Value is not always easily quantifiable. While comparing costs may be straightforward, identifying and extracting true worth is complicated. Regardless of the current situation, companies are facing challenges to maintain relevancy and competitiveness.
To stand out from their competitors, they may try to offer more features to increase the value or worth of their products. However, this often results in cost increases. Contrastingly, companies with a decreasing market share may try to lower costs by reducing product quality.
Neither of the outcomes of these scenarios are ideal. This is where value engineering comes in. While it has its roots in the 1940s, it’s a project management technique that many companies still employ today.
Despite its ubiquity, is it nearing obsolescence? Is it still relevant and effective in today’s climate? These are a few questions we’ll explore in the following guide. But first, let’s define and discuss what value engineering is.
The History of Value Engineering
During the Second World War, the United States was using enormous resources for the war effort. This created shortages of material and human resources, which affected industrial and manufacturing companies the most.
As such, many were forced to find alternatives. Being one of these companies, General Electric Company (GE) began to develop a process for analyzing possible substitutes and alternatives. During the development process, they began to realize that these alternatives led to better products with lower production costs and shorter production cycles. Of course, this led to greater profits too.
Once they realized this, they formalized it and integrated it into their corporate culture and standards. Lawrence D. Miles, one of the developers of this process, officially published it after the war was over and named it value engineering.
This allowed more companies to adopt this process. Today, it’s used in industries such as manufacturing, construction, and finance.
Today, we can regard value engineering as a progeny of capitalism. Like capitalism, it creates a situation where the best ideas, products, services, and outcomes for the lowest price wins – at least in theory. Where there are two products with the same function and quality, the most cost-effective will most likely prevail.
However, this is only a part of the story. Value engineering is a multi-faceted process. It is frequently conflated and misunderstood. Thus, it helps to discuss what value engineering is not in order to understand what it is.
Why Do We Use Value Engineering?
As GE found, sometimes the most conventional method, design or idea is not always the best or most cost-effective. In some cases, if we incorporate this value engineering technique, we will find a substitute that produces a better product or project overall for less cost.
Additionally, it incorporates lifecycle costs that are often overlooked when developing a project – especially in construction. Construction costs usually cover only a fraction of the total lifecycle costs of a major structure. The rest of the expenses, such as maintenance or repair, can account for much larger percentages of the overall lifecycle costs. This is the same with manufacturing.
Manufacturing investment likewise costs account for only a fraction of the production costs. In many cases, labor, maintenance, downtime, production rates, electricity, etc., account for a greater percentage of costs. Just as there are many hidden costs involved in starting a company, there are hidden and unplanned costs involved with running it.
In software development, companies often overlook the cost of the additional equipment and infrastructure that increases along with new demand for products and services. It’s common for companies to outsource labor or hire new staff.
In situations like these, it’s important to hire experienced developers who know what they’re doing. Traditionally, you could do this through an employment agency.
But these days, most self-employed free developers can be contacted directly through online job boards and freelance hubs. It’s cheaper that way because, in most cases, you won’t have to pay a middle-man. According to recent surveys, most web developers working today have less than five years of experience. These are some of the things you need to keep in mind when compiling a cost analysis for value engineering.
However, analyzing costs is not the core function of value engineering. Value engineering focuses on the essential functions of the project. It combines creative out-of-the-box thinking with logical life cycle cost analysis to create a multi-disciplinary framework that requires companies to expand their pool of experts and resources.
Using these alternative analytical methods to identify the best alternatives offers the stakeholder the possibility of saving money and producing a better product.
What Value Engineering Is Not
Value engineering is not a method of cost-cutting. Cost-cutting often sacrifices function or quality. For instance, a company may want to cut production costs, and in doing so, they use less expensive raw materials.
More often than not, these cheaper materials are subpar in quality. In using a lesser ingredient, they often degrade the quality and the function of the product. This, in turn, hurts the product and eventually the company.
Value engineering is not a design peer review. A design peer review involves creating a design for a project or product and then sending it out for review by a group of your peers. This allows you to ensure the quality of your arrangement and, subsequently, your product.
While it may sound like a key component of value engineering, it doesn’t fully incorporate the relentless team effort and creative process involved in true value engineering.
Value engineering is not function innovation. Again, engineers are not looking to develop additional functions in the value engineering process. They are looking to keep or accomplish a function in a new and innovative way for the lowest cost.
Finally, value engineering is not an individual task. It is a creative effort that involves a team to find the best alternative. This may include acquiring new staff or obtaining unique expertise in fields that aren’t closely related to the product or projects your company undertakes.
Arguments Against Value Engineering
The pandemic has inspired a great shift in prioritization. People have had to reassess their values. But what does value mean? We’ve thrown that word around quite a bit in this guide. In regards to engineering and business, we can place value into three different categories:
- Cost Value: The amount that will be spent to produce the item or complete the project
- Exchange Value: The amount that the product can be purchased for in the open market (its price)
- Use Value: The value of the item or project to the customer or final owner
Use value is the key to value engineering. It is the broadest way to look at it and allows the most options to find new solutions to the function creatively. For instance, internet privacy and security may be of great value to cryptocurrency entrepreneurs and investors, especially with a 75% increase in financial crime from 2019 to 2020.
Software security or privacy companies implementing value engineering would center their attention on this potential use-value and try to deliver it to the customer as cost-effectively as possible.
Creating healthy working environments requires leaders to encourage employees to integrate healthy work and life balances. This is important, particularly as more companies embrace policies centered around mental health awareness.
While there are arguably more effective modern project management techniques, companies should not abandon value engineering completely. One of value engineering’s key functions is innovation. Likewise, value engineering as a concept is not immune from innovation. It’s a technique that can be tweaked and improved for modern workflows and corporate ecosystems. Value engineering can still deliver effective engineering value – as long as we consider the human element when we implement it.