Value Engineering – A Technique for Improvement
Value Engineering – A Technique for Improvement
Value engineering is a systematic application of recognized techniques which (i) identify the function of a product or service, (ii) establish a value for that function, and (iii) provide the necessary function reliably at the least overall cost. The value of a function is defined as the relationship of cost to performance. Hence maximum value = maximum performance / minimum cost. In all cases, the needed function is to be achieved at the lowest possible life cycle cost consistent with requirements and / or performance, maintainability, safety and aesthetics. Value engineering is a management technique which seeks the best functional balance between cost, quality, and performance of a product, project, process, system or service (Fig 1).
Fig 1 Role of value engineering
Value engineering is an organized / systematic approach directed at analyzing 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 implementation of the value engineering process on a problem typically increases performance, quality, reliability, safety, durability, effectiveness, or other desirable characteristics. Value engineering technique is very important and useful in driving down the product cost which helps the organization to retain its market share and to sustain its profitability.
Value engineering is a systematic and creative technique to improve competitiveness of the organization. It is aimed at satisfying consumer needs by means of a specific procedure for invention (or modification) which is functional (the purpose), economic (what it costs), and multidisciplinary (how). In other words, value analysis identifies the activities necessary for a process to develop a product or service, and finds the most economic way to accomplish it. This method permits the effective identification of that part of process cost which does not contribute to ensure the process quality. The improvement of the process is not to put into jeopardy the quality of the product, especially in terms of the safety and reliability of the product. Value engineering can make an existing process profitable or optimize the effectiveness and the profitability of a process at the time of its design. Fig 2 shows the value engineering process.
Fig 2 Value engineering process
Value engineering is a structured and systematic problem solving methodology. It is a process designed to find creative alternative solutions. It is applied in a workshop environment by a multi-disciplinary team. It promotes the substitution of materials and methods with less expensive alternatives, without sacrificing functionality. It is focused solely on the functions of various components and materials, rather than their physical attributes. It is the review of new or existing products during the design phase to reduce costs and increase functionality to increase the value of the product. The value of an item is defined as the most cost-effective way of producing an item without taking away from its purpose.
Value engineering essentially is a systematic approach to eliminate any unnecessary cost of an item which does not add to its required function. It does not simply reduce cost by using cheaper substitutes or lesser quantities. Instead, its methodology centres on the issues like (i) what is to be done, and (ii) what is the alternative material or method which can perform the same function equally well. The principal component in value engineering is the function analysis. Hence, value engineering involves analyzing the functional requirements of components, sub-systems, and even methods.
The other aspects of the value engineering are cost and worth. Total cost is the objective to be minimized in any value engineering exercise, while worth represents the minimum costs to achieve the needed functions. Worth forms the means for generating alternatives and serves as the baseline against which various alternatives can be compared. Any reduction in unnecessary cost represents the savings achieved.
Value engineering is a conscious and explicit set of disciplined procedures designed to seek out optimum value for both initial and long-term investment. It was first utilized in the manufacturing industry during World War II. It is not a design / peer review or a cost-cutting exercise. Instead, it is a creative, organized effort, which analyzes the requirements of a project /process / system for the purpose of achieving the essential functions at the lowest total costs (capital, staffing, energy, and maintenance etc.) over the life of the project /process / system. 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.
Cost reduction is frequently thought of as the sole criterion for the application of the value engineering, since ‘costs’ are measurable. However, it is important to recognize that value improvement is the real objective of the value engineering, and that cannot result in an immediate cost reduction. In fundamental terms, value engineering is an organized way of thinking or looking at an item or a process through a functional approach. It involves an objective appraisal of functions performed by parts, components, products, equipment, procedures, services or anything which costs money. It is performed to eliminate or modify any functional element which significantly contributes to the overall cost without adding commensurate value to the overall function.
Value engineering is not primarily centered on a specific category of the physical sciences. Instead, it incorporates available technologies, as well as the principles of economics and business management techniques, into its procedures. When viewed as a management discipline, it uses the total resources available to an organization to achieve broad management objectives. Hence, value engineering is a systematic and creative approach for attaining a return on investment by improving what the product or service does in relation to the money spent on it.
Value engineering is a function oriented, systematic team approach and method to improve the ‘value’ of product, project, process, system, or service by using an examination of the function. 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 value engineering that basic functions be preserved and not be reduced as a consequence of pursuing value improvements. Frequently, the value improvement is focused on cost reduction. However other important areas such as customer perceived quality and performance are also of paramount importance in the value equation.
Value engineering is defined by the Society of American Value Engineers (SAVE) International as ‘the systematic application of recognized techniques by a multi-disciplined team that identifies the function of a product or service; establishes a worth for that function, generates alternatives through the use of creative thinking; and provides the necessary functions, reliably, at the lowest overall cost’. The key elements in this definition are the systematic approach using a multi-disciplined team, the identification of the basic function of the product or service, and the use of creative thinking to generate alternatives.
The glossary of terms of SAVE International contains three terms. The first term is ‘value analysis’ which is defined as a method for enhancing product value by improving the relationship of work to cost through the study of function. The second term is ‘value engineering’ which is the same as the value analysis except with emphasis on application during product development and / or design. The third term is ‘value management’ which is same as value analysis with emphasis on application as a management technique.
History of value engineering
Value engineering was conceived at General Electric Company in early 1940s. At that time due to the World War II, there were shortages of skilled labour, raw materials, and component parts. To overcome theses shortages, Lawrence Miles, Jerry Leftow, and Harry Erlicher at General Electric looked for acceptable substitutes. They noticed that these substitutions frequently reduced costs, improved the product, or both. What started out as an accident out of necessity, was turned into a systematic process. The new methodology was so successful that it was possible to produce goods at greater production and operational efficiency and at lower costs. As a result of its success, GE formed a special group led by Larry Miles to refine the methodology.
In 1954, the U.S Navy Bureau of Ships used the value analysis process to cost improvement during design. They called it ‘value engineering’. The value engineering was used formally in the US Department of Defence in 1961. In the 1960’s, Mr. Charles Bytheway developed an additional component to the basic method. During his work for Sperry UNIVAC, he created a functional critical path analysis procedure that highlighted the logic of the activity under value study. A diagramming procedure called the ‘Functional Analysis System Technique’ (FAST) was adopted as a standard component of the ‘value method’.
In 1985, the value engineering process had gained world-wide acceptance. It spawned an international organization, Society of American Value Engineers (SAVE) International), dedicated to its practice, and the certification of competent practitioners. In 1997, SAVE International approved a standard for value engineering methodology. Besides value analysis, value engineering is also sometimes known as ;value management’ and ‘value methodology’.
Phases of value engineering study
A typical value engineering exercise can reduce the total cost of a product by 5 % to 40 %. A value engineering study normally encompasses three stages. Stage 1 consists of preparation. During stage 2, multi phase job plan is carried out. Stage 3 consists of documentation, implementation and audits.
Value engineering exercise is normally carried out by systematically following a multi stage job plan which is known as ‘value analysis job plan’. The job plan is carried out by a multidisciplinary team to improve the value through the analysis of functions. The job plan normally consists of six phases. However some teams vary the job plans in four to eight phases to fit their constraints. The six phases of a value engineering exercise are given below.
Information phase – In this phase, the team members understand the current state of the project and constraints / requirements if they are there. All team members participate to determine the true needs of the project and to identify the areas of high cost and low worth. The team reviews and defines the current conditions of the project and identifies the goal of the studies.
Function analysis phase – During this phase, the team understand the project from a functional perspective such as what the project is to do, rather than how the project is presently conceived. The team defines the project functions. It analyzes the functions to determine which need improvement, modification, elimination, or creation to meet the goal of the project. The function describes what something does and function analysis is the process where the team reviews the functions of the project / process / system to determine those which can be improved. Function Analysis can be enhanced through the use of the diagramming procedure FAST. FAST applies intuitive logic to test functions, create a common language for the team, and test the validity of the functions in the project / process / system.
Creative phase – During this phase the team generates a quantity of ideas related to other ways to perform the functions. The team lists creative ideas generated from its review of the project with the aim of obtaining a large number of ideas through brainstorming and association of creative proposals. The team employs creative techniques to identify other ways to perform the functions of the project / process / system.
Evaluation phase – During this phase, the team reduces the quantity of ideas which have been identified to a short list of ideas with the greatest potential to improve the project and meet the objectives of the value engineering study. All the creative ideas are analyzed and the team selects the best ideas for further development. The team follows a structured evaluation process to select those ideas which offer the potential for value improvement while delivering the functions of the project / process / system, and considering performance requirements and resource limits.
Development phase – During this phase, the team further analyzes and develops the short list of ideas. It also develops those with merit into value alternatives. The team prepares alternative designs with capital and / or life cycle cost comparisons of original designs and proposed alternatives. All recommendations are supplemented with written descriptions, sketches, basic design concepts, technical information, and cost summaries. The team develops the selected ideas into alternatives (or proposals) with a sufficient level of documentation to allow decision makers to determine if the alternative is to be implemented.
Presentation phase / implementation – The objective of this phase is to present the value engineering study report consisting of alternatives to the decision makers. The team leader develops a report and / or presentation which documents and conveys the adequacy of the alternatives developed by the team.
The report is presented and submitted to the management and other project stakeholders who are to make decision. The report includes a statement of the follow up necessary to ensure implementation. Typical flowsheet of the value engineering process is given in Fig 3.
Fig 3 Typical flowsheet of value engineering process
Value engineering can be applied during any stage of a development cycle of a project / process / system, although the greatest benefits are typically achieved early in development during the conceptual stages. Fig 4 shows potential savings from a value engineering study. Value engineering can be applied as a quick response study to address a problem or as an integral part of an overall organizational effort to stimulate innovation and improve performance characteristics. Value engineering can also be used to enhance the quality programs, new product development activities, manufacturing processes, and architectural and engineering designs of the organization.
Fig 4 Potential savings from value engineering study
Value engineering study can be applied in several areas. The typical applications of the value engineering to various types of the projects / processes / systems include the following.
Construction projects – Construction projects can benefit by identifying improvements for various project phases namely concept development, preliminary design, final design, procurement, and construction.
Manufactured products – All kind of products can be studied with a focus on either the design of the product or the manufacturing process. A product can be the subject of a value engineering study at any time during the life of the product. A value engineering study can be applied at the onset of the product development to better understand the needs of the customer, identify the functions necessary to satisfy those needs, and develop the initial concept. Throughout the development, value engineering can be used to refine and enhance the concept, based on the latest facts. Even after a product has been introduced and is in production, value engineering study can be used to further enhance the product and respond to changing customer and economic conditions. Value engineering study can be used to either develop new ways to manufacture a product or change an existing process.
Organizational systems and processes – organizational systems and processes can be the subject of value engineering studies. Many elements of a system or a process can be improved through the application of value engineering. This can be from the development of the business plans or organizational studies for improving the existing processes if the organization.
Service organizations – Value engineering can be gainfully employed to improve system, processes and procedures in the service organizations.
Benefits of value engineering study
Value engineering guides the organization towards innovative solutions. By shifting from conventional solutions to the innovative solutions, not only the organization gets benefitted but additional value for the customer is also created as shown in Fig 5. The figure shows the case where the value engineering has been applied to the components which the organization is producing for its customers.
Fig 5 Benefits of value engineering
Value engineering helps the organization to learn (i) in improving the career skills of the employees, (ii) in identifying the symptoms and then separating them from the problems, (iii) in solving root cause of the problems and capturing of the opportunities, (iv) in becoming more competitive by improving benchmarking process and (v) in taking command of a powerful problem solving methodology and use it in any situation.
Value engineering benefits the organization in several ways. Some of these benefits are (i) lowering of the operation and maintenance cost, (ii) improvements in the quality management, (iii) improving the resource efficiency, (iv) simplification of the procedures, (v) minimization of the paperwork, (vi) lowering of the employee costs, (viii) increasing procedural efficiency, (vii) optimizing of the expenditures, (viii) developing value attitudes in the employees, and (ix) competing more successfully in the market place.