Value Engineering

HISTORICAL PERSPECTIVE

Value Engineering had its origin at the General Electric Company (GEC). As a result of
World 'War II, many materials were in short supply and L.D. Miles was associated with a
committee to identify substitute materials without sacrifice in quality and performance. He
organised a formal methodology in which a team of people examined the functions of
products manufactured by GEC. Through team-oriented creative techniques they made
changes in products to lower their cost without affecting their utility and quality. This
methodology was given the name Value Analysis (VA). L.D. Miles who wrote his book in
1961 is generally recognised as the father of Value Engineering. Miles found that many of
the substitutes used were providing equal or better performance at lower costs.

The first organisation to initiate a formal VE programme was Navy Bureau of Ships in 1954.
In 1959, Society of American Value Engineers (SAVE) was set-up to propagate the
philosophy of Value Engineering. Many companies in USA, UK, Japan, etc. subsequently
set-up formal VE programmes. The Department of Defence in US encouraged application of
VE in defence projects. A number of success stories of VE/VA are reported.

In India, VE/VA is now a well-recognised programme and many organisations in; military
and navy as well as in other public and private sectors have set-up directorates or cells of
Value Engineering. A professional society Indian Value Engineering Society (INVEST)
came up to create awareness in VE/VA and they publish a journal, organise conferences and
provide other services. It is now considered as an effective management tool.

CONCEPT OF VALUE

The term `Value' is used in many different ways and is frequently confused with the
monetary price or cost of an item. However value is not synonymous with cost. Value may
be perceived as the ratio of the sum of positive and negative aspects of an object. Thus value
can be considered as a composite of quality and cost. It is more in terms of worth or utility.
Thus a ratio of quality to cost can be treated as the value of a product. If its costs can be
reduced for same quality or quality can be improved with same cost, then the value
improvement can be said to occur. It is said that the concept of value varies. For example,
consider the following set questions:

(a) What is the value of brakes in a motor car?

(b) What is the value of the picture tube in a television set?

Which of the two things mentioned above has a higher value?

Obviously, the answer to the above questions will vary depending upon the factors chosen
for the evaluation of the relative values. A product of service is generally considered to have
good value if it has appropriate performance and cost. Hence it may be concluded that:

(i) Value may be increased by decreasing costs while maintaining performance.

(ii) Value may be increased by increasing performance if the customer wants it and is willing
to pay for more performance.

Basically, in an industrial product, four types of values can be identified. These are

(1) Use value: "the properties and qualities which make it useful and enable it to accomplish
work or useful service".

(2) Esteem value: "the properties and features of attractiveness which would cause a
customer to want and own it".

(3) Cost value: "the total cost required to produce the item".

(4) Exchange value: "the properties and qualities which would enable the owner of such a
product to exchange it for something else that he may want".

We are primarily concerned in our day-to-day industrial situations with the first two of these
four types. Let us consider a simple industrial product like a ceiling fan. While choosing
among the different available models, the first essential consideration is obviously the
capacity and efficiency of the fan or the USE VALUE of the fan. Between two fans of equal
mechanical efficiency, however the choice would fall on the more attractive and elegant
looking one. We may even be ready to pay to somewhat higher price for an elegant looking
fan. This elegance provides the ESTEEM VALUE (or Aesthetic value) of the product. The
relative emphasis between use value and esteem value would naturally vary from product to
product. The nail in the wall of the building, the refill in the ball-pen or the lubricating oil in
the automobile require only use value, while the diamond or the perfumes have only
aesthetic functions.

Reasons for Poor Value

One of the important reasons behind poor value in products, systems and procedures that we
come across is the lack of organised effort in devising such systems. Many times the designs
are created under highly compressed time frame and the designer may play safe by giving
product designs with sole emphasis on technical feasibility and may prescribe thicker,
costlier materials and other unnecessary features which are not needed by the customer.
Sometimes, ad hoc decisions get permanency due to lack of review of product designs. Often
lack, of consultation with others contributes to poor value. Lack of information, wrong
beliefs, habits and attitudes are some of the other reasons.

THE CONCEPT OF THE VALUE ANALYSIS OR VALUE ENGINEERING

Value Engineering (VE) or Value Analysis (VA) is an important and powerful approach for
improvement in the performance of the products, systems or procedures and reduction in
costs without jeopardising their function. The terms VE and VA are used almost
interchangeably. For any industrial product, there are some components and there is a
technology of manufacture, which result in the achievement of its requisite use and aesthetic
functions at the least cost. Value Analysis (or Value Engineering or Value Assurance or
Value Management) is a set of logical steps to approach as near as possible to this set of use
and aesthetic function at the least cost. L.D. Miles (1961) defined VA as

"an organized creative approach which has for its purpose the efficient identification of
unnecessary cost i.e. cost which pro- vides neither quality, nor use, nor life, nor appearance
nor customer features”.

For example, consider a new tech product is being designed and is slated to have a life cycle
of only two years. The product will thus be designed with the least expensive materials and
resources that will serve up to the end of the product’s life cycle, saving the manufacturer
and the end-consumer money. This is an example of improving value by reducing costs.

Thus the basic objective of VA is to achieve equivalent or better performance at a lower cost
while maintaining all functional and quality requirements. It does this largely by identifying
and eliminating hidden, invisible and unnecessary costs and it should not be treated as a
mere cost reduction technique or cheapening of the product. It is more comprehensive and
the improvement in value is attained without any sacrifice in quality, reliability,
maintainability, availability, aesthetics etc. Primarily applied in the area of hardware projects
(product design) its concepts are equally applicable in software projects and more recently to
the nontraditional areas such as urban slum development programmes, staff welfare schemes
and courtesy improvement plans.

OBJECTIVES OF VALUES ENGINEERING

Value Engineering should not be taken as only price reduction technique, but instead it
increases the value of a product either by increasing its utility with the same cost or
decreasing cost for same utility. The objectives of Value Engineering may include.

Functional Objective.

Function specifies the utility of the product i.e. what is the use of that product? There can be
three main uses of that product- (i) Primary (ii) Secondary and (ii) Tertiary. It can be
understood by the following example:
Providing a packing for a pressure cooker serves three purposes. The primary purpose is to
protect it from scratches, cracks etc. Secondary to make it recognizable to customer by the
literature provided on it. Tertiary purpose is to impart a good appearance to it which appeals
to the customer.

Hence while performing value engineering on a product, it is necessary to maintain the

functional objectives of an item to the desired level.

Profit Objective

Cost reduction is undoubtedly the main objective of any engineering concern. But profit
consideration not only aims at benefit to an organization but also to a community or the
country.

Suppose we manufacture a product in our country and the cost is little more than that of the
imported product from other country. If we take value engineering only and consider cost
reduction technique, then we can say that the imported product is more beneficial to us. But
in reality, it is not. Because in that case though it is beneficial as person-wise but as country
wise there will be a great loss of foreign exchange. So we would give preference to the
product made in our country over the imported one. Hence Value Engineering can be applied
for import substitution.

Secondly, the overall cost of an end-product may be reduced by obtaining raw materials or
components at higher prices if they reduce the manufacturing cost by a larger margin than
the extra prices paid for the raw material. For instance, a manufacturer who was using for
fabrication a particular welding rod for many years was persuaded to try another rod superior
in quality, but 15 percent higher in price. In the trials it was concluded that the new rod was
easier to work with, gave stronger welded joints, and made it possible to obtain more welded
work to be completed in a given period of time. In actual practice, it was found that despite
its higher price, the new welding rod gave an overall net saving of about 10 percent.

Time Consideration

Value Analysis also takes consideration of the time element of value. An item may be of
'value' only if it is available at a certain time, or by a certain date and of no value at all if
arrives later. In many cases, it is also seen that a product is of short term use or of long term
use. If a product is of short term use, then there is no use of a costlier material to make the
product e.g. for a temporary X-ray laboratory, it was proposed to make a concrete wall as a
protective cover to ward off harmful rays from human beings. A concrete wall was a
permanent structure whose cost would have been very high and to use it as protection from a
temporary X-ray Laboratory would have been very imprudent. Ultimately, an earth mound
of twice the thickness was build round the laboratory to serve as a temporary protective wall
at one tenth the cost of the proposed concrete wall for radiation shielding.
Quality Promotion

Value Engineering also aims at solving quality problems. Repeated failure or rejection of a
part invokes the analysis to be made on it. Reduced rejections result in increased
productivity, better serviceability, improved marketability and better margin of profit.
Providing a competitive and quality product helps in export promotion.

Standardisation Objectives

Greater globalization of the engineering industry has stressed upon the standardisation of
materials and manufacturing processes. Standardisation can only be achieved by work
simplification, process improvement, technology upgradation and substitution of rare and
difficult source material with easily available material. All the above factors create a need for
value analysis.

VALUE ANALYSIS PROCEDURES (OR VA. JOB PLANS)

Value Analysis on any item begins with the identification of its function or end use. As the
main purpose is to provide the required use value at the least cost, the question to be asked
is, "What else will do the function at a lesser cost?"

Value Analysis seeks to obtain effective answers to the following five basic questions.

- What is the item?

- What functions does it perform?

- What does it cost?

- What else will do the same functions?

-What will that cost?

The value analysis procedure is divided into following seven phases to get systematic
answers to above questions.

(i) Orientation Phase

(ii) Information Phase

(iii) Function Analysis Phase

(iv) Creative Phase

(v) Evaluation Phase

(vi) Investigation Phase/Recommendation Phase.

(vii) Implementation Phase.

(i) Orientation Phase. This phase aims at identification of the problems very clearly,
selection of projects, formation of teams/groups, laying down objectives and targets and in-
depth training of all the members of the team.

(ii) Information Phase. After clearly identifying what is to be done, all the relevant
information like drawings and technical specifications, manufacturing proc- esses, bill of
materials, detailed cost break-up, performance report, quality, procurement (including
whether produced in your undertaking or purchased from out- side) and production problems
etc. are to be collected.

(iii) Function Analysis Phase (Function-cost-worth-Analysis). Being key phase to value

engineering, it involves analysis and identification of functions. The functions can be
classified into basic (primary), secondary, essential and unnecessary. Not only function but
also the comparison tables of function-cost, function-worth, value gap and value index etc.
are to be arranged for.

It is important to identify the function in its simplest and broadest form, so that as many
likely alternatives as possible may come to one's mind later on. Functions are described by a
verb and noun as illustrated below:

(iv) Creative Phase. This phase being the essence of the value engineering, all the possible
alternatives are generated. This can be achieved by application of brain storming and other
creative techniques in order to generate a large number of ideas for providing the functional
requirements. Free scope is given to every team member to express his inquisitee
imaginative power and innovative ideas even if they are not of practical use to start with.

(v) Evaluation Phase. The alternatives developed are analysed fully now in this phase. The
cost of each idea is estimated, critical evaluation of both good and bad points of any solution
is made. The ideas which promise greatest savings are screened and short-listed using
techniques like feasibility ranking etc.
(vi) Investigation/Recommendation Phase. Short-listed ideas of the evaluation phase are in
depth investigated to arrive at optimum and practical solution. A suggestion sheet may be
issued to all the concerned members for providing a final opportunity to consider the
proposed alterations and after that a solution is recommended.

(vii) Implementation Phase. Finally through all the above phases, a definite, specific and
tangible solution acceptable to all is reached. Now the implementation is done for:

- Final verification, alteration in drawings, specifications and releasing changing notes to

Design Department.

- Obtaining quotations, finalising orders and stopping further procurement of replaced items
for Materials Department.

- Fixing date for changeover, releasing job orders/work orders for Production Planning
Department.

- Updating Inspection plans and gauges for Quality Control Department.

– Amendments to product literature and catalogue to dealers and customers through

Marketing Department.

TECHNIQUES OF VALUE ENGINEERING

Sir Lawrence D. Miles evolved a number of techniques which helps you to identify
unnecessary costs, remove obstacles in operations. Some of these techniques are discussed
below -

(i) Obtain All Available Costs: During this technique, each type of cost is considered such
as material cost, labour cost, overheads, procurement cost, carrying cost, etc. Each of these
costs may be of importance in different situations, but for the purpose of value analysis those
most meaningful for the purpose in taking proper-decisions.

(ii) Evaluate Function by Comparison: During this technique, first we understand the main
function of an item. Then, we ask the questions - "What else will do the function at a lesser
cost?" and "How do others perform the same function of an item and what is their cost?" It
leads to a number of alternatives which can be examined, compared and tested to see if any
of them is likely to result in cheaper but reliable alternative.

(iii) Work in Specifics: In this technique, we have to make a work, it depends upon the main
function of that item. We should also take their secondary function into account. With this
knowledge, it will be easier to determine the right manufacturing process that will produce
the item to perform reliably and at the lowest cost.
(iv) Get all the Facts: In this technique, we collect all possible information systematically.
The most one way of getting all the facts is to ask oneself the following questions about each
part of an item to be analyzed, such as -

 Does it contribute to value?

 How much would that cost?

 Is the cost proportionate to its utility?

 Does it need all the specified features?

(v) Use Standard Parts: Standard parts are generally manufactured in mass production
system and due to this they are interchangeable and cheaper than specially made parts. So,
use standard parts whenever possible.

(vi) Think Creatively: You should always try to think creatively for every situation. This
will help you to find out new creative ideas to perform the operation and make it different
from others. This will also help you to reduce the cost of product with no quality
compromises.

(vii) Consult your New Ideas: It is not necessary; you will always right. So, always try to
consult your new ideas with your friends, suppliers and specialists, they can help you to
refine your ideas and select one appropriate to perform the operation.

(viii) Refine Ideas: When all possible alternatives have been developed to perform the basic
function of an item, it is necessary to get at slight additional cost, the secondary functions of
the item in the form of alternatives. The process goes on and at last only one acceptable
alternative is taken. Then, it is subjected to intensive creative thinking and new ideas of
improving it may strike you.

BENEFITS OF VALUE ENGINEERING

Value Engineering helps in improving efficiency as well as effectiveness of products,

systems and procedures. In general, VE,

i) enables people to pinpoint areas that need attention and improvement.

ii) provides a method of generating ideas and alternatives for possible solution to a problem.

iii) provides a means of evaluating alternatives including intangible factors.

iv) provides a vehicle for dialogue.

v) documents the rationale behind decisions.

vi) materially improves the value of goods and services.

In conclusion.it must be re-emphasised that VE/VA is an extremely powerful methodology

for cost reduction and value improvement and is becoming more and more popular. It is
applicable to all areas: hardware, products, services, systems or procedures, and in all
functional processes: purchasing, designing, producing, packaging physical handling and
distribution.