Value engineering is a systematic method to improve the "value" of goods and services by using an examination of function. Value, as defined, is the ratio of function to cost. Value can therefore be increased 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.
In the United States, value engineering is specifically spelled out in Public Law 104-106, which states “Each executive agency shall establish and maintain cost-effective value engineering procedures and processes."
Value engineering is sometimes taught within the project management or industrial engineering body of knowledge as a technique in which the value of a system’s outputs is optimized by crafting a mix of performance (function) and costs. In most cases this practice identifies and removes unnecessary expenditures, thereby increasing the value for the manufacturer and/or their customers.
VE follows a structured thought process that is based exclusively on "function", i.e. what something "does" not what it is. For example a screw driver that is being used to stir a can of paint has a "function" of mixing the contents of a paint can and not the original connotation of securing a screw into a screw-hole. In value engineering "functions" are always described in a two word abridgment of an active verb and measurable noun (what is being done - the verb - and what it is being done to - the noun) and to do so in the most non-prescriptive way possible. In the screw driver and can of paint example, the most basic function would be "blend liquid" which is less prescriptive than "stir paint" which can be seen to limit the action (by stirring) and to limit the application (only considers paint.) This is the basis of what value engineering refers to as "function analysis".
Value engineering uses rational logic (a unique "how" - "why" questioning technique) and the analysis of function to identify relationships that increase value. It is considered a quantitative method similar to the scientific method, which focuses on hypothesis - conclusion to test relationships, and operations research, which uses model building to identify predictive relationships.
Value engineering (VE) is also referred to as or "value management" or "value methodology" (VM), and "value analysis" (VA). VE is above all a structured problem solving process based on function analysis—understanding something with such clarity that it can be described in two words, the active verb and measurable noun abridgement. For example, the function of a pencil is to "make marks". This then facilitates considering what else can make marks. From a spray can, lipstick, a diamond on glass to a stick in the sand, one can then clearly decide upon which alternative solution is most appropriate.
Value engineering began at General Electric Co. during World War II. Because of the war, there were shortages of skilled labour, raw materials, and component parts. Lawrence Miles and Harry Erlicher at G.E. looked for acceptable substitutes. They noticed that these substitutions often reduced costs, improved the product, or both. What started out as an accident of necessity was turned into a systematic process. They called their technique “value analysis”.
Value engineering is often done by systematically following a multi-stage Job Plan. Larry Miles' original system was a six-step procedure which he called the Value Analysis Job Plan. Others have varied the Job Plan to fit their constraints. Depending on the application, there may be four, five, six, or more stages. One modern version has the following eight steps:
Four basic steps in the Job Plan are:
1.What is being done now?
2.How will the alternatives be measured?
3.What must be done?
4.What else will do the job?
5. Which Ideas are the best?
6. Develop and expand ideas
7. Present ideas