Value Engineering: Reducing Costs While Improving Quality

What is Value Engineering?

Value engineering is a process that involves identifying ways to enhance the value of a product or service. Value engineers work with stakeholders to identify a product’s or service’s essential functions while looking for ways to further improve it and possibly reduce costs.

Any stage of product development can benefit from value engineering, from initial concept to final production. Starting early helps teams avoid expensive redesigns and rework. Ultimately, value engineering delivers better products and services at a lower cost to customers.

Benefits

Value engineering provides more than cost savings. It’s one of the two disciplines of the broader VA/VE framework, alongside value analysis and aims to provide the best possible combination of function and cost. Examining the functions of a product, system, or project can help teams identify improvements that benefit the organization. The Whole Building Design Guide states that a VE workshop helps participants gain a new perspective on a project. Here are some of the key benefits:

• Enhances quality and process quality: The process often reveals suggested improvements not included in the original brief, resulting in better outputs.

• Lowers costs without compromising quality: One of the functions of value engineering is identifying cheaper materials, systems or methods that can deliver the same required function. This helps teams to reduce costs without eroding performance.

• Helps make informed decisions: By using a clear and evidence-based approach to compare alternatives, it can reduce guesswork and increase stakeholder confidence.

• Reduces waste and inefficiency: Improving processes and identifying issues early in the design stage can prevent downtime, bottlenecks, or unnecessary steps and features.

• Extends asset lifecycle: The process shifts focus from initial costs to total cost of ownership, ensuring durability and reliability throughout the design process.

• Strengthens cross-functional collaboration: Teams and individuals across design, procurement, operations, and finance share responsibility and ownership.

Main Criteria

A good value engineering team considers these three main criteria in value engineering:

Cost reduction

Many value engineering processes are born from the idea of reducing costs. Your team will present suggestions for cheaper materials or systems during the product development process.

These suggestions are meant to save money and still deliver the same quality product. However, without following a set criterion, value engineering would be another term for cost-cutting. By adding quality standards, organizations  can ensure that the money saved does not come at the expense of project value.

Quality

When deciding on value engineering solutions, consider quality. Quality has various meanings. The quality of the environment you’re building. The quality of the goods that make up that environment. The quality of the team that will produce that environment.

Some equipment or design components may have a hefty price tag, but they are a long-term investment due to their high quality. Higher-cost goods and components might allow you to charge more for your services and improve the efficiency or enjoyment of those using the area.

Life cycle or maintenance

Not only is quality important, but you must also consider the long-term ramifications of value engineering choices. The National Institute of Standards and Technology (NIST) defines a life-cycle cost program that evaluates whether an alternative is less expensive over time. For example, at first, it might seem like cheaper flooring is the best route, but if you have to replace it twice as much as the more expensive option, it will cost more money overall. This will help improve the quality of outputs presented in management reviews.

Steps in Value Engineering

Value engineering follows a structured process designed to challenge assumptions, identify inefficiencies, and find better ways to deliver the same function at lower cost. For example, the Federal Highway Administration (FHWA) requires value engineering analyses for its National Highway System projects, which require thorough inspections and numerous quality approvals to ensure safety and efficiency.

An effective value engineering project requires clear, repeatable steps. Below are seven steps involved.

1. Information gathering

The information phase is gathering project data and changing the project’s goals. Data is gathered and analyzed, and the information obtained is used to complete the project’s priorities and areas for improvement.

The potential problems are broken down into smaller parts and sub-problems to address. This step also entails determining how the team will measure progress on the project.

2. Function analysis

This stage entails identifying the project’s functions and attaching an action to each element under evaluation. The term “function” refers to the goals achieved by executing an element or a group of elements.

Determine if any improvements or new functions are necessary for every function required by the project. As an example, one such process might be “disinfect water.” To allow multiple options that perform the same position, keep the language as non-specific as possible. For every identified function, also assign a cost.

3. Creative brainstorming

Following the function analysis phase, the creative phase begins, in which team members brainstorm various methods to carry out the functions discovered in the previous stage. It allows team members to devise alternatives to current systems or techniques.

Brainstorming allows people to explore different ideas and come up with creative solutions. When you brainstorm, you should bring up all possible solutions to the problem at hand, even if they seem far-fetched. This way, you and your team can consider every option and choose the best one.

4. Evaluation

The team records the advantages and drawbacks of each alternative and solution proposed in the creative phase during this step. It’s essential to state each advantage and disadvantage in broad terms.

In cases where the drawbacks outweigh the benefits, other viable options are chosen. The team uses a weighted matrix analysis to arrange and prioritize the options before putting the most acceptable alternatives on hold.

5. Development

It involves analyzing the cost and feasibility of each best alternative in detail during the development phase. Sketches, cost estimates, and other technical evaluations may all be necessary during this stage.

The team creates the project’s implementation plan, which includes a description of how to implement the final recommendations.

6. Presentation

During the presentation phase, the team meets with management and other stakeholders to deliver their final report. They present findings using reports, flowcharts, and other visual aids to prove that the development phase’s conclusions are valid.

The report should contain a thorough description of each idea, including estimated costs and benefits and any challenges that might arise. In addition to documenting the team’s progress and findings, the final report can be a reference tool for company employees during future projects.

7. Implementation

After the management approves the team’s recommendations, implementation begins. Before the implementation begins, the plan should include any modifications requested by management or other decision-makers.

Aim to increase value during the execution of the project. Implementing the suggestions determines the project’s actual cost savings.

Team Members

For a successful value engineering project, it is essential to have a strong team behind it. A value engineering team typically consists of four to six members with diverse expertise across various disciplines, according to the Project Management Institute (PMI). This team should bring together diverse expertise rather than relying solely on cost engineers or project managers working in isolation. Here are some individuals who should be part of a value engineering team:

• Project or program manager: Supervises the VE study, monitors the process to ensure it stays on schedule and verifies realistic recommendations within the project scope and timeline.

• Cost or value engineer: Responsible for function analysis, value index calculations and evaluation of the cost of each alternative.

• Design architect: Equips the team about the technical limitations of what can and can’t be modified without compromising performance, compliance and safety.

• Subject matter expert (SME): A specialist in a specific field, such as structural engineering, manufacturing, or procurement. They assess the feasibility of the proposed alternatives.

• Supply chain or procurement representative: Examines the availability, costs and reliability of alternative materials and supplies.

• End-user or operations representative: Offers a user perspective on the final output, helping evaluate its functional value.

• Commercial analyst: Takes the role of validating cost estimates, lifecycle cost scenarios, and business case recommendations.