How do some products achieve astonishing quality and functionality at affordable prices? The answer is in the discipline of Value Engineering.
Value Engineering is often tarred with the same brush as ‘cost-cutting‘. Although it has a similar role, it plays to a wholly different business strategy. So, let’s look at what it is and why it matters.
Why do we Need Value Engineering?
I suppose we’ve always wanted to reduce the time, material, and process costs of the products we’ve manufactured. Think of Og the inventor of the wheel. One day Og realised that it’s quicker and easier to cut a straight section of pine than of oak. Yet it makes an equally good axle… Why wouldn’t you?
But the origin of Value Engineering in its modern form (and with its modern name) arose in World War 2.
How many of our Big Ideas started there? At General Electric Company, Lawrence Miles and his colleagues were trying to work around shortages of labour, components, and raw materials. They found that some of the substitute parts and materials would either:
- cost less
- perform better, or
Miles defined the product value as the ratio of function to cost. By reducing cost or improving function, his team were able to increase the value of existing products. They called this ‘Value Analysis’.
Value analysis is a process applied to existing products. So, Value analysis is very much an operational process and has a close relationship with continuous improvement approaches, like Kaizen. Both of these are a part of Product Management – the marketing, support, and maintenance of a product or product range.
But out of Value Analysis flowed the idea of Value Engineering.
Value engineering is part of a process for developing new products. As such, it forms part of the New Product Development process, and is also valuable as part of the discipline of Project Management.
What is Value Engineering?
Value engineering is the modification of designs and processes to increase the value of a product or service. Here, we can define the value as:
Value = Benefit (or function) / Cost
So the goal of value engineering is to reduce or eliminate costs, while improving functionality and quality. This means looking for alternatives to existing solutions. We carry out value engineering during the design phase of a project or product development. But it often takes place after there is an initial design to work from.
Typical Value Engineering Considerations
What can we modify, to increase the value of a product? Typically:
- Delivered standards
This is the first port of call. We ask: ‘have our original designs met standards beyond what the customer needs?’
If they have, we say the first solution is ‘over-engineered’.
Raw materials and components
The whole logistics process and value chain is a source of cost savings, without detriment to the end-customer
- Plant and equipment
Often, investing in better, faster, more efficient kit – and maintaining it well – can improve throughput, increase quality, and reduce wastage.
This is the role of Business Process Reengineering (BPR), and other more continuous improvement approaches
More effective procurement can find the same components at lower costs.
What are some examples of Value Engineering?
A premium mobile phone has some pretty exotic materials that make it lovely to hold and use. Yet, pick up some brands of mobile phone and maybe the materials were chosen to reduce cost. They function the same way and run the same software. They just aren’t as nice. The processes for the construction of all phones have been value-engineered. But for some, the value engineering has also included the choices of components and materials. They are less lovely and run slightly more slowly. Maybe the screen is not as bright, nor the camera as sharp. But the value (function to cost ratio) is better – at least for the target users.
In a new building, architects and engineers think about finishes, services, and a thousand components. There are a myriad of value engineering choices.
How to Carry out Value Engineering
The basic steps of value engineering are:
- Identifying the main elements of a product, service, or project.
- Analysing the functions of those elements.
- Developing alternative solutions for delivering those functions.
- Assessing those alternative solutions.
- Putting costs to the alternative solutions.
- Developing in more detail the alternatives with the highest likelihood of success.
So, what’s the Difference between Value Engineering and Cost Cutting?
Following any disaster involving man-made products or engineering, you can expect a public outcry against compromising quality in the name of value. And cost-cutting is just that: reducing cost with little or no regard for quality or function.
- Industry Cost Leadership
- Industry Product Differentiation
- Niche Focus
Only Industry Cost Leadership would consider cost-cutting a viable approach. Even here, value engineering is equally widely adopted.
With value engineering, cost reduction should not affect the quality of the product being developed or analysed. It is therefore employed within Industry Product Differentiation and Niche Focus strategies.
So, to summarise, if Value = Benefit (or function) / Cost, then value engineering necessarily maintains or increases value. Cost-cutting necessarily reduces value because it does nothing to retain the benefit.
What is Your experience of Value Engineering?
We’d love to hear your experiences, ideas, and questions. Please leave them in the comments below.