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Raising a new Generation of Leaders

VALUE ENGINEERING
Moodle 5

Outline
Value Analysis/Value Engineering
When to apply Value Analysis/Value
Engineering
Aims and Procedure of Value Engineering

History of Value
Engineering
Created by Lawrence D. Miles during World War II (1938-1945)

while working in General Electric

Worked as a Purchase Engineer, to determine more effective way
to improve product value, at lesser cost, to meet high demand
He asked the question if I cant get the product, Ive got to get
the function, How can you provide the same function by using
some machine/labour/materials that can be gotten?
Concept initially called Value Analysis
Name changed to Value Engineering by the Naval Bureau of
ships in 1953, after adoption of techniques to improve cost of
manufacturing ships

Value Analysis / Value Engineering Re-defined

VA/VE methodology involves function analysis and everything has a

function
Can be applied successfully to all cost generating areas
Also referred to as Value management and Value planning

What is Value Engineering

Widely accepted methodology a function approach,

associated with products, processes and systems
It is a set of steps to deliver the required functions of an
item or product at lowest cost while meeting quality,
performance, reliability and specification
Value Engineering is not a cost cutting process that
reduces project scope/quality
VE is a systematic application of recognized technique by
multidisciplinary teams which identifies the functions of a
product, process, service or system; establishes a worth for
the functions; generates alternatives through the use of
creative thinking and provides the needed functions,
reliably at the lowest overall cost

 According to Mr L. D. Miles, Value Analysis is an

organized creative approach / technique that has
for its purpose the efficient identification of
unnecessary cost before, during and after the fact
costs are considered necessary / value added
until another means is known to keep the
performance features without them; then they
become unnecessary cost
Unnecessary / non-value added costs are costs
unrelated to product quality, use, life or
appearance or customer features
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VE Applied to a stapler

About an 8% reduction in manufacturing cost

Aims of VE
Improve project quality
Reduce project costs
Foster innovation by creatively developing
alternative means of accomplishing necessary
functions
Eliminate unnecessary and costly design elements
Ensure efficient investments in a projects
Develop better implementation procedures
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WHAT VE IS NOT?

An attack on the quality or appearance of the project

A cost cutting/reduction exercise
A criticism of the design professionals
A review of the constructability of the project
Not a way to cheapen the design by introducing low
cost, low performance products
Not a means of reconciliation (budget vs cost)
Not an item elimination or function deletion process
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WHAT DOES VALUE MEAN

TO YOU?

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What is Value?

It means different things to different people and is as old as

civilization
VE focuses on Economic value which includes:
Esteem Value: prestige a customer attaches
Exchange value: price a customer is willing to pay
Use value: value based on purpose of product
Cost value: value based on the total / life cycle cost; cost of
manufacturing and selling
Example: If a customer simply requires something upon which to
sit, s/he would not be willing to pay for a reclining leather chair as
s/he simply requires the use value. On the other hand a second
customer would be prepared to pay a premium price for a luxury
item, they are prepared to pay for the esteem value.
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Mathematical expression of value

This Formula suggests ways to improve value by

1.Improving F and maintaining C
2.Maintaining F and reducing C
3.Improving F and reducing C
4.Improving F at a greater pace than C increases
5.Reducing F at a slower rate than C reduces*
*It is not acceptable in VE, to make an item less functional

An item that does its function better than another, has

more value. Between two items that perform their function
equally well, the one that costs less is more valuable.

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Reasons for Poor value

Lack of information
Wrong beliefs
Reluctance to seek advice
Shortage of time
Negative attitudes
Changing technology
Strict adherence to requirements
Poor human relations
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Function Defined

It refers to the purpose of a product, system, service or

system; its properties and qualities
It is a communication tool defining the needs, wants and
desires of the customer
It is the heart of the VE technique
It is determined by asking what is it? or what does it do?
It is described in form of an Active verb and a
measureable / quantifiable noun
Verb: Convey, Support, Transmit, Protect
Noun: Load, Heat, Light, People, Flow, Weight
Note: Definition of a function depends on the purpose for which it is
used i.e. a product can be used for different purposes e.g a wire can
be used to conduct current, transfer force, fasten components

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 Two types of Functions:

Working Function: Tangible functions (Active verb,
measureable noun
Selling Function: less tangible functions to make a product
more valuable to a customer (passive verb and measurable
noun)

Two levels of function:

Basic Function: specific work that must be done to meet
expectations and carry out fundamental tasks. (core functions
for which item is created)
Secondary Function: functions that are performed to:
supports the basic function
deal with desirables but not necessary requirements
based on choice and adds esteem value
Item can exist without them

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Function Identification
Example

Three questions to determine level of function:

Is the function what users are looking for? If yes, then Basic.
If function is eliminated, will the item continue to do the job? If yes,
then secondary function
Will function disappear if design approach is changed, if yes, the
secondary?
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Costs

Three elements of costs associated:

Direct labour costs: money value attributed to making an
item per time
Direct material costs: money value of material required
Overhead / indirect costs: other costs not associated with
products e.g administrative costs, distribution costs
Key concept of cost in VE is Life cycle cost (LCC), also called
Cradle to grave costs.
LCC is the total cost of acquisition of an item to final disposal of
the same item after the life of the item

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 LCC consists of:

Acquisition costs (AC) cost of raw materials, drawings, design and
development
Operational costs (OC): cost of usage of product: e.g petrol cost or a
car
Maintenance costs (MC): e.g change of engine oil in a car engine
Repair and replacement costs (RRC): cost of repair from wear and tear /
cost of replacement e.g. cost of re-threading car tyre or cost of new
tyre
Salvage costs (SC) cost of put away / disposing/ selling off a product
as it occurs at the end of the life cycle. It is the only LCC cost that is an
income.

Two methods of collating the above costs:

Present worth method
Annualised method
Life cycle costs = AC + OC + MC + RRC - SC

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Application of VE
To improve product quality, increase reliability , availability and customer
satisfaction
For state-of-the-art customer satisfaction and value perception
Helps to identify At Risk customers i.e. customers who are likely to
defect
To improve organizational performance and employee loyalty
It will show tangible and intangible aspects of a new product consumers
value
Applied to improve technical operations from concept to operation of
complex equipment
Some application areas are - Defense; Automotive; Aeronautical;
Software development; Water treatment; Civil engineering; systems and
procedures, venture analysis, forecasting, resource allocation, marketing,
Client services; Work processes; Documentation; Organizational
development; etc.
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VE TECHNIQUES
Function-Cost-Worth analysis: excellent tool for identifying value
improvement potentials in any function. It offers opportunities for creative
ideas for value improvement. Also referred to as Function Identification
method

Worth is the minimum cost of achieving a function

Note:Where an item has several functions, determine worth of each function

separately and add them to get overall worth.

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Example
Calculate the value Index:

Value Index equals total cost divided by the basic

cost
This shows opportunities for improvement of value

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OTHER TECHNIQUES

Function Analysis System Technique (FAST):

A more objective approach developed based on
dissatisfaction in basic function identification
An evolution of the value analysis process
It is systematic diagramming technique that logically
identifies and visually displays the necessary function
to accommodate a design purpose
It applies why/how logic to test functions, create a
common language for a team and test the validity of
the functions in the project
It is used to prioritise the functions of a project
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VALUE ENGINEERING STEPS

Value engineering is often done by systematically following a multistage job plan. Larry Miles' original system was a six-step procedure
which he called the Value analysis Job plan." Others have varied
the job plan to fit their constraints. Depending on the application, there
may be four, five, six, or more stages.

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INFORMATION PHASE
Obtain & review project /
product information
Update customer needs
and requirements
Establish objectives and
goals
Define scope of work
Project site visit
Critical for he success of
the project

FUNCTION ANALYSIS
PHASE
Determine and classify
functions that the project
being studied must deliver
-What does the project do?
-What must it do?
-What could it do?
-What it should not do?

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CREATIVITY PHASE
Generate alternative ideas
to achieve functional
performance
It asks questions like
-What are the various
alternative ways of meeting
requirements?
-What else will perform the
desired function?
Typically completed using
brainstorming techniques

EVALUATION PHASE
In this stage all the
alternatives are assessed by
evaluating how well they
meet the required functions
and how great the cost
savings will be. Example of
evaluation criteria includes
Quality; Maintainability;
Reliability; Safety;
Environmental; Effect on
schedule; Return on
investment etc.
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DEVELOPMENT PHASE

This phase attempts a further

development of the ideas
selected earlier.
A real effort to develop the ideas
of lowest cost that do the main
function is attempted.
Tests, prototypes, quotations of
cost, costs of short term, long
term alternatives and of any new
ideas alternatives, prove to be
useful at this stage.
At the end of this process, the
idea of least cost should have
been identified.
Question: Would I spend my own
money on this solution? If not,
modify it.

Presentation Phase
In the final stage, the best
alternative will be chosen and
presented to the client for
final decision.

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VE Example 1
Analyse the following product:

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Solution
The components of cost divide into four segments:
High value to the customer and high cost for these items, a company would rigorously
analyse small changes in the specification of each component of cost in order to optimise the
relationship between the value to the customer and the cost.
High value to the customer and low cost for these items, a company would seek
toinvest more cost in order to increase the value to the customer i.e. in the example, either
by increasing the amount of fragrance in the product or by upgrading to a superior quality
fragrance.
Low value to customer and high cost for these items, a company would seek to reduce
the cost i.e. in the example, this could be achieved by either reducing the amount of plastic in
the bottle or by reducing the amount of blue pigment in the bottle and or by introducing a
quadruple concentrated formulation. Any cost saved can either be used to increase margin or to
reinvest in high value low cost items.
Low value to the customer and low cost a company would typically ignore these items.
The win win from value engineering is to increase the customer perceived value whilst reducing
the total cost.

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VE Example 2
Analyse the components of the pen

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Solution

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Summary
VE is a proven tool to reduce costs and increase the
value of products and operations
VE is a systematic approach to eliminating
unnecessary cost
Its main goal is to obtain maximum performance per
unit cost
It is carried out by a multi-disciplinary team; hence
requires high level human interaction and team
building to achieve its goal
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CLASS EXERCISES

What is Value Engineering

What are the aims of Value engineering?
When should VE be used and where?
VE is a cost reduction exercise? True or
False? Why?

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