What is 'Value Engineering'

Value engineering is a systematic and organized approach to providing the necessary functions in a project at the lowest cost. Value engineering promotes the substitution of materials and methods with less expensive alternatives, without sacrificing functionality. It is focused solely on the functions of various components and materials, rather than their physical attributes.

Also called value analysis.

BREAKING DOWN 'Value Engineering'

Value engineering is the review of new or existing products during the design phase to reduce costs and increase functionality in order to increase the value of the product. The value of an item is defined as the most cost-effective way of producing an item without taking away from its purpose. Therefore, reducing costs at the expense of quality will simply be a cost-cutting strategy. With value engineering, cost reduction should not affect the quality of the product being developed or analyzed.

The concept of value engineering evolved in the 1940s at General Electric, in the midst of World War II. Due to the war, purchase engineer Lawrence Miles and others sought substitutes for materials and components, since there was a chronic shortage of them. These substitutes were often found to reduce costs and provided equal or better performance.

Miles defined product value as the ratio of two elements: function/cost. The function of an item is the specific work it was designed to perform, and the cost refers to the cost of the item during its life cycle. The ratio of function to cost implies that the value of a product can be increased by either improving its function or decreasing its cost. In value engineering, the cost related to production, design, maintenance, and replacement are included in the analysis. Say, a new tech product is being designed and is slated to have a life cycle of only two years. The product will therefore be designed with the least expensive materials and resources that will serve up to the end of the product’s lifecycle, saving the manufacturer and the end consumer money. This is an example of improving value by reducing costs.

Another manufacturing company might decide to create added value by maximizing the function of a product with minimal cost. In this case, the function of every component of the item will be assessed to develop a detailed analysis of the purpose of the product. Part of the value analysis will require evaluating the multiple alternate ways that the project or product can accomplish its function. The different ways that are listed are narrowed down to a few basic and secondary feasible options which may be implemented into the project. For example, a dish liquid bottle which becomes slippery after some of the liquid soap has leaked to the sides may be improved by redesigning the shape of the bottle and the opening spout to improve grip and minimize leakage. This could lead to increased sales without incurring additional advertising costs.

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