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Value engineering (VE) is a systematic method to improve the "value" of goods or products and services by using an examination of function. Value, as defined, is the ratio of function to cost. Value can therefore be manipulated by either improving the function or reducing the cost. It is a primary tenet of value engineering that basic functions be preserved and not be reduced as a consequence of pursuing value improvements.
The reasoning behind value engineering is as follows: if marketers expect a product to become practically or stylistically obsolete within a specific length of time, they can design it to only last for that specific lifetime. The products could be built with higher-grade components, but with value engineering they are not because this would impose an unnecessary cost on the manufacturer, and to a limited extent also an increased cost on the purchaser. Value engineering will reduce these costs. A company will typically use the least expensive components that satisfy the product's lifetime projections.
Due to the very short life spans, however, which is often a result of this "value engineering technique", planned obsolescence has become associated with product deterioration and inferior quality. Vance Packard once claimed this practice gave engineering as a whole a bad name, as it directed creative engineering energies toward short-term market ends. Philosophers such as Herbert Marcuse and Jacque Fresco have also criticized the economic and societal implications of this model. Value engineering is the structural and analytical process that seeks to achieve the value for money.
Value engineering began at General Electric Co. during World War II. Because of the war, there were shortages of skilled labour, raw materials, and component parts. Lawrence Miles, Jerry Leftow, and Harry Erlicher at G.E. looked for acceptable substitutes. They noticed that these substitutions often reduced costs, improved the product, or both. What started out as an accident of necessity was turned into a systematic process. They called their technique "value analysis".
Value engineering is sometimes taught within the project management or industrial engineering body of knowledge as a technique in which the value of a system’s outputs is optimized by crafting a mix of performance (function) and costs. In most cases this practice identifies and removes unnecessary expenditures, thereby increasing the value for the manufacturer and/or their customers.
VE follows a structured thought process that is based exclusively on "function", i.e. what something "does" not what it is. For example a screw driver that is being used to stir a can of paint has a "function" of mixing the contents of a paint can and not the original connotation of securing a screw into a screw-hole. In value engineering "functions" are always described in a two word abridgment consisting of an active verb and measurable noun (what is being done – the verb – and what it is being done to – the noun) and to do so in the most non-prescriptive way possible. In the screw driver and can of paint example, the most basic function would be "blend liquid" which is less prescriptive than "stir paint" which can be seen to limit the action (by stirring) and to limit the application (only considers paint). This is the basis of what value engineering refers to as "function analysis".
Value engineering uses rational logic (a unique "how" - "why" questioning technique) and the analysis of function to identify relationships that increase value. It is considered a quantitative method similar to the scientific method, which focuses on hypothesis-conclusion approaches to test relationships, and operations research, which uses model building to identify predictive relationships.
In the United States, value engineering is specifically mandated for federal agencies by section 4306 of the National Defense Authorization Act for Fiscal Year 1996, which amended the Office of Federal Procurement Policy Act (41 U.S.C. 401 et seq.):
- “Each executive agency shall establish and maintain cost-effective value engineering procedures and processes".
- "As used in this section, the term ‘value engineering’ means an analysis of the functions of a program, project, system, product, item of equipment, building, facility, service, or supply of an executive agency, performed by qualified agency or contractor personnel, directed at improving performance, reliability, quality, safety, and life cycle costs".
- Benefits realisation management
- Cost engineering
- Cost overrun
- ISO 15686
- Value theory
- "Value Methodology Standard" (PDF). Archived from the original (PDF) on 2009-03-19. Retrieved 2008-12-01.
- The Value Methodology Standard. SAVE International. August 2007.
- National Defense Authorization Act for Fiscal Year 1996, Public Law 104-106, accessed 4 March 2016
- Cooper, R. and Slagmulder, R. (1997): Target Costing and Value Engineering.
- "Value Engineering - Concepts, Techniques and Applications by Anil Kumar Mukhopadhyaya
- "Value Engineering Mastermind - From Concept to Value Engineering Certification by Anil Kumar Mukhopadhyaya"
- "Function Analysis System Technique - A Simulating Tool by Anil Kumar Mukhopadhyaya"
- Cost Engineering by Anil Kumar Mukhopadhyaya"
- "Function Analysis System Technique For Breakthrough Solutions by Anil Kumar Mukhopadhyaya"
- "Value Optimization for Project and Performance Management by Robert B. Stewart, CVS-Life, FSAVE, PMP"
- Lawrence D. Miles Value Foundation
- SAVE International - American Value engineering society
- wertanalyse.com - Many links regarding VE organizations and publications
- The Canadian Society of Value Analysis - Value Engineering in Canada
- Value Engineering’s History in Construction- American Institute of Architects - AIA
- The Institute of Value Management, UK
- the APTE method