EPC Project - Value Engineering and Value Analysis
Anbarasan Muthiah, MBA, PMP®
Project Manager | Project Delivery Manager | Package Manager | Regulatory Compliance Consultant | PMC | ISO Lead Auditor QMS
What is Value Engineering?
Value engineering is a systematic, organized strategy for delivering essential project functionalities at the lowest cost. Value engineering encourages the use of less expensive substitutes for materials and techniques without compromising functionality. Instead of emphasizing the physical characteristics of various components and materials, it only focuses on their functions. Value Engineering is the implementation of an associated set of techniques into a new product when it is being designed.
What is Value?
Value is nothing more than a fair exchange of goods, services, or money for that trade. We can determine something's value by dividing its performance by its cost.
Definition
Value engineering is the practice of enhancing a product's value across every stage of its life cycle (Product Life Cycle). A product is said to have high value if its performance and price are appropriate. Its goal is to help a business remain profitable or become more profitable.
It is an innovative strategy. It seeks to guarantee that the functions of goods and services are offered at the most a low cost. but once more without sacrificing consistency and quality. Value engineering is, in essence, the rational analysis of the link between cost and value done prior to the product's final design. It is concerned with objectively evaluating the roles that various parts, components, goods, processes, and services play.
The implementation of this methodology is also intended to assist people and businesses in making the required adjustments to their procedures and services.
Objective
1. Reduce the cost of the product to increase its worth.
2. Save money or increase the cost.
3. Use more affordable and better quality materials.
4. Ensure standardization.
5. Product availability on time.
Applications
Application of value engineering is at the time of:
Ratio of Function to Cost
Miles defined product value as the ratio of function to cost. The function of an object is the specific work it was created to perform, and the cost is the expense of the thing over its whole life cycle. The function-to-cost ratio says that a product's value can be raised by either improving its function or decreasing its cost. The cost of production, design, maintenance, and replacement are all considered in value engineering.
Consider a new technological product that is being developed and has a two-year life cycle. As a result, the product will be created with the least expensive materials and resources that will last until the end of the product's life cycle, saving money for both the maker and the end-user. This is an example of increasing value through cost reduction.
Another manufacturing company might decide to enhance value by maximizing a product's function while minimizing costs. In this situation, the function of each component of the item will be evaluated in order to generate a complete study of the product's purpose. Part of the value analysis will entail examining the various alternative methods in which the project or product can perform its role.
Key fact
Steps in Value Engineering
Value engineering often entails the following six steps, starting from the information-gathering stage and ending with change implementation.
1. Gather information.
The value engineering process begins with an examination of the product lifecycle. This covers a projection of all expenditures and processes associated with the manufacture, sale, and distribution of a product.
These factors are frequently broken down into simpler to comprehend data sets by value engineers. Value engineers may prioritize processes or elements throughout a product's manufacturing plan in addition to assigning financial values. Value engineering may also include time, labor, or other resource estimates for various manufacturing stages.
2. Think Creatively
With the core baseline expectations for the product having been documented, it's now time for the value engineering team to consider new, different ways for the product to be developed. This includes trying new approaches, taking risks on things that have never been done before, or creatively applying existing processes in a new way.
Value engineers will reimagine how the product will be manufactured and distributed from start to finish by leveraging these creative concepts. This is the "idea-generation" stage, in which team members should be allowed to discuss freely without fear of criticism.
modifying the materials used, modifying the product's design, deleting unnecessary features, trading off reliability for flexibility, or changing the steps/order of the manufacturing process are all examples of creative thinking.
3. Evaluate Ideas
With a slew of ideas on the table, it's time to determine which are viable and which aren't. Each proposal is frequently evaluated for its benefits and negative aspects. Instead of focusing on the quantity of each tally, the value engineering team must analyze whether advantages and disadvantages outweigh their counterparts.
A single adjustment, for example, could result in five new benefits. However, doing so would make delivery to the country to which the corporation exports the most goods prohibited. In this situation, the five advantages may be outweighed by the one disadvantage.
4. Develop and Analyze
After the ideas have been ranked, the best ones are chosen and further analyzed. This includes creating model designs, explaining changes and their effects, revising financial predictions, redesigning physical depictions, and assessing the overall viability of the change.
When analyzing modifications, be mindful of deadline restraints and factors, particularly if other departments may be adversely affected by pushed back schedules or altered deadlines. To make sure the strategy is in line with the philosophy and financial capacity of the organization, take into account how the break-even point of a product may alter as a result of the adjustment.
5. Present Discoveries
It's time to present the best suggestions to top management or the board for their consideration after plans have been developed and presentations have been put together. Many times, more than one suggestion will be made at once so the deciding committee can evaluate and contrast choices. Fair representation across all options should be provided for each alternative.
Presentations should start and conclude with how the change will benefit the organization since value engineering advocates for enhancing the value of each product. Revisions to timeframes, financial predictions, drawings, and risks should all be included in presentations. Management will frequently want more detailed explanations of adjustments or different analyses than what is being offered.
6. Implement Changes
Value management transforms from a theoretical practice to a change management implementation procedure as management gets the go-ahead for the changes. New teams are created and given areas of control once suggested changes are approved. Value engineer team leads frequently stay involved in the adjustments to keep an eye on what needs to be changed and how expectations are being matched with the new circumstances.
Types of Value
Value engineering frequently requires analysts to think about what 'value' means. Since every consumer assigns a different value to the goods, their perceptions of the same item may differ greatly. Value engineering, in general, recognizes four main types of value:
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Use Value
The primary type of value is Use Value, which is established by the characteristics of the product. These characteristics specify the capabilities, applications, and goals of the product. This is closely related to product differentiation, in which consumers can only find value in a particular good in the absence of rivals.
Value engineering's main goal is to increase a product's Use value. Consumers would not initially buy the thing without a use value. For instance, a shoe has little to no use value if it does not effectively protect someone's feet or enable them to cross the street. Products without use value will eventually fail because they have no use.
Cost Value
Assuming we have a good generating use value, it's now time to consider how it takes to make that good. Let's assume the shoes from above are tremendous for hiking, rugged wear, and waterproof protection. This means the shoes may require experienced labor to craft, specifically-treated raw materials for its production, and premium quality control for consumer safety.
All of the variables mentioned above represent different cost variables with different values in this example. A consumer may value the shoes at $50/pair; if the corporation believes its cost value is $75/pair, the company must assess how to rebalance the equation. Alternatively, charging a consumer too high a price will almost certainly result in a negative cost value.
Esteem Value
While the use value describes the physical benefit of a product, consumers may also experience intrinsic value that often extends beyond what the product is. For example, should the shoe above come from Nike, consumers may be willing to pay higher premium for the shoe because of the added esteem benefit of the brand recognition.
Though esteem value is often positive and associated with brand recognition, it can also be negative and correlated to brand dissonance. This is often related to the target consumer of the product. For example, low-cost, budget-conscious consumers may have negative esteem value when considering Apple's innovative, higher-cost product line.
Exchange Value
The last and smallest component of value relates to a product's ability to be exchanged. With the introduction of international shipping and supply chain analytics, it is now becoming easier for almost any consumer to receive any product in a reasonable amount of time.
Still, a value engineer must how to facilitate the distribution of a product, the physical characteristics of a product, and other attributions that make it so the good can easily be bought or traded. Should consumers find it very difficult to buy or receive the good, value may be lost or destroyed.
Understanding
Value engineering is the review of new or existing products during the design phase to reduce costs and increase functionality to increase the value of the product. The value of an item is defined as the most cost-effective way of producing an item without taking away from its purpose. Therefore, reducing costs at the expense of quality is simply a cost-cutting strategy.
With value engineering, cost reduction should not affect the quality of the product being developed or analyzed
What Is Value Analysis?
Value Analysis entails applying a set of cost-cutting and cost-prevention approaches to an existing product in order to improve its value.
Definition of Value Analysis
As it involves the systematic application of well-known techniques, value analysis is a scientific methodology. By comprehending a product or process's essential components and associated expenses, it seeks to increase the value of the product or process. Then, it makes an effort to find ways to make the components better by either cutting the cost or raising the functional value.
It is, in essence, a calculated innovative approach to cost-cutting. It looks at the product's material composition and production design. The required adjustments and advancements are put into place in this way. However, the worth of the product is not diminished as a result of this.
It frequently finds unneeded expenses and removes them from the value system. However, it must happen without sacrificing the output's functionality or performance. Therefore, we may say that the foundation of value analysis is:
1. Identifying the function of the product.
2. Examining various alternatives to complete those functions.
3. Selecting the best alternative which involves minimum cost.
Additionally, it determines the function's monetary value and reliably performs pertinent functions at the lowest possible cost. The cooperation of many functional departments is required for this goal. The following are some of the enterprise's functional departments:
Value analysis may encourage the systematic use of emerging techniques and materials in this way.
Distinguishing Features
Encourages Innovation: Value Analysis is different from other cost reduction techniques because it encourages innovation and gives a more radical perspective. This is due to the fact that ideas for the reduction of costs are not restricted by the existing design of the product.
Recognizes various types of value: Value Analysis identifies various types of value that are provided by the product or service. And then it analyzes this value. After that, it looks for various alternatives to enhance or maintain aspects of value, but at a reduced cost.
Significant differences between Value Engineering and Value Analysis
The points given here will explain the difference between value analysis and value engineering in detail:
1. Value analysis is a method for reducing costs that entails systematically evaluating each cost associated with the creation of industrial goods in terms of the level of customer satisfaction that it contributes to the final product. However, value engineering is the redesign of a process, a good, or a service to increase the value offered to the client while lowering costs.
2. While value analysis is a remedial process, value engineering is a preventive process.
3. Value analysis is used throughout production. Instead, we use value engineering when the product is still in the design phase. Additionally, it is implemented at every stage of the production process, which lowers costs.
4. When examining expenses and existing products, we refer to this process as value analysis. However, before issuing final production drawings, we evaluate the design and systems using a process known as value engineering.
5. The objective of value analysis is to achieve better optimized commercial output. As against, attainment of better engineering results is the objective of value engineering.
6. The objective of value analysis is to achieve better optimized commercial output. As against, attainment of better engineering results is the objective of value engineering.
7. The objective of value analysis is to achieve better optimized commercial output. As against, attainment of better engineering results is the objective of value engineering.
Conclusion
The distinction between value analysis and value engineering thus arises from the latter's focus on increasing the product's value during the product development process. The former, on the other hand, happens after the product is released. Here, it is important to notice that both situations involve essentially the same product optimization procedure.
The primary goal of these strategies is to achieve comparable or greater performance at a reduced cost. but without losing the necessary functionality or standards of quality.
ARTICLE SOURCES
Washington State Department of Transportation. "The Methodology for Maximizing Project Value
https://wsdot.wa.gov/publications/fulltext/design/ValueEng/ValueEngineering-WorkshopGuide.pdf Page 3.
Published by: Anbarasan Muthiah, PMP