Projects are all about generating value and one of the key techniques to getting value is through value engineering. Value engineering has been used in the construction and engineering industries for decades but its worth has remained elusive to many outside of the field.
In this post, we explore what value engineering is and why it is valuable for your business.
What is Value Engineering?
The Society for Value Engineering in their Value Standard and Body of Knowledge publication defines value engineering as “the application of value methodology to a planned conceptual project or service to achieve value improvement”. It involves a systemic approach that seeks to identify and analyze the value of a project based on its ability to either improve function, reduce costs, or achieve both.
This is done through an in-depth analysis of project systems, equipment, facilities, services and materials to identify opportunities for optimization. Typically, the approach aims to achieve cost savings without sacrificing the quality or functional value of the final project output.
Read more: Project benefits vs Project value
The concept was made by Lawrence Miles and his team at General Electric in the 1940s during World War II. Due to ongoing labour and material shortages, his team had to develop a way of optimizing their available resources to achieve the most value. They often had to seek other alternatives that could hopefully provide equal or better performance. They created what they called a ‘value analysis’ that would ensure choice made would not only cut costs but deliver the intended value.
Due to these roots, value engineering has been a popular tool within the construction and engineering industries but others are beginning to catch on to the value of the approach for their contexts and needs. Value engineering is a practical tool that can be reapplied to different organisations and contexts to achieve value optimization.
What Value Engineering is not
It is important to remember that value engineering is not:
- A cost-cutting technique
- A quality assurance review
While the approach can help achieve those two feats, reducing value engineering to its outcome fails to truly tap into its value. If a project can only cut cost at the expense of its function or value, it is not optimizing value it is merely reducing costs. Value engineering helps give organisations to truly understand the value and costs of decisions they make and processes they implement on the final project value.
For example, an organisation may want to reduce their production costs by sourcing different material that does not impact the physical quality of the product, believing a cheaper product would be more valuable to the customer. However, they have noticed their customers value more sustainable and ethical practices and are willing to spend more.
In this case, increasing costs to source more sustainable materials can be justified as it generates more value for the customer. Through the value engineering exercise, the organisation can identify different alternatives that can hopefully be as sustainable and cost-effective as possible to kill two birds with one stone. Without this process, the organisation may have cut their costs but failed to have recognised the value and impact of those decisions down the line and failed to tap into alternatives that could have easily supported project success.
In the same way, value engineering can help improve quality assurance, value engineering goes a step further to help identify how quality can be optimized. Typical quality assurance asks whether the product meets design codes, requirements and compliances. Value engineering asks, ‘what other alternatives can be used to achieve the same function at a reduced cost?’.
The 6 Phases of Value Engineering
Value engineering is typically applied through the form of a workshop during the early stages of the project lifecycle that can vary in length depending on the size and complexity of a project. The workshop is often split into six phases – information gathering, function analysis, creative brainstorming, evaluation, development and presentation.
Phase 1: Information Gathering
This phase is all about gathering project information to better identify, understand and refine the project’s primary goal. It helps identify the user needs, build team knowledge on the project and understand the specific function and requirements of each project item.
Information such as the project scope, budget, schedule, and risks are all collected and then further analysed to finalize the priorities of the project and identify general areas of improvement. For engineering and construction projects, this phase can also include site visits and meetings with project teams to help value engineering teams familiarize themselves with all key project components.
Phase 2: Function Analysis
Function analysis helps teams better understand what they need simply over what they want.
Functions identify the specific accomplishments that will be achieved by an element or combination of elements within a project. They are often described through verb/noun pairing statements to help maintain focus and clarity on the core functions of the project, for example, the function of a bridge is to ‘cross the obstacle’.
Functions can be separated into primary and secondary functions. Primary functions represent the core function and reason for the project’s existence. Secondary functions are functions that are undertaken beyond the primary functions. Through this process, teams can better assess the cost/value relationships between different elements within a project.
Phase 3: Creative Brainstorming
This is the critical phase where teams brainstorm for alternative solutions that can achieve the intended function and value listed in prior phases. Effective brainstorming techniques are applied to encourage team synergy, a state in which one idea triggers other ideas whether they be similar, adjoining or contrasting. The more open the discussion and the more creative the ideas, the better! The proposed solutions will be formulated based on the verb/noun combinations identified during the function analysis phases, similar to task identification in work breakdown exercises.
Through this process, the team generates an extensive list of potential solutions to individual elements and then prepare them for the next stage where they will evaluate and prioritize ideas to be further implemented.
Phase 4: Evaluation
The evaluation stage focuses on creating a shortlist of the ideas listed by evaluating the value of each suggested solution and its alternatives. Through previous identified goals, priorities and functions, teams can weigh all their options using a matrix for analysis and creating a prioritised shortlist of solutions to be considered for the next stage.
Phase 5: Development
This phase is about turning those shortlisted ideas into viable and actionable plans. It is recommended to go beyond generalities and be much more specific. This may include a clear description of the recommended solution, an evaluation of the advantages and disadvantages of the proposed solution, as well as cost comparisons and life cycle cost calculations.
Phase 6: Presentation
The final product of the entire value engineering exercise is a final formal presentation that clearly outlines the team’s recommendations. The team presents their findings to key project decision-makers and attempts to convince them the suggested ideas are worth implementing. Beyond merely gaining financial support, value engineering exercises can be valuable opportunities for project participants to view projects from a new perspective.
Benefits of Value Engineering
Now that we know how value engineering works, let’s talk more about its unique benefits.
There reason value engineering often gets mistaken as a cost-cutting strategy is because it often achieves cost reduction. Most importantly, it does so without sacrificing the quality, function or value of the project or product itself. From reducing inputs costs and using alternative methods, value engineering provides opportunities for cost reduction not only in projects but occasionally for the entire enterprise.
Value engineering critically identifies opportunities for improvement within project processes, not just materials and facilities. For example, Poor project governance structures or excessive documentation can often slow down teams and incur unnecessary costs on teams. Value engineering is an opportunity to re-evaluate pre-existing processes to optimise them for value generation.
Enables better prioritization
By clarifying project objectives, goals and primary functions, value engineering exercises make sure that teams are addressing what is needed and not merely what they wanted based on facts and data. By removing pure ‘gut feelings’ and viewing the project objectively, teams can make better decisions when prioritizing solutions and implementing changes.
One of the most critical benefits of value engineering is that it gets teams to think out of the box. Without proper prompting to think creatively, teams can easily fall into a routine, and in more dangerous situations, fall into ‘group think’. By creating a set space for creative brainstorming, teams can identify new opportunities that can help not only in their specific project context but other projects across the entire organisation.
Get the most value out of your projects today
Value engineering is one of the critical tools that help you get the most value out of your projects but it is not the only one. There is a whole toolbox of techniques and practices you can tap into, one of them being benefits management. Make sure to read more about benefits management and the common mistakes made in benefits management to watch out for.
What is Value Engineering?
Benefits of Value Engineering
Enables better prioritization