Value Engineering
Summary Definition: A structured method for improving a product, process, or project by maximizing function and minimizing cost, without compromising performance or quality.
What is Value Engineering?
Value engineering is a process for maximizing value by improving how a good or service performs its essential functions at the lowest possible cost.
Central to this systematic approach is the concept that the value of a product depends on the ratio of its function to its cost. In other words, to increase overall value, organizations can either improve the product’s quality or reduce its cost.
Originally developed for the manufacturing and construction industries, current valuation engineering broadly focuses on eliminating unnecessary costs in any business without compromising quality, reliability, or performance.
Key Takeaways
- Value engineering is a structured approach for improving value by maximizing function and minimizing cost without compromising performance.
- It’s most effective when applied early in project planning, where design flexibility allows for impactful cost-saving decisions.
- The process relies on cross-functional collaboration to evaluate alternatives that reduce cost, improve performance, or both.
Where Did the Value Engineering Definition Come From?
The meaning of value engineering originated during World War II at General Electric (GE), where shortages in raw materials and skilled labor prompted engineers to find alternative ways to maintain product functionality while reducing costs.
This method was later formalized by GE engineer Lawrence Miles, whose work emphasized the principle that every product or process serves a specific function and that function should be delivered at the lowest possible cost without compromising quality.
Valuation Engineering vs. Value Analysis
Value engineering is a proactive strategy applied during the design or planning phase of a product, process, or project. Its goal is to maximize value before implementation by identifying ways to reduce cost and improve functionality early on, ideally before resources are committed.
Value analysis, on the other hand, is a corrective process typically performed after a product or process is already in use. It reexamines existing outputs to uncover opportunities for improvement, efficiency, or cost reduction.
How Does Value Engineering Work?
To value engineer a product requires calculating its current value and applying a series of steps to both enhance that value and sustain the engineered effect(s).
What is the Value Engineering Formula?
Businesses can enhance the value of a good or service by either improving its function or reducing the cost(s) of delivering that function, ideally without compromising performance.
Therefore, the standard valuation engineering equation is:
Value Engineering Equation
Value = Function ÷ Cost
What are the Valuation Engineering Steps?
With this equation in mind, the value engineering process typically includes the following steps:
- Define Value Engineering Objectives: Identify the purpose, scope, and essential functions of the product, process, or project.
- Gather Information: Collect relevant data (e.g., technical specs, cost breakdowns, market trends, and performance metrics) to establish a baseline understanding of current performance and costs.
- Conduct Functional Analysis: Break the subject down into its core components and use the above equation to assess the necessity of each function.
- Generate Alternative Solutions: Use cross-functional teams to brainstorm a wide range of ideas to deliver the same or improved functions more efficiently or at a lower cost.
- Select Best Options: Analyze alternatives based on defined criteria (e.g., cost, risk, quality, feasibility), and choose the most effective or practical solutions.
- Develop an Implementation Plan: Create detailed action items, assign responsibilities, and establish timelines and metrics to guide execution of the selected recommendations.
- Monitor and Adjust: Track the value-engineered product’s performance and refine it as needed to ensure sustained improvements.
What is a Good Example of Value Engineering?
Historically, value engineering in construction has been used to evaluate building systems, materials, and design choices to minimize total project costs while ensuring structural integrity. Rather than simply cutting expenses, it emphasizes long-term value by focusing on life cycle cost (i.e., the total cost of ownership, operation, and maintenance over time).
For example, consider a city construction project that requires building a concrete drainage system using traditional construction methods. While effective, this approach involves deep digging, high labor costs, and a prolonged timeline.
After applying the value engineering process, the team members instead choose to use precast concrete parts and install them with trenchless technology, thereby avoiding the need for large-scale excavation.
This new approach maintained the same performance standards but significantly reduced installation time, construction costs, and disruption to the surrounding neighborhood.
Valuation Engineering Pros and Cons
Value engineering offers significant advantages, but it also carries practical considerations that finance and project leaders must weigh.
| Valuation Engineering Advantages | Valuation Engineering Challenges |
| Helps identify and eliminate unnecessary costs while preserving or enhancing function. | The process can be lengthy, especially during the brainstorming, analysis, and evaluation phases. |
| Uses more precise cost estimates and planning in the early stages of a project. | Stakeholders may resist altering designs or workflows, even when changes improve value. |
| Fosters collaboration among departments, resulting in creative and cost-effective solutions. | Implementation requires a delicate balance to avoid excessive cost-cutting that compromises quality or performance. |
| Focuses on lifecycle costs rather than just upfront expenses, thereby promoting durable and sustainable decisions. | If introduced too late into a project, improvement opportunities may be lost or become too costly to implement. |
