Value Engineering in Products/Projects

(Module- 16)
By
P. NARASIMHA RAO
Retd. Scientist-G, DLRL(DRDO)
FIETE, MSEMCI, MISCA, MISOI, MIDST
Chartered Engineer (IETE), Chairman, IDST(H)
IPMA Certified Project Management Professional
STQC Certified Reliability Professional
Adjunct Faculty, NI-MSME
Mentor, BYST (CII)
at a 5- Day Course on
“Design Thinking and New Product Innovation
in the DRDO Context”
(09 -13 March 2023)
Organised by:
Institute of Defence Scientists & Technologists
DLRL Campus, Hyderabad – 500 005.
 Prologue

 Value, in its broadest sense, is the benefit to the end users offered by a
project/product.
 While there are always many ways or choices to achieve any function,
Value Engineering examines all the alternatives and ensures that the
right choices are made to produce a better-value solution that results in
a maximum benefit for all the stakeholders, especially the end user,
within the given time, cost and quality constraints.
 Value Engineering is a structured, systematic and analytical approach
involves the use of creative techniques, combined with the latest
technical information on materials and construction methods to achieve
the essential functions of a projec/product at the lowest total cost,
consistent with required levels of performance and quality.
 Value Engineering, unlike any Electrical, Electronics, Mechanical, Civil
or Computer Engineering is not a specialized engineering discipline, but
is a method and a structured methodology to solve problems, whether
administrative or engineering, or manufacturing.
 Value Engineering is a most important approach that needs to be
practiced and implemented across all the projects and programs.
 Prologue
 Value Engineering helps the scientists, engineers and technocrats and all
other stakeholders in their new product innovation, for product decision-
making and help them to get the greatest return on the product in
achieving the goals and tasks required, taking into account access to jobs
not only essential but are also desired by the product, such as aesthetics
ergonomics, operational ease, safety and flexibility and other important
factors that meet or exceed the expectations of the product and the
customer.
 And for the industry, Value Engineering enhances the performance and
productivity on the idea of combining to achieve targeted production, all
through the construction of projects/products and achieve cost savings
without compromising quality and basic functionality expected by
customers and producers.

 In this lecture, we not only refresh our general understanding and

fundamentals on the terms ‘Value’ and ‘Value Engineering’, but also
examine when and where we can enhance or optimize value of a new or
first-time developed product, taken up by DRDO Labs for realization under
various projects/programs.
 The Four Different Types of value

Value is the benefit to the end users offered by a project/product.

Value of product manufactured for sale is the least amount spent in

manufacturing it to create appropriate use and esteem values.

Depending on what that particular benefit is meant for an individual we

recognize four different types of value namely:

 Use value relates to the attributes of a product which enable it to

perform its function.

 Cost value is the total cost of producing the product.

 Esteem value is the additional premium price which a product can

attract because of its intrinsic attractiveness to purchasers.

 Exchange value is the sum of the attributes which enable the product
to be exchanged or sold.
 Use Value
There are certain characteristics of a product which make it useful
for certain purposes. For example, I have got a Maruti Wagon-R 1000 CC
LMV Meant for a small family and has a use value provided it serves the
purpose of such a small family like mine. It measures the quality of
performance of a product.

And if we see the different parts or subassemblies used in building

the car, different subassemblies have different use values which could be
further classified as: primary, secondary and auxiliary use values. For
Example:

 Primary use value indicates the attributes of a product which are

essential for its performance as engine, steering wheel and axle in a
motor car without which car cannot run.

 Secondary use value refers to such devices as bonnet or the

mudguard or the windscreen without which motor car can be driven but
these are necessary for the protection of engine and other parts.

 Auxiliary use value is essential for better control and operation as

speedometer, electric horn etc. in a motor car.
 Esteem Value

Certain properties of a product do not increase its utility or performance,

but they make it esteemable which would induce customers to purchase the
product.

For example, a watch with gold cover has esteem value. A rich customer
may prefer a watch with gold cover although a watch with a steel cover may
serve the same purpose of keeping time.

Some products may have both ‘use’ as well as ‘esteem’ value and yet both
may be important. For example, a fountain pen with a gold plated body will
have both use and esteem value as it will not only look better but will also
last longer.

Some products have no ‘use’ value but may have some ‘esteem’ aesthetic
(sentimental) value to its only one owner to own (possess). For example, I
still had a watch that never works, but just preserved in my almairah as my
father’s reminiscence for me. Such values are personal, as my children may
discard it after my demise.
 Cost & Exchange Values
Cost Value:

 The value of product is measured in terms of cost involved. In case of

manufacturing concern, it refers to the cost of production of the product
produced.
 It is the cost at which the product is sold and the customer paid to own it.

Exchange Value:

 Certain characteristics of a product facilitate its exchange for something

else and what we get is the exchange value of that product. Some of
consider this value while making a choice while purchasing a car/bike.

All these values play an important part of our personal life, but in
value analysis, we are mainly concerned with use value and to some extent to
the esteem value. All other values should be subordinated to use value in
varying degrees.
Thus, value Analysis/Engineering seeks to provide maximum use
value offered by a product or service at the least cost without impairing its
use in terms of quality, efficiency and attractiveness.
 What is Value? – a Mathematical Expression
The relationship between Value, Function (Worth), Quality and Cost can be
symbolized as follows :
Function + Quality
VALUE = ----------------------------
Cost
Where:
 Function = The specific worth that a design/item must perform
 Quality = The owner’s or user’s needs, desires, and expectations
 Cost = The life cycle cost of the product/project.
 Value = The most cost effective way to reliably accomplish a function that
will meet the user needs, desires and expectations.

As such, Value of any product can be increased by the following Approaches:

(F) + (Q) → ↑ ↑ ↑
Value (V) = -------------- ------- ------- ------ ------
(C) ↓ → ↓ ↑
Cost Function Compound/ Expand/
Reduction Increase Combined Growth
Approach Approach Approach Approach
 Value Engineering Purpose & Scope

1. Determine the best design alternatives ?

2. Reduce cost ↓

3. Improve quality ↑

4. Increase reliability ↑

5. Increase availability ↑

5. Enhance customer satisfaction ↑

6. Improve organizational performance ↑

7. Identify problems ?

8. Develop recommended solutions ☺

 What is Value Engineering?
Value Engineering is an approach to productivity improvement
that attempts to increase the value obtained by a customer of a product
by offering the same level of functionality at a lower cost.

But always Remember that Value Engineering is:

 Certainly Not a knee-jerk reaction to avoid going over budget. It just

aims at maximizing the function at the lowest possible cost.

 Not compromised on the functionality, Quality ,Reliability safety, and

Performance of the product/outcome of a project /product in
question.

 Not reducing quality and increasing operational costs and at the

same time

 Not over-paying for quality when an equally effective, less expensive

option exists
 Value Analysis vs Value Engineering
While the term ”Value Engineering” is sometimes used to refer to
the application of this process of cost reduction prior to manufacture, the
term “Value Analysis” refers to the process when applied to products
currently being manufactured.

S/N Value Engineering Value Analysis

1 Indicates application on the Indicates application on the product
product at its design stage. that is into manufacturing.
2 It is always done by a specific All factors come together including
product design (engineers) team. workers, subcontractors, engineers
to make a team with total experience
and knowledge
3 The changes are executed at the It may change the present stage of
initial stages only. the product or operation
4 It requires specific technical It is worked out mostly with help of
knowledge. knowledge and experience

Both attempt to eliminate costs that do not contribute to the value

and performance of the product or service. Thus delivering the same
intended function/performance at lower (Lowest possible) cost.
 Value Engineering – Why to Apply ?
Value Engineering is used

 to determine the best design alternatives for Projects.

 to reduce cost on existing Projects.
 to improve quality,
 increase reliability and availability, and customer satisfaction.
 also to improve organizational performance.
 to improve schedule
 to reduce risk
 to identify problems and develop recommended solutions.

Key focus on Value Engineering must be on – not making project

“cheaper”, but optimizing choices made to meet needs.

Value Engineering does the Stewardship of funding and deliver projects

that meet or exceed requirements.
Value Engineering – When to Conduct
 Value Engineering – When to Apply?
 Value Management studies can take place at any stage in the
development of a project. However it is acknowledged that there is the
potential for greater return on investment if it is used at the very clear
stages illustrated in figure 3 and 4 below.

 As such Value Management should be performed as early as possible

even before the commitment of funds, approval of systems or design as
to maximize results.

 The VE process is conducted at the end of design or planning mile stone

when the OPC (Overall Project Cost) exceeds the available/allocated
budget. VEs potential value significantly diminishes as the project
Progresses from planning/early design phase to Critical Design and next
to development, and then to production.

 Ideally the VE process is used at the end of concept /structural design

and the detailed design phase.

 While this the case with the R&D Groups, for the industry partners, Post-
bid addendum is the least desired period to deliver an on-budget project.
 Value Engineering – Why Earlier is Better
Concentrating value engineering efforts in the early stages of project design
affords greater savings and allows a change of direction, if appropriate,
without affecting project schedule. (Emphasis on max. life cycle value)
Illustrates the importance of earlier decisions versus re-directing efforts
later. Cost of VE during construction often get pennies on the dollar.
Creating additional bid alternates may make project more complicated to
estimator and incur additional Man months fees, etc.
 Best/Worst Times to Conduct VE Studies
Best Times to conduct VE study:

1. Completion of Concept Design (Pre-Schematic, Feasibility Study)

2. Completion of Design Development

VE Study to identify and evaluate changes (or options) that could result in
increased functional value (including stakeholder satisfaction) while
reducing construction or operation and maintenance costs. This effort
should be scaled to the project size, complexity, and status.

Worst Times:

1. Conclusion of Construction Documents

2. During or after Bidding, requiring bid-addendum, etc.

Value Engineering has a diminishing return on “investment” (of time/effort)

as you get further into design for example. The opportunity to combine
programs spaces or simplify building footprint, etc. gets more difficult after
concept phase, etc.
 Cost/Penalties of Making changes through VE
The cost of making changes and remedial works will be greatly
increased later in the development stage.
 Six Steps VE Plan
S/N Phase Implementation
1 Information Clearly identify the problem(s) to be solved, and
Phase gather information on the background, functions and
requirements of the product, process, or system.
2 Creativity Brainstorm ideas on how to improve the high cost,
Phase broken, or inadequately performed ‘key functions’.
3 Evaluation Screen ideas for acceptance, score remaining ideas
Phase on a scale and group ideas into categories. Develop
design scenarios, and selection criteria. Rate and
rank ideas.
4 Planning Plan how to sell ideas to management, identify key
Phase recommendations, plan management presentation.
5 Reporting Give oral presentation to management, or develop
Phase written report.
6 Implementation Get management approval for go-ahead, make
Phase management plan, make assignments, implement,
follow-up.
 VE Methodology
Step 1: Information Gathering Phase
 Collect data and get a clear understanding of the project. (Milestone when
owner requirements, drawings, specifications, cost estimate, etc. are
available to fully understand project)
Step 2: Function Analysis Phase
 Analyze the functions of the elements identified in the previous step and
evaluate their necessity to the goals of the project.
 Primary Functions – vital to the existence of the final product/project
 Secondary Functions – notable but not critical to the core of the project
Step 3: Creative (Speculation) Phase
 Develop alternative solutions for delivering necessary building functions.
The VE team brainstorms to generate potential design solutions to reach the
project functions.
 Focus on the big-ticket items that have the most opportunity to deliver
value.
 All viable options are outlined at this step.
 Next, designers and their team will eliminate the “weak plays” to present
only the strongest options in Step 4.
 VE Methodology
Step 4: Evaluation Phase:
 Assess the alternative solutions. Subject matter experts evaluate and
question the available options and weigh them against each other.
 How well can each alternative perform the function of the original solution?
 Owner expectations also matter and must be discussed.
 Holistic evaluation of each choice since a change in one area of a facility
can affect any or all other areas of a facility.

Step 5: Cost Analysis

 Allocate costs to the alternative solutions (First cost and over facility’s life
cycle)

Step 6: Development Implementations Phase

 Team assembles all recommendations, their advantages, disadvantages and
implements plans to present to the project stakeholders.
 Decisions are made on which VE options to incorporate into the documents.
 Deciders typically involve core project team and SME’s based on VE scope.
 Some ideas may allow them to be incorporated as a bid alternate.
 Post-bid addendum can also be used when bids come in high, but less
effective and delays project award.
 Design versus Value Engineering
In fact, we are Making “Value Engineering Like” Decisions All the Time:

 Feasibility Study - explores multiple strategies , pros/cons, associated costs.

Ultimately a preferred direction is stood up as the project. Team evaluates
effective solutions for the budget.
 Pre-Schematic Design or Concept Phase – looks at multiple solutions (Often
3) to determine best path forward. (Meeting criteria, life-cycle-cost, budget,
sustainability, working with constraints, etc.)
 Design Process – the Design and Stakeholder Team + subject matter expert’s
review options during meetings & Design Milestones. What is the appropriate
PoC, Industrial and Engg Design, Development, integration, Testing and
Evaluation for the product/project? It shall not be done in a vacuum without
understanding life cycle cost, energy performance, durability, and
program/performance, etc.
 Checking Scope back to key project goals/requirements to appreciate the
“need to have” versus “nice to have”. What moves forward in design, as an
add alternate, or parked until we have a better handle on budget.
 Project Manager to constantly facilitate Progress/design reviews where the
D&D team develops the Basis of Design and then solutions to best meet the
needs of the project. Evaluation on approach is a continuous process with
broader ideas presented early and fine tuned later in design.
 Product Design & Value Engineering
(Factors to be considered)
Product Design and Development

 Customer’s requirement.
 Operator’s Convenience.
Simplification of Product
 Types of materials.
 Work methods and equipment. The main purpose is:
 Product Design.
 Product Planning.  to improve quality by
 Specialized function.  Elimination of undesirable features
 Visible in long run.
 To reduce unit costs by
Application of Value Engineering  Reduce cost and prices.
 Reduction of undesirable materials.
 Overall quality and performance.  Reduction of undesirable materials.
 Work together to reduce cost.
 Latest developments.
 Service function.
 Desired objective.
 Value Engineering Approach
Subject Basic Question Analysis Answer
Function What functions 1) Is there any possibility of elimination?
are performed? 2) What alternative methods are available?
Material What is the 1) Can alternative material be used?
material Spec.? 2) Can the specification be amended?
What quantity of 1) Is the size weight of material excessive?
material should 2) Can the quality be reduced?
be used? 3) Will a cheaper material serve the same
purpose?
Labour Which are the 1) Are all the operations necessary?
direct 2) Will alternative operations be cheaper?
Labour costs? 3) Can certain assembly operations be
modified?
Process Are the best 1) Are all the operations necessary?
Processes being 2) Will alternative operations be cheaper?
used? 3) Can certain assembly operations be
modified?
Standard Are the 1) Can the materials be standardized?
ization materials or 2) Can a number of product use standard
components (common) parts?
standard? 3) Can methods be standardized?
 Factors Governing the success/failure
of a Project/Product

 The success or failure of any

given project is primarily a
function of its goals.

 Therefore, a clear definition of

those goals and an objective
way to measure whether or not
these goals have been met or
not, are crucial for measuring
the success of the project.

 A successful project is defined

as a project that meets its goals,
and whose output is of value to
the client.
 Engineering the Project Value
The relationship between Value, Function (Worth), Quality and Cost can be
symbolized as follows :
Performance (Function + Quality)
VALUE = ---------------------------------------------------------------------
Resources spent in terms of (Time ) and (Cost)

As such, Value, The most cost effective way to reliably accomplish a

function that will meet the user needs, desires and expectations which, for of
any project ,can be enhanced by

 Increasing the performance in terms of

 Function(The specific worth that a design/item must perform)
 Quality (The owner’s or user’s needs, desires, and expectations)
of the end deliverables (product)

 Decreasing the Resources Spent in terms of

 Time Taken
 Cost Incurred
in realising the project
 Summary & Conclusion

 It is indeed a sad reality, that, statistically speaking, majority of projects,

regardless of the field of expertise, fail to meet their content, time and
budget targets, and are therefore ‘failures’.

 In order to understand what this failure means, it is important for all of

us to distinguish between the project and its output.

 In majority of Projects , though the project fails to meet the objectives

set out in the Triangle (Scope. Time and Cost), We are happy that we met
the bottom line and claim that we achieved the value we set out to
achieve.

 and the most common scenario is that we forgive ourselves since the
output itself is successful, when put to the test. at the end of the day”,

 The question one has to put himself is, did we achieve the value through
a good investment of resources or would it have been better to invest
these resources in a different project that might have yielded a higher
value?
 Summary & Conclusion
 Value Engineering may mean differently for different stakeholders in
realizing a new products.
 Value Engineering is an approach to productivity improvement that
attempts to increase the value obtained by a customer of a product by
offering the same level of functionality at a lower cost.
 The term Value Engineering is sometimes used to refer to the application
of this process of cost reduction prior to manufacture, while Value
Analysis refers to the process when applied to products currently being
manufactured.
 Both attempt to eliminate costs that do not contribute to the value and
performance of the product or service. The approach is more common in
manufacturing.
 We should conclude and admit that Value Engineering can have a positive
outcome for all stakeholders when everyone embraces and actively
participates in the value analysis. Creativity can be used in many ways to
meet the overall goal. This process is used to solve problems, identify,
and eliminate unwanted costs and improve function and quality. The set
of disciplined steps in the value engineering process is meant to optimize
the initial and long-term investment, seeking the best possible value for
the lowest cost.
Thank You