- What value engineering and value analysis are
- Visual map of value engineering
- Value, function and cost
- The phases of the job plan
- Example: function-cost matrix of a 5-component assembly
- From value index to savings
- When to use it and how to combine it with other tools
- Common mistakes
- Frequently asked questions
What value engineering and value analysis are
Value engineering (VE) and value analysis (VA) are one method applied at different moments: VE works on the design before production, VA works on a product already in the line. The method asks which function the item must perform and what the lowest cost is to deliver it, without losing performance or quality.
The starting point is L. D. Miles at General Electric in the 1940s. The core idea: the customer pays for the function, not for the material or the part. That is why the method is not cost cutting: cutting the wrong part lowers value.
Visual map of value engineering
The map shows the value equation, the function-cost matrix and the example from $12.00 down to $9.80.
Value, function and cost
Value = Function (performance) ÷ Cost
There are four ways to raise value: keep the function and cut cost; raise the function at the same cost; raise the function at a lower cost; or raise the function slightly more than the cost. In plant practice the first and third are the most common.
A function is written as a verb + noun: "support load", "seal fluid", "hold part". The rule forces the team to step away from the part and think about what it does. Basic functions (the reason the product exists) are separated from secondary functions (those that support or follow from the chosen design).
The phases of the job plan
- Information: collect drawings, costs, volumes and customer requirements. Pick the highest-cost items using the ABC curve logic.
- Function analysis: list functions as verb and noun and assign each an importance (%).
- Creativity: generate alternatives without judging, as in brainstorming.
- Evaluation: screen ideas by technical feasibility, cost and risk.
- Development: detail the best ones, test prototypes and calculate the gain with the production cost.
- Presentation and implementation: take the proposal with numbers to the decision and track the result.
Example: function-cost matrix of a 5-component assembly
Fictional example: an assembly costs $12.00 per unit. The team gave each component's function an importance percentage (total 100%). The value index is the % of function divided by the % of cost; the target cost is the % of function times the total cost.
Value index = % function ÷ % cost | Target cost = % function × $12.00
| Component | Current cost | % of cost | % of function | Value index | Target cost | Gap |
|---|---|---|---|---|---|---|
| Housing | $4.50 | 37.5% | 30% | 0.80 | $3.60 | +0.90 |
| Cover | $2.00 | 16.7% | 10% | 0.60 | $1.20 | +0.80 |
| Screws | $1.20 | 10.0% | 15% | 1.50 | $1.80 | -0.60 |
| Gasket | $0.80 | 6.7% | 20% | 3.00 | $2.40 | -1.60 |
| Bracket | $3.50 | 29.2% | 25% | 0.86 | $3.00 | +0.50 |
| Total | $12.00 | 100% | 100% | $12.00 |
Housing example: 4.50 ÷ 12.00 = 37.5% of cost; 30 ÷ 37.5 = 0.80; target cost = 0.30 × 12.00 = $3.60; gap of $0.90. An index below 1 means cost above the function delivered. Housing (0.80), cover (0.60) and bracket (0.86) are candidates. Gasket (3.00) and screws (1.50) have a high index: they are not cutting targets and may even deserve more investment.
From value index to savings
The team produced three proposals, each bringing a component to its target cost while keeping the function:
- Housing: reduce wall thickness without losing stiffness: from $4.50 to $3.60 (saving $0.90).
- Cover: switch from a machined to a stamped part: from $2.00 to $1.20 (saving $0.80).
- Bracket: integrate the bracket into the housing: from $3.50 to $3.00 (saving $0.50).
Saving per unit: 0.90 + 0.80 + 0.50 = $2.20. Cost drops from $12.00 to $9.80, a reduction of 18.3% (2.20 ÷ 12.00). At 40,000 units a year: 2.20 × 40,000 = $88,000 per year. Total function (100%) stays, so value moves from 100 ÷ 12.00 = 8.33 to 100 ÷ 9.80 = 10.20 function points per dollar, an increase of 22.4%.
Before implementing, compare tooling and testing spend with this saving using payback and NPV, and validate the stamped cover and the housing with performance tests.
When to use it and how to combine it with other tools
- At the design stage (VE), when most of the cost can still be defined and changing is cheap.
- On mature products (VA), when seeking cost reduction without changing the customer specification.
- With Lean: VE cuts the cost built into the design, while the 7 wastes attack the process. The two complement each other.
- In purchasing: assess alternatives by total cost of ownership, not price alone.
Common mistakes
- Treating VE as cost cutting: reducing cost without keeping the function destroys value.
- Defining functions as part names ("housing") instead of verb and noun.
- Assigning function percentages without hearing the customer or without real requirements.
- Ignoring items with an index above 1, which may be under-costed and cause failures.
- Not counting tooling, testing and approval before promising the saving.
- Running the study without design, purchasing, quality and production at the table.
Frequently asked questions
What is the difference between value engineering and value analysis?
It is the same method. Value engineering is applied during design; value analysis on products already in production.
What is the value formula?
Value = function (performance) ÷ cost. To raise value, keep or raise the function and lower the cost.
How do you calculate the value index?
Divide the function importance percentage by the component cost percentage. For the housing: 30 ÷ 37.5 = 0.80.
What is target cost in value analysis?
The cost the component would have if it followed its functional importance: % function × total cost. For the housing: 0.30 × 12.00 = $3.60.
Is value engineering the same as cost reduction?
No. The goal is to keep or raise the function at lower cost. Cuts that degrade the function lower the value.
Who should join the study?
A cross-functional team: design, production, quality, purchasing and, when possible, the customer or someone who knows the requirements.
Sources
- MILES, L. D. Techniques of Value Analysis and Engineering. New York: McGraw-Hill, 1961.
- EN 12973. Value Management.
- SAVE International. Value Methodology Standard.
- MUDGE, A. E. Value Engineering: A Systematic Approach. New York: McGraw-Hill, 1971.
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About the author
Lean Manufacturing & Behavioral Management Specialist
Over 20 years in the automotive and metalworking industries (GM and Dana), Lean Manufacturing practitioner since 2006. SENAI instructor and mentor in Brazil’s Brasil Mais Produtivo program, delivering consulting, training and audits for 50+ companies, combining quality, productivity and people development.
