What is value engineering and why is it important?

By Indeed Editorial Team

Published 6 July 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Different problem-solving methods are a standard in almost every industry. Depending on the unique challenges and circumstances, professionals use various problem-solving techniques to overcome issues. In engineering, companies often try to bypass conventional approaches to enhance the value of a particular system or product. In this article, we talk about value engineering, how it works and why it's essential for modern businesses.

What is value engineering?

Value engineering, or value analysis, is a concept that focuses on adopting a streamlined approach to covering the necessary functions within a project at the lowest possible cost. This concept focuses on substituting materials and opting for less expensive choices without compromising performance or functionality. Instead of focusing on the physical attributes, the primary focus lies in optimising the functions of materials and components.

Businesses use value analysis to enhance the value of a particular product or service. Two main elements define value analysis: cost and function. Businesses can enhance the project's value by reducing the cost without affecting its function, which improves its quality. Here's a look at what function and cost mean for this concept:

What is function?

Function is simply a measure of the performance capabilities of a service or product. For instance, a key function of business software may be to store data in a secure database. Businesses can seek to optimise functionality by looking for a less expensive method to maintain a database.

What is cost?

Cost refers to the resources a business consumes to execute a function. These resources can include money, time, materials and human resources. A company can enhance the value of a particular service or product if it reduces its costs without sacrificing functionality. For instance, the business may save money by switching to a data pipeline solution instead of maintaining the infrastructure to store data in a secure database.

Related: How to calculate fixed cost quickly and conveniently

Understanding value engineering

Businesses can add value to existing functions by either improving the performance of the function or by reducing the costs that go into executing that function. Companies primarily use this concept to reduce costs as much as possible while trying to maintain the basic function of a particular service or product.

In marketing terms, businesses use this concept to develop and promote products that last for a specific length of time before losing their usefulness. For instance, if a company knows that a product or service is going to become obsolete after some time, it can use value analysis and reduce the costs without compromising the functionality of the product or service.

Related: How to calculate growth rate with methods and examples

The importance of value engineering

The organised effort that companies put into analysing the performance capabilities of specific materials and machines and into looking for viable alternatives can help businesses in many ways. It's hard to understate its importance to modern business, especially as more and more companies seek to adopt a lean structure. Here are some of the many reasons value analysis is so significant:

It helps to establish the core function of a product or service

Value analysis helps businesses identify the core function of a specific product or service. Value analysis is quite thorough, with managers often seeking to explain the functions of all items and resources. They use this data to find suitable alternatives without substantially reducing the item's functionality. Because departments and projects often share resources, businesses can gain a better understanding of common resources that cost more and replacements that would be suitable.

It helps businesses identify high-cost areas

Value analysis is important as it helps businesses identify major high-cost areas throughout the product development and maintenance process. The value engineers then look for suitable alternatives and adopt an organised approach to reduce these costs. This not only saves the business a significant sum of money with specific products, but companies can also replicate their findings across other departments.

It helps establish a lean and adaptable business structure

Conducting value analysis helps the business establish a lean and highly adaptable business structure. It helps companies extend their material and human resources while also saving them money in the process. As a result, businesses can adapt to external market factors more quickly and actively.

It helps simplify basic processes

A key part of value analysis also focuses on streamlining business processes to save costs. Value engineers look for simpler ways to perform the same tasks. Besides improving overall reliability, this can also reduce maintenance costs. Regular value analyses can help businesses reduce additional costs and simplify process mapping.

Related: A beginner's guide to process mapping (with helpful tips)

7 key stages of value engineering

Here are the key stages of value analysis:

1. Gathering information and reviewing a project's primary goals

The first stage involves gathering information about the project and reviewing its primary goals. The employees responsible for conducting the analysis identify separate elements that they evaluate discretely. Gathering information is important because this forms the basis for identifying key areas of potential improvement and cost reduction.

2. Analysing a project's functions

The next stage involves analysing functions to determine the key functions within a project. Businesses use a verb and noun pair to identify functions. For instance, a common function is to 'improve customer support'. The function is usually quite nonspecific, but businesses attach a specific cost to each function.

3. Searching for creative solutions

In this stage of the value analysis, professionals look for creative solutions to perform functions in different ways. In the creative stage, value engineers often divide groups of employees into separate teams. They work together to brainstorm ideas on how to perform the same functions in more cost-effective ways. They look for potential solutions and list their ideas for evaluation.

Related: Why creativity skills are important and how to develop them

4. Evaluating and listing ideas

After gathering all the ideas, the teams evaluate them individually and highlight the advantages and disadvantages of each. By providing an open platform for discussions, the teams can assess the merits of each idea. Writing a pros and cons' list is common in the evaluation stage. Teams shortlist ideas to see which list contains more pros than cons, which allows them to discard ideas more easily.

5. Developing alternative solutions

The teams conduct a thorough analysis of each shortlisted idea at this stage to determine the best alternative or cost-cutting solution. In the development stage, teams examine each alternative option and conduct an in-depth technical analysis to estimate costs and their effects on functionality. Teams also devise implementation strategies and plans for specific solutions.

6. Presenting and describing the idea

Teams present their finalised report to other stakeholders and business managers at this stage. To help with decision making, teams also use visual aids, such as reports, cost comparisons and flow charts. This stage is when the teams try to convince upper management to go with a particular solution and underline their findings.

The teams also provide a comprehensive description of the idea in a report that includes the benefits that the idea offers and the issues it may cause in the future. The report highlights the depth of research and a summary detailing the team's findings and specific points about optimising the cost structure. Businesses can refer to this report in the future for any new projects.

7. Implementing the solution

The final stage is implementation. After management approves the solution, implementation begins throughout the company. Teams hold meetings and discussions to train line managers and to explain the changes, incorporating their research into an implementation plan. During implementation, it's essential for teams to identify the difference in performance, establish a value increase and record cost savings, confirming project success.

Implications of life cycle and maintenance

It's important for business owners to analyse the long-term effects of making changes when conducting a value analysis. For instance, if a company opts to use less expensive parts in a machine that consequently breaks down in half the time, they're not saving any money. They're simply replacing a part, which costs half the amount as the original, twice during the same period of time. As a result, value analysis departments also track life-cycle implications and propose changes accordingly.

Timing sometimes plays an important role. For instance, if cost savings during a project's initial stages are necessary to launch it, businesses are likely to opt for it. After the project's launch, the value engineers can always revise estimates and propose changes.

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