Value engineering

Value engineering is a business practice pioneered in the late 1940s by Lawrence Miles for his employer, the General Electric Company. Miles defined the value of a product as a ratio between its cost and function. He believed that increasing such values would result in higher profits for a business. To maximize product value, Miles suggested that businesses assemble teams of experts from different product development departments. He then suggested that those teams work together to find ways to reduce the cost of a product without sacrificing functionality or value in the eyes of the customer. For example, a toaster might be constructed of thinner steel without sacrificing its ability to effectively produce toast, thus reducing the costs of the materials necessary to construct the device.

Value engineers may also look for cost-effective means of increasing the perceived value of a product. They may add simple features to make the product more appealing to customers or may manufacture the product in a more environmentally-friendly manner. However, the appeal or functionality added by these features must be greater than the costs of implementing them.

Background

The history of value engineering, also called value analysis, can be traced back to General Electric Company. The system was developed by Lawrence Miles, a General Electric employee, during the late 1940s. Miles sought to increase the profitability of the company without sacrificing efficiency or quality. In many cases, improving the profitability of a company as large as General Electric without sacrificing quality was considered a monumental task. To help him achieve his goal, Miles began to experiment with function analysis.

Function analysis would later go on to become one of the core concepts of value engineering. Instead of using a lengthy trial- and error-based improvement process, Miles proposed converting the product, process, or company into a number of pairs of words, such as “green energy,” “sell clothing,” or “the team.” He called these word pairs functions. Miles then advised his teams to concentrate their problem-solving efforts on these functions instead of larger problems.

Miles argued that this approach kept creative teams focused while still keeping them open to new options. This allowed them to develop more creative solutions than they might have suggested while using a more traditional model. He also argued that such a model allowed teams to focus on refining what a product provides to customers without becoming bogged down on the mechanics of the product itself.

Overview

Miles believed that the value of an item could be calculated as a ratio between two important elements: function and cost. For this reason, Miles argued that one of the most efficient ways for a business to increase the value of its products was to reduce the production cost of the item. Value engineering works to increase the overall value of a product, service, or item by reducing costs or increasing function. Experts suggest that modern companies seeking to implement value engineering should develop three lists. These include a list of any results they hope to achieve, a list of any roadblocks that might get in the way of those results, and a list of any possible ways to circumvent those roadblocks.

Companies should then develop a specialized team for the analysis. If possible, the team should be made up of numerous experts. Each expert should be both responsible for some capacity of the project and approach the situation from a different perspective. For example, a skillfully constructed team might include a project engineer, a factory supervisor, an accountant, a marketing specialist, and a product manager. Choosing the correct members for the team can have a significant impact on the success of the project. In addition to being experts in their field, team members should be able to set aside their egos and work together towards a common goal.

Teams should work quickly to find any simple fixes that reduce costs but not value. For example, the customer does not see the assembly process of the product, and thus cutting costs during the assembly process does not diminish the value of the product in the eyes of the customer. However, the team should be careful to avoid cost-cutting measures that reduce the customer’s experience, as such costs will reduce the amount that a customer may be willing to pay for the product, thereby forcing the company to charge a lower price.

It should also be noted that value engineering explicitly does not allow the team to make changes that reduce the functionality of the product. If the functionality of the product is reduced, the changes can be relabeled as cost-cutting. Instead, they may make changes that make the product more profitable without impacting its ultimate functionality.

Value engineers should also be wary of hidden costs that may detract from the final value of the product. For example, utilizing cheaper but similar construction materials may appear to reduce the cost of the product by reducing the cost of its components. However, if those construction materials are more difficult to work with, they may increase the amount of time and effort required to manufacture the product. This would increase its cost, potentially beyond the savings accrued by switching to a cheaper material.

Companies utilizing value engineering should also advise their teams to keep the expected lifespan of the product in mind when determining value. For example, if a product is designed to be short-lived or expendable, it may be possible to significantly reduce the quality of the resources used in the product’s construction without detracting from consumer satisfaction. However, if a product is designed to last, it will likely require higher-quality parts and careful, skilled construction. These will increase the initial cost of the product. Those costs may be offset by the perceived value increase from the product’s long life.

Bibliography

“History of Value Engineering.” McGill University, www.mcgill.ca/ve/history. Accessed 7 Jan. 2025.

“Larry Miles and Value Engineering.” Skymark, www.skymark.com/resources/leaders/larrymiles.asp. Accessed 7 Jan. 2025.

Owens, Michael P. “The Good and Bad of Value Engineering.” Retail Spaces, 27 June 2017, info.retailspacesevent.com/blog/the-good-and-bad-of-value-engineering-in-retail-and-hospitality. Accessed 7 Jan. 2025.

“The True Meaning of Value Engineering.” Horst Construction, 18 Mar. 2020, www.horstconstruction.com/news-and-blog/the-true-meaning-of-value-engineering. Accessed 7 Jan. 2025.

“Value Engineering.” US Army Corps of Engineers, www.usace.army.mil/Value-Engineering. Accessed 7 Jan. 2025.

“Value Engineering: Definition, Meaning, and How It Works.” Investopedia, 6 Nov. 2024, www.investopedia.com/terms/v/value-engineering.asp. Accessed 7 Jan. 2025.

“Value Engineering in Construction: Our Approach to Project Design.” South Bay Construction, www.sbci.com/value-engineering-in-construction-our-approach-to-project-design. Accessed 7 Jan. 2025.

“The Value Engineering (VE) Process and Job Plan.” Federal Highway Administration, 27 June 2017, www.fhwa.dot.gov/ve/veproc.cfm. Accessed 7 Jan. 2025.