Value Engineering

When costs need to come down, the easiest move is often to cut features, use cheaper materials or reduce quality. That can save money in the short term but damage customers' experience and the organization's reputation. Value engineering takes a more careful approach. It starts by asking what each part of a product, building or service is actually for, its function, and then looks for different ways to deliver that function at lower cost. The aim is not to do less, but to achieve the same or better results more efficiently.

Value engineering was developed at General Electric in the 1940s by Lawrence Miles, who was looking for substitutes for materials in short supply during the Second World War and found that alternatives often worked as well or better at lower cost. The method spread to defense, construction and manufacturing, and many US federal agencies use it on major projects. SAVE International, a professional society for value methodology, certifies practitioners. For engineers, project managers, procurement teams, product managers and transformation leaders, value engineering is a disciplined way to reduce cost without sacrificing what matters.

Definition of Value Engineering

Value engineering is a systematic, function-based analysis of a product, process, system or project, usually carried out by a multidisciplinary team, that seeks to improve value, defined as the ratio of function to cost, by identifying alternative ways to deliver required functions at the lowest total cost while meeting performance, quality and safety requirements.

It is a targeted approach to cost reduction, can contribute to cost takeout programs and supports value capture when savings are locked in.

The Value Engineering Job Plan

Information. Gather data about the product or project, its requirements, costs and constraints.

Function analysis. Identify what each component does, often expressed as a verb and a noun, such as support load or protect surface, and the cost of each function. Functions are classified as basic, which the product must perform, or secondary, which support it.

Creativity. Brainstorm alternative ways to perform the functions, without judging ideas at first. Separating idea generation from evaluation encourages more creative options.

Evaluation. Assess alternatives for cost, performance, risk and feasibility, and select the best. Ideas that cannot be used directly may still inspire better options.

Development and presentation. Develop the chosen alternatives in detail and present them to decision-makers, followed by implementation. Each phase builds on the last, and skipping function analysis usually turns the exercise into simple cost cutting.

Where Value Engineering Is Used

Construction and infrastructure, where it is often applied during design to reduce project costs. Many public agencies require it for large projects.

Manufacturing and product design, to reduce component and assembly costs.

Services and processes, to deliver required outcomes with fewer resources.

Procurement, to find alternative specifications or suppliers that meet functional needs at lower cost. Software and digital products, to simplify features and architecture while meeting user needs.

Importance of Value Engineering in Transformation Programs

Value engineering reduces cost without cutting quality. Focusing on function prevents savings that harm customers. It can even improve quality, since better ways of performing functions are often more reliable.

It encourages innovation. Asking how else a function could be performed often leads to better designs.

It also brings disciplines together. Multidisciplinary teams combine engineering, finance, procurement and operations perspectives. It improves understanding of what customers actually need, since every function is linked to a requirement.

Value Engineering and Financial Management

Applying value engineering early in design usually saves the most, since changes are cheaper before commitments are made.

Savings should consider total lifecycle cost, including maintenance and operation, not just purchase price.

Value engineering studies require time and expertise, which are typically small compared with the savings on large projects.

Savings should be tracked and validated like other benefits, and reflected in budgets.

Common Challenges

Value engineering is used as a label for simple cost cutting, removing features or quality. When this happens, customers may notice lower quality, damaging the brand.

It is applied too late, after designs are fixed and changes are costly. At that stage, savings may be eaten up by redesign costs.

Designers may resist suggestions, seeing them as criticism of their work. Involving designers in the study from the start reduces this resistance.

Lifecycle costs are ignored, so cheaper options cost more over time. Studies may generate many ideas but few are implemented if there is no clear follow-up.