Value engineering


Historical Background:

During the Second World War, one of the most serious problems faced by companies engaged in the war effort was the shortage of materials. This led to experimenting with substitutes, quite often in very unorthodox ways. In many cases, the experiments clicked and surprisingly there were a large number of instances where the substitutes were much cheaper and functioned more efficiently than the original material.

After the war, Harry Erlicher, the Vice President of Purchasing, General Electric Co (USA) felt that this problem of finding out substitute could be done in a more scientific way and as a deliberate approach, rather than by an ad hoc crisis approach. He entrusted this job to a team of engineers headed by Lawrence Miles. In fact it was Miles who coined the term Value Analysis and its synonym, Value Engineering. This team under his stewardship pioneered this technique and perfected it and, it is said, saved their company $ 200 million over a period of 17 years. In America, the technique is very widely used and is given a great deal of importance.


Value analysis aims at a systematic identification and elimination of unnecessary costs resulting in the increased use of alternatives, less expensive material, cheaper designs, less costly methods of manufacturing etc. to provide the same performance, quality and efficiency and in a decrease of overall unit costs and consequently greater profits. We can convert a stainless steel part into steel or even fiber-glass and thus save costs. TVS Suzuki’s choice of fiber-glass for Spectra scooters has reduced its product-cost.

Value Analysis is, in essence, a study of function. The function of a part, or material, or service is the job it does. Value is the price we pay for a product process, material or service required to perform a specific function in an efficient way. We get the best value when we incur the least cost for an essential function or service with the required quality and reliability. The task of Value Analysis is to ensure that all the elements of cost whether for labor, for material, for designing or for services, contributes proportionately to the function.

Value analysis is a cost reduction technique and perhaps the most potent of all such techniques. Cost reduction is a very dynamic concept unlike, for example, cost control. In cost control we are aiming to keep cost within predetermined standards while in “Cost Reduction� our objective is to attack the costs themselves and eliminate them where possible. Value analysis differentiates a product into the functions performed by different components—and then looks for the cheapest way to have that function performed.

There are various definitions of value Analysis. Stated very simply as “Value Analysis is an organized procedure for efficient identification of unnecessary cost.� Another definition states that “Value Analysis is the study of the relationship of design , function and cost of any product, material or service with the object of reducing its cost through modification of design or material specification manufactured by a more efficient process, change in source of supply (external or internal) , or possible elimination or incorporation in a related item.�

A more elaborate definition of Value Analysis (VA) as given below throws more light on the subject.

VA is the organized and systematic study of every element of cost in a part, material or services to make certain it fulfils its function at the lowest possible cost; it employs techniques which identify the functions the user wants from a product or service; it establishes by comparison the appropriate cost for each function; then it causes the required knowledge, creativity and initiative to be used to provide each function at the lowest cost.

VA is also known as Value Engineering (VE), Value Assurance and Value Management (VM). It is an approach for improvement in the performance of the products, systems or procedures and reduction or elimination of costs, without affecting the function. LD Miles gave another definition. VA as an organized creative approach which has for its purpose the efficient identification of unnecessary cost i.e. cost which provides neither quality, nor use, nor life, nor appearance, nor customer features. VA was traditionally used in the area of hardware projects but is now-a-days applied in software projects too. In non-traditional areas like customer service plans in banks, slum development, motivational techniques, VA can be of great use.

In fact, the US Defense Department insists that Value Analysis should be applied in all contracts in excess of $ 100,000. Mr. McNamara is on record as having said that in the year ending July 1965, the Defense Department saved $ 4.6 billion by using Value Engineering “without any adverse effect in our strength and combat readiness.�

In India, the technique is catching on, but slowly but picking up. The basic difference is the Americans when they see something that is useful to them, they grab it. In India we are less enthusiastic in accepting a change.

LD Miles, the father of this concept, wrote in 1961, a book, Techniques of Value Analysis and Engineering. Navy Bureau of Ships was the first organization to use VA in 1954. Society for American value Engineers (SAVE) was established in 1959. VE programs came in vogue in many companies of the US, UK, and Japan. In India, now we have Indian Value Engineering Society (INVEST) to create awareness of this approach and to propagate this concept.