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Value engineering

Value engineering is a branch of industrial engineering in which the value of a system’s outputs is optimized. This involves crafting the optimum mix of performance and costs. In most cases this means the identification and removal of unnecessary costs. By avoiding unnecessary expenditures, value can be created for the manufacturer and/or their customers.

Cost Optimization

Value engineering can reduce the quality of a product but that need not be the case. Often value engineering reduces costs by eliminating wasteful practices. This can be done in several areas:

When value engineers talk about reducing costs, they are usually referring to either total life cycle costs or the direct costs of production. Total life cycle costs are the total expenditures over the whole life span of the product. This measure of cost is most applicable to expensive capital equipment, and includes manufacturing costs, installation costs, maintenance costs, and decommissioning costs. Individual expenditures must be discounted to reflect the time value of money. When referring to consumer products, the direct cost of production is more typically used. This measure is limited to the costs directly associated with manufacturing the product.

Four Stages

Value engineering is often done in four stages:

The Origins of Value Engineering

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”.

As others adopted the technique, the name gradually changed to value engineering.

Examples of Value Engineering

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