Value Engineering

Definition

Value Engineering (VE) is a systematic, function-focused method of improving the value of a project, product, or service. The classical definition is Value = Function / Cost: VE raises the ratio by reducing cost without reducing function, or by increasing function at the same cost. Crucially, VE is not cost-cutting — cost-cutting reduces both numerator and denominator. VE preserves or improves function while reducing cost, usually by challenging assumptions about how a function must be delivered.

History

VE emerged from General Electric during World War II material shortages. Lawrence Miles, a GE engineer, found that substituting unavailable materials with available alternatives sometimes produced cheaper and better products. He codified the process as Value Analysis in 1947; the U.S. Navy adopted it as Value Engineering in the 1950s; SAVE International (the Society of American Value Engineers) was founded in 1959 and remains the discipline's governing body. The SAVE Job Plan — Information, Function Analysis, Creative, Evaluation, Development, Presentation — is the canonical methodology.

Principles

• Function comes first. Always define the function in two words — a verb and a noun ("support roof," "transmit data," "store water") before discussing solutions.
• Cost without function is waste. Anything that adds cost without adding function is a candidate for elimination.
• Challenge assumptions, not specifications. The most expensive specifications often exist because nobody asked why.
• Life-cycle cost, not first cost. A cheaper component that doubles maintenance cost destroys value.
• VE is a structured workshop, not a brainstorm. Follow the SAVE Job Plan rigorously or the output regresses to cost-cutting.

The SAVE Job Plan

1. Information — gather scope, drawings, specifications, cost estimates, schedule, owner requirements.
2. Function Analysis — break the project into functions using FAST (Function Analysis System Technique) diagrams.
3. Creative — generate alternative ways to deliver each function. No judgement at this stage.
4. Evaluation — rank alternatives by life-cycle cost, performance, risk, and feasibility.
5. Development — work the top alternatives into implementable proposals.
6. Presentation — present to decision-makers with quantified savings and trade-offs.

Real-World Construction Example

A 22 km motorway design used a 350 mm reinforced-concrete pavement section throughout. A VE workshop in the detailed-design phase asked the function question: "support traffic loads at design service life." Splitting the 22 km by traffic load showed three sub-segments — high, medium, low — with different functional requirements. A composite design (asphalt over thinner concrete in low-traffic segments, original section in high-traffic) reduced material cost by USD 9 million on a USD 78 million pavement budget, with no reduction in design life. The workshop took three days and four senior engineers; the saving funded the discipline's entire VE programme for the year.

Real-World IT / Agile Example

A SaaS platform was renewing a USD 1.8 million annual contract for a third-party analytics service. A VE-style review asked the function question: "produce real-time customer behaviour insights." A FAST diagram broke the function into data collection, processing, visualisation, and access control. The team realised that 70% of usage was simple visualisation of two cohort dashboards. A combination of an open-source visualisation tool, the existing data warehouse, and a smaller commercial subscription delivered the same function at USD 380,000 — a 79% reduction with improved control over the underlying data. The exercise mirrored construction VE almost step-for-step.

When to Apply VE

The leverage of VE is highest at concept and schematic-design phases, where 60–80% of life-cycle cost is locked in by 5–10% of total project spend. Applying VE after detailed design is more constrained; applying it during construction is largely reduced to cost-cutting on substitutions. A common pattern on capital projects is two VE workshops — one at end of concept design, one at end of schematic — followed by lighter discipline-specific reviews through detailed design.

Project Controls Perspective

Controls teams support VE by providing reliable cost data (current and life-cycle), schedule impact analysis on each alternative, and tracking of savings actually realised versus claimed. The track-the-savings step is non-negotiable — VE workshops routinely identify USD millions of theoretical savings; far fewer survive into actual implementation. A VE-realisation register, audited quarterly, separates the real savings from the wishful ones.

Common Mistakes

• Confusing VE with cost-cutting; the function question is what distinguishes them.
• Running VE workshops as unstructured brainstorms instead of following the SAVE Job Plan.
• Applying VE late in design when the most valuable opportunities are already locked in.
• Focusing on first cost and ignoring life-cycle cost.
• Claiming savings that are never implemented or never realised.
• Excluding end-users and operators from the workshop; their input changes the function definitions.
• Treating VE as a one-off exercise rather than a continuous discipline.

Expert Tips

• Use a certified value specialist (CVS) for high-value workshops. Methodology discipline distinguishes a workshop from a meeting.
• Define functions in two words, no exceptions. The constraint forces clarity.
• Quantify life-cycle cost, not first cost. Net present value over the asset's service life is the right currency.
• Track realisation quarterly after the workshop — claimed savings vs implemented savings.
• Apply VE at concept and schematic, not at detailed design. The earlier the workshop, the larger the leverage.

Key Takeaways

• Value = Function / Cost. VE raises the ratio; cost-cutting reduces both.
• Function-first analysis using FAST is what distinguishes VE from a brainstorm.
• Apply early — concept and schematic phases yield the biggest savings.
• Life-cycle cost, not first cost, is the right yardstick.
• Track realised savings rigorously; claimed savings are not real until implemented.

Related Concepts

Value Engineering interlocks with Cost Control, Scope Management, Quality Management, Risk Management, and Zero-Based Budgeting. SAVE Job Plan templates and FAST diagram examples are at PMMilestone.org.