Definition
Value engineering is a systematic method to improve the “value” of goods or products and services by using an examination of function. Value, as defined, is the ratio of function to cost. Value can therefore be manipulated by either improving the function or reducing the cost. It is a primary tenet of value engineering that basic functions be preserved and not be reduced as a consequence of pursuing value improvements.
Value Engineering
What is ‘Value Engineering’
Value engineering is a systematic and organized approach to provide the necessary functions in a project at the lowest cost. Value engineering promotes the substitution of materials and methods with less expensive alternatives, without sacrificing functionality. It is focused solely on the functions of various components and materials, rather than their physical attributes. Also called value analysis.
Explaining ‘Value Engineering’
The concept of value engineering evolved in the 1940s at General Electric, in the midst of World War II. Due to the war, purchase engineer Lawrence Miles and others sought substitutes for materials and components, since there was a chronic shortage of them. These substitutes were often found to reduce costs and provided equal or better performance.
Further Reading
- Product development process with focus on value engineering and target-costing: A case study in an automotive company – www.sciencedirect.com [PDF]
- Value destruction and financial reporting decisions – www.tandfonline.com [PDF]
- Re-engineering agriculture for enhanced performance through financing – papers.ssrn.com [PDF]
- Options Theory: A New Way Forward for Exploration and Engineering Economics? – www.onepetro.org [PDF]
- Meeting the challenge of wastewater irrigation: economics, finance, business opportunities and methodological constraints – www.tandfonline.com [PDF]
