Value Analysis/ Value Engineering for quality improvement

Value is a personal perspective of one’s willingness to pay for the performance delivered by a product, process or project. Good value is achieved when the required performance can be accurately defined and delivered at the lowest lifecycle cost.

1. What Is Value Engineering?

It is an undisputed fact that the gap between the price and the cost of production, i.e. the profit margin should be widened as far as possible for the sustained growth of an organization.

Value engineering (VE), also known as value analysis, is a systematic and function-based approach to improving the value of products, projects or processes. VE involves a team of people following a structured process. The process helps team members communicate across boundaries, understand different perspectives, innovate and analyse.

2. What Does Value Engineering Do?

VE improves value. On highway projects, improvements to value might include reducing the lifecycle cost of an interchange, enhancing safety in a design or reducing impacts to the public by shortening the duration of a construction project.

VE uses a combination of creative and analytical techniques to identify alternative ways to achieve objectives. The use of function analysis differentiates VE from other problem­solving approaches. VE focuses on delivering the product or service at the best price by incorporating those value characteristics deemed most important by the customer.

Value analysis can be used to understand the details of specific situations and to focus on key areas for innovation. It can be used in reverse (called value engineering) to identify specific solutions to detailed problems.

3. Identifying Priorities of VE

First, the main business goals have to be summarized broadly with regard to: • The company’s vision for business improvement

• An understanding of its products or services from the customer’s perspective
• Analysis [identification] of its main customer and market segments
• An assessment of competition
• Objectives for growth, profitability, customer and employee satisfaction

A prioritized list of challenges facing the business is developed on the basis of these ele­ments. These priorities are then evolved into projects suitable for the VE process. The VE “job plan” is then applied to the individual projects based on the order of their priorities. A “job plan” typically consists of the following phases:

Planning phase: During this phase, emphasis is on the objectives to be achieved, composi­tion of the project study team, information on which to base the study and detailed planning.

Information phase: In this phase, the detailed information requirements for the project are identified and distributed among team members. This ensures that adequate data is available to the VE team.

Analysis phase: During the analysis phase, the VE team structures the information and applies techniques to analyse the problem.

Creative phase: During the creative phase, the teams undergo structured “brainstorming” to generate ideas, which are again combined or developed further.

Evaluation phase: Also termed team design, this phase comprises a series of processes to evaluate the best ideas generated during the creative phase. The ideas are prioritized in terms of cost, time and practicality. Those that meet most of the customer requirements at the lowest lifecycle cost are selected.

Reporting phase: Here, the new initiatives developed are formally presented to senior man­agement as business cases along with alternatives and appropriate financial cases wherever investment is required.

Implementation phase: The selected proposals are implemented and new approaches brought into practice in this phase.

Follow-up phase: Systematic follow-up procedures must be put in place in order to ensure that all the benefits of the VE project are achieved.

Although VE practices vary from business to business, the above phases must be imple­mented to obtain full benefits.

4. Value Analysis and Value Engineering (VAVE)

VAVE is a generic name given to the techniques of value analysis and VE. Although it is believed that VAVE can be applied to all spheres of activities of an organization, the difficul­ties faced in the application phase have to be realised. Looking into the Aristotelian clas­sification of the seven types of values, we realise that except in the case of economic value, all others are highly subjective and fully individual oriented rather than group or society oriented. Therefore, only economic value is explained in this section. The seven classes of values propounded by Aristotle are:

1. Economic value
2. Political value
3. Social value
4. Aesthetic value
5. Ethical value
6. Religious value
7. Judicial value

5. The Economic Value

Alternative products or services can be found so as to serve the required function at a much lower cost within a given framework and conditions. The economic value of a product or service can be broadly divided into six basic values:

• Usage value: A product has usage value to the extent that the money spent justifies the usefulness of the product or service. This can be related to the specific functional require­ment. For example, a James Clip in place of a tie pin.
• Exchange value: A product has exchange value to the extent that the additional amount paid guarantees the resale or exchange at any point of time. Though the item is never exchanged in most cases, this factor helps by way of insurance against crises. An example of this is the purchase of a particular brand of scooter by paying three to four thousand rupees more than its face value. We also know that most people buying that particular brand never really sell it off. However, they are sure that if necessary they will be able to sell the brand more easily when compared to other brands. It is perhaps the feeling of safety that forces one to spend the extra amount.
• Esteem value: A product has esteem value to the extent that it meets ego needs. This is a very difficult item to assess. Hence, the main aim is to eliminate it as it does not contribute anything towards the satisfactory performance of the function. The concept of appearance engineering is picking up fast nowadays. For example, packaging a medicine in a nice pack­age will not encourage the buyer to purchase it unless it has been prescribed by the doctor. In this case, packaging should aim at only preserving the medicine and nothing more. On the other hand, a consumer good can be packaged in an appealing manner as it would definitely add to the decision-making process of the buyer. Government sponsored and highly subsi­dized items such as bio-gas stoves, gasifiers, etc. need not be made more expensive by way of esteem features as they are supposed to be just functional products.
• Cost value: A product has cost value to the extent that the expense to produce the item or service has already been incurred.
• Place value: A product has place value when it has a specific value in a certain place and does not have the same value in another place. A glass of water in a desert is an ideal example for this.
• Time value: A product has time value when it loses its value after a certain period of time has elapsed. For example, transfusing blood to a patient during an operation.

6. How to Use VAVE?

• Identify and prioritize functions.
• Identify the item to be analysed and the customers for whom it is produced.
• List the basic functions (the things for which the customer is paying). Note that there are usually very few basic functions.

• Identify the secondary functions by asking, “How is this achieved?” or “What other func­tions support the basic functions?”
• Determine the relative importance of each function, preferably by asking a representative sample of customers (who will always surprise you with what they prefer).
• Analyse contributing functions.
• Find the components of the item being analysed that are used to provide the key func­tions. Again, the question, “How” can come in very useful here.
• Measure the cost of each component as accurately as possible, including all material and production costs.
• Seek improvements.
• Eliminate or reduce the cost of components that add little value, especially high-cost components.
• Enhance the value added by components that contribute significantly to functions that are particularly important to customers.

7. Understanding Value Engineering

Managers across various industries constantly face the challenge of survival and growth in today’s dynamic and competitive business environments. The biggest challenge they face is, “How to improve performance on a continual basis to ensure survival and profitable development?”

For years, companies across the world have been looking for methods to improve and grow successfully. VE is a powerful technique that when applied on a systematic basis helps users achieve best performance and improve business by cutting costs and improving per­formances. Also known as value management or value analysis, VE is a function-oriented, systematic, team-approach to reduce costs and simultaneously add value to a product or service.

VE is a framework within which proven methods are systematically employed to identify better value for products and services. Although the key disciplines are not new, it is the way they are integrated and deployed that makes the approach effective. The VE methodology includes multi-disciplined teamwork, function analysis, implementation, financial report­ing, communication techniques and lifecycle costs.

VE is recognized as an efficient way to achieve greater profits, enhanced customer sat­isfaction and improved quality. The concept has been successfully applied for many years to businesses across various government and service industries. The scope of its applica­tion is vast. VE has been applied for cost reduction in purchasing, overall reduction in cost of products and to minimize costs in the early stages of product development. It has also been applied to assembling and machining processes, packaging, transportation and dis­tribution, construction, healthcare and environmental engineering.

Value analysis begins with functional analysis. A function is defined as the characteristics that products/services possess to make them work and sell. In VE, the various functions of a product are first listed accurately based on their priority.

Take the case of a washing machine. The functions to be performed in the order of prior­ity can be listed as—remove dirt, extract water, rinse contents and drain the same. Similarly, in the case of an automobile, various parts perform various functions. The VE project can be broken into sub-projects for various sub-assemblies to facilitate better results. The VE methodology takes the cost of a product or service and allocates it to each function being performed to determine the cost of each function. In conducting value studies, functions are classified as either basic or secondary.

Basic functions: These are essential for the product to perform well and sell. In simple terms, they refer to the primary utilitarian characteristic of a product or service to fulfill a user requirement.

Secondary functions: These functions indicate quality, dependability, performance, conve­nience, attractiveness and other features required beyond those needed to satisfy the mini­mum requirements specified by the user (basic function).

Functional analysis helps to detect whether minor functions are responsible for a major part of the total cost or vice versa. Moreover, it enables detection of relatively expensive but unimportant parts of a product or aspects of a service.

8. Benefits of VE

VE can integrate both value-for-money and quality initiatives under a common framework. The long-term benefits of this approach include:

• Best-of-class performance
• Enhanced quality
• Greater employee involvement and better morale

Best-of-class performance: VE not only brings about improvements in function, perfor­mance and quality, but also results in improved business processes and reduced project lead times. It facilitates growth of companies even in highly competitive markets. VE provides a framework with which businesses can either close the gap between them and the best in class or maintain the competitive edge where they are currently leading.

Enhanced quality: The quality of products, services, projects and business processes are a function of cost, time and performance. By systematically focusing on these aspects, VE pro­vides a structured approach to enhance quality.

Greater employee involvement and better morale: VE stimulates an improved working cul­ture by motivating employees to contribute to their business environment through team- based workshops. It encourages suggestions and feedback not only from employees, but also from customers and suppliers. Thus, it helps sustain competitiveness.

Box 10.4 discusses the benefits received by some famous corporations after applying VAVE techniques.

Box 10.4 Benefits of VAVE

Dupont Chemicals is a leading manufacturer of chemical products that have applications across various industrial sectors. It has successfully implemented value engineering on more than 300 projects to improve existing processes and to evolve better ones. VE has helped Dupont to save 10 to 12 per cent in project investments for all these projects. This has elevated the company to the best-in-class for project costs as per an analysis of industry benchmarking studies.

Similarly, Xerox Corporation has integrated VE process into their time-to-market product deliv­ery processes. VE enabled Xerox to manufacture and deliver products that meet and even beat cus­tomer requirements at the lowest total lifecycle cost. Xerox could thus optimize productivity and efficiency both at the process and the organizational levels.

The US Office of Management and Budget Department applied VE methodology to wastewater treatment projects valuing more than USD10 million. The objective was to deliver safe and effective cost-effective solutions. This resulted in quick, creative and effective solutions such as optimized environmental impact, maximum and economic utilization of resources, lower lifecycle costs, sus­tainable environmental solutions and the discovery of alternative technologies.

The best results are achieved when VE methodologies become part of the business culture and are automatically used for problem solving. Better quality and added value to products, proj­ects, services and business processes implies delighted customers and increased profitability and competitiveness.

Source: Poornima M. Charantimath (2017), Total Quality Management, Pearson; 3rd edition.