Value Engineering
Definition
Value Engineering
Value engineering is a structured way to cut cost without cutting worth. A team defines what each part of a product or service does, prices that function, then finds a cheaper way to deliver it. Function, not component, is the unit of analysis.
Lawrence Miles built the method at General Electric during the 1940s, when wartime shortages forced material substitutions that occasionally performed better than the originals. The discipline he formalised out of that accident is now stewarded by SAVE International.
Value, in this framework, is function divided by cost. Raise the function or lower the cost and value climbs. Strip the function out to save money and you have plain cost-cutting — a different exercise with a different result.
The distinction between worth and cost does the heavy lifting. Worth — the least a buyer would accept paying for that function at all — is the benchmark, and the gap between worth and actual cost is where a study aims.
Key takeaways
- Value engineering prices what a component or service does, then buys that same function more cheaply.
- Lawrence Miles developed the technique at General Electric in the 1940s; SAVE International maintains the standard today.
- Functions are written as two-word verb-noun pairs so cost can be attached to purpose rather than to parts.
- United States federal rules mandate value engineering studies on large contracts and highway projects.
How it works
Function analysis is the engine of the method. Every element gets described in a two-word verb-noun pair, such as support load, transmit signal or prevent corrosion, and each function is then costed and ranked against its worth.
A study follows a fixed sequence, usually called the job plan.
| Job plan phase | What the team does |
|---|---|
| Information | gathers cost, performance and constraint data on the item under study |
| Function analysis | writes verb-noun functions and attaches a cost to each one |
| Creative | generates alternative ways to deliver the same functions |
| Evaluation | screens alternatives against cost, risk and performance |
| Development | works surviving ideas into costed proposals |
| Presentation | puts the proposals to the decision-maker with evidence attached |
Teams are deliberately multidisciplinary and usually sit outside the original design group. Designers defend their choices — outsiders question whether the function needed that choice at all.
Worth is harder to estimate than cost, which is why teams anchor it deliberately. Asking what the cheapest acceptable way of delivering the function would cost gives a floor that survives scrutiny.
The cost-to-function ratio drives the shortlist. Any function absorbing a far larger share of cost than of worth goes to the top of the queue, which is why a cheap bracket can outrank an expensive motor.
Risk belongs in the evaluation column alongside price. An alternative that saves 12% but introduces a single-source supplier can fail the test on exposure rather than on cost.
Timing decides how much a study is worth. Changes made during concept and early design cost little to implement, while the same change during construction carries rework, delay and contract claims, so a late study rarely repays itself.
United States federal acquisition rules describe the technique as a formal method to eliminate anything that increases cost without improving essential functions, with contractors sharing in the savings they identify.
Good studies also read beyond the purchase price. A cheaper bearing that doubles maintenance visits fails the test once total cost of ownership is priced properly.
Examples
Value engineering is most visible where projects are large, long and publicly funded. Four settings show the range: wartime manufacturing, highway construction, defence contracting and a services operation applying the same logic.
General Electric is the origin case. Faced with 1940s shortages, Miles’s purchasing team kept asking what a missing material was there to do, and substitutes selected on function repeatedly cost less than the parts they replaced.
Highway construction is where the method is mandated. The Federal Highway Administration requires a value engineering analysis on National Highway System projects costing $50 million or more, and on National Highway System bridge projects from $40 million.
Defence and federal procurement run it contractually. Agencies include value engineering clauses that let a contractor propose a cheaper way to meet the specification and keep an agreed share of the resulting saving.
Those clauses matter because a specification written years earlier often locks in a method rather than a requirement, and the contractor is usually the party best placed to spot it.
Service operations apply the same test to process steps. A telecoms provider that defines the function as restore service rather than dispatch technician often finds remote diagnostics delivers the function at a fraction of the unit cost of production.
Related terms
Value engineering overlaps with several cost and design disciplines without being any of them. The terms below mark the nearest boundaries, from how quality costs are counted to how products are managed across their life.
- Total Cost Of Ownership: the full lifetime cost of an asset, including running and disposal costs.
- Cost Of Quality: the money spent preventing, finding and fixing defects across a process.
- Product Lifecycle Management: the coordination of a product’s data and decisions from concept through retirement.
- New Product Introduction: the staged process that takes a design from approval into volume production.
- Supplier Relationship Management: the structured handling of key suppliers, who often propose the substitutions a study needs.
- Engineering Process Outsourcing: the delegation of design and analysis work to an external engineering partner.
FAQ
Is value engineering the same as cost-cutting?
No. Cost-cutting removes scope or quality to hit a number, while value engineering holds the required function fixed and changes only how that function is delivered.
What is a verb-noun function?
It is a two-word description of what something does, such as support load or contain fluid. Writing it this way stops a team defending the existing part and forces attention onto the purpose it serves.
When in a project should a study happen?
As early as possible. Concept and early design stages allow changes at low cost, while studies run during construction compete with rework, delay and contract claims.
Who sits on a value engineering team?
A multidisciplinary group drawn from outside the original design team, typically including engineering, procurement, operations and cost estimating.
What is the difference between value engineering and value analysis?
Value analysis applies the same function-and-cost method to something already in production, while value engineering is usually run before the design is fixed.
Does value engineering apply to services as well as products?
Yes, because any service step can be described as a function and costed against its worth.
Explore the Outsource Accelerator hubs to find delivery partners who run function-level cost reviews as standard practice.
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