final product.

3. Life Cycle/Maintenance

Like how quality plays a vital role in your value engineering decisions, this element carries the same weight.

Usually, low-cost flooring may translate to the most valuable alternative initially. But if it requires frequent replacement, it would cost as much as a high-cost component.

Nonetheless, the low-cost option may require less cash upfront to initiate your business or release your product. Hence it could be a viable option to start with.

But you have to re-consider these options and their impact in the long run after you have established your business or released your product.

Benefits and Application of Value Engineering

Value Engineering assists your organization in:

Lowering costs
boosting quality control
Enhance the efficiency of resources
Make procedures less complex
Lowering paperwork
Minimizing staff expenses
Enhancing the efficiency of procedures
Efficient construction expenses
Grow value behavior in staff
Better competitive edge in the market

Value Engineering assists you in learning how to:

Enhance your career skills
Differentiate between "causes" and "issues."
figure "root cause" problems and acquire chances
Be extra competitive by enhancing "bench-marking" phases
grant command of robust issues solving approach to utilize in any scenario

How is Value Engineering Applied?

This approach is monitored through structured decision-making stages to evaluate the value of procedures or services involved. A value management task can be executed when an unnecessary element is discovered. These stages are:

Information
Function analysis
Creativity
Evaluation
Development
Presentation
Implementation

Steps in Value Engineering

The different steps in the process of value engineering are:

1. Information

This stage consists of collecting information about the project or product and clarifying the goals of either. Data is gathered and then analyzed, and the acquired knowledge is utilized to draw the absolute priorities of the project or product and where it can be enhanced.

The possible issues discovered can be broken down into sub-components, which will be elements to be discussed. This stage also consists of identifying the approaches the execution teams will adopt to evaluate the performance of the product or project.

2. Function Analysis
The function analysis stage entails identifying the project's functions and tagging them with a verb/noun combination for each element under consideration. The function is a collection of goals that must be achieved by executing one or more components.

Each indicated function is investigated to see whether it may be improved or if a new function is necessary. "Disinfect water" is an example of a function. The function should be as generic as feasible to allow for numerous options that accomplish the project's function. Each specified function is given a price.

3. Creative
Following the function analysis phase, the inventive step entails experimenting with different approaches to execute the function(s) determined during the function analysis phase.

This permits team members to develop alternate systems or procedures to the ones already in use.

Brainstorming encourages people to think outside the box and allows team members to consider all possible solutions to the challenges at hand and alternate functions for the function.

The group must devise a list of possible solutions to the function defined by the verb/noun pair.

4. Evaluation
The advantages and demerits of each of the recommended solutions and alternatives from the creative phase are listed in the evaluation phase. Each advantage and disadvantage should be described in broad words by the team.

When the disadvantages outweigh the benefits, the alternative is abandoned in favor of other viable options. The team uses a weighted matrix analysis to organize and rank the choices, and the best options are chosen for consideration in the following phase.

5. Development
This stage will consist of a thorough analysis of each of the suggested alternatives, their costs, and their implications once implemented. This stage will involve drawings, project potential implementation costs, and technical analysis.

Team members will articulate an execution plan for these alternatives if approved. In this plan, they will provide in detail the necessary steps for the company to implement or acquire these alternatives.

6. Presentation
At this stage, the execution teams and teams that created the alternatives will meet all the stakeholders of the product or project to demonstrate their final report. The units must demonstrate their suggestions based on facts, flow charts, and any presentation materials that will help convince the stakeholders.

Their suggestions and recommendations should be demonstrated in detail, including all relevant costs, expenses, alternatives, and consequences.

This final report would represent the team's achievements in finding alternatives and a tool or summary if the decision-makers decided to implement these recommendations.

7. Implementation
Implementation of the project or product starts after the management grant the recommendations by the teams.

If the management or other decision-makers prompt any change requests, these adjustments should be included in the implementation plan before the implementation starts.

When executing the project or product manufacturing, the team has to ensure that the first goal of boosting value is reached. The actual cost savings of the project or product should be identified based on the execution of the recommendations.

Why Is Value Engineering Important?

This approach will allow you to minimize costs without sacrificing your functions. Let's say you have a component that will cost you $1000. You can find a similar functionality component at a lower price through value engineering and maybe even a more robust performance.

Value engineering will allow you to realize that price does not necessarily mean better performance. It will make you a better expert at knowing which attributes will create a component better besides the price tag.

This will allow you to make effective and valuable products and services at a lower price.

Knowing how to cut costs isn't an easy task. This is because you could eliminate an element from a product or a project, leading to a disastrous outcome. Hence this approach will ensure that you keep all the components and find similar function components at a lower price.

Sometimes we conduct this approach without the direct intention of doing so. For instance, we could buy a car tire that performs the same tasks or functions for the car yet at a lower price because it is a different brand from the high-priced brand we are used to.

This approach can be adopted in all aspects of your business, and it can be done by hiring your employees or purchasing your office assets and many more aspects of your business.

Mastering this will require that you have the needed knowledge about the elements mentioned in the article above.

This knowledge can be gained from many sources. Wall Street Oasis has a whole list of free and paid courses that will assist you in your business decisions and in becoming an expert in many fields related to costing and pricing.