Principles and phases of Value

Engineering and Analysis

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What is Value?
• Value is the lowest price you must pay to provide a
reliable function or service (L. D. Miles)
• “The ratio of Function to Cost”

Worth Function(Utility)
Value = =
Cost Cost

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 Waste Cost
Why do Projects have “Unnecessary” Costs?

1. Low Time for Designing

2. Lack of information

3. Lack of Ideas

4. Negative Prejudice

5. Lack Of Experience

6. Weaknesses in human relations

7. Multi Concept

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What is Value Engineering?
➢Value engineering refers to the systematic method of improving the
value of a product that a project produces.
➢It is used to analyze a service, system, or product to determine the best
way to manage the important functions while reducing the cost.

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What is Value Engineering?

➢Value Engineering (VE, or Value Analysis) is a management

technique that seeks the best functional balance between cost ,
reliability and performance of a product, project, process or service.

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 Value Engineering
➢Value engineering encourages using alternative
methods and materials that are less expensive and
do not lower the functionality of the system,
service, or product.
➢Most often, value engineering takes place after the
completion of the design process, but it is best
performed before the design is conducted to allow
the experts to incorporate the option of using
alternative materials and methods.
➢Most value engineering projects opt for a team
approach, where subject matter experts work
together to execute the value methodology.

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 VALUE ENGINEERING

⚫ The value of a function is defined as the relationship of

cost to performance

Performance max
Value max =
Cost min

7
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Summary
➢Value engineering refers to a systematic approach to improve the
value of a project at the lowest cost.
➢Valuation engineering involves using substitute materials and methods
that are less expensive while preserving the functionality of the
product.
➢The concept of value engineering began in the 1940s at General
Electric Co.

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Understanding Value Engineering
➢Value is calculated as a ratio of function to cost.
➢A business can add value to a product by either cutting down on cost or
improving the function.
➢Most companies use value engineering as a cost-cutting strategy, where
the basic function of a product is preserved – not sacrificed – in the process
of pursuing value improvement.
➢From a marketing perspective, value engineering is used to design a product
so that it lasts for a specific duration before it becomes obsolete.
➢Usually, when a product is expected to be stylistically or practically
obsolete within a specific duration of time, the manufacturer uses value
engineering to save on costs without taking away the intended purpose.

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Understanding Value Engineering
➢While the product can be designed using high-quality components,
value engineering allows manufacturers to use alternative low-cost
components to avoid imposing unnecessary costs to the production
process, which will ultimately be passed on to the consumer.

➢The manufacturer uses cheaper components that meet the product

lifetime duration while preserving the basic purpose of the product.

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History of Value Engineering
➢The concept of value engineering started in the 1940s at General Electric
Co.
➢This was during the Second World War when there was a shortage of raw
materials, component parts, and skilled labor.
➢The engineers at General Electric had to find alternative components and
raw materials to ensure the continuity of the production process.
➢Therefore, Lawrence Miles, Harry Erlicher, Jerry Leftow, and other
engineers sourced for acceptable substitutes that would reduce the
production costs without compromising the functionality of the products.
➢What started as an accident turned into a systematic process that not only
reduced the cost of production but also provided better final products or
better performance.
➢The engineers named this technique “value analysis.”
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History of Value Engineering
Lawrence D.Miles
1904 - 1985

• Shortage of materials during world war II

• General Electric company found that many of the substitutes
have better or equal performance at less cost.
• Lawrence De Miles Launched an effort to make the concept systematic
• Establishment of Society of American Value Engineers “SAVE” in 1959

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Steps in Value Engineering
Value engineering can be broken down into the following phases:

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 7.
Implementation
6. Presentation

5. Development

4. Evaluation

3.
Creative
2.
Function
1. Information Analysis

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1. Information
➢The information phase involves gathering project information and
refining the goals of the project.
➢Data is collected and analyzed, and the information obtained is used to
finalize the priorities of the project and areas of improvement.
➢The potential issues are broken down into constituent components,
which are elements to be addressed.
➢This phase also involves identifying the methods that the team will
use to evaluate the progress of the project.

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2. Function Analysis
➢The function analysis phase involves determining the functions of the
project and identifying them with a verb/noun combination for every
element under evaluation.
➢The function is defined as the set targets to be attained through the
execution of an element or a set of elements.
➢Each of the identified functions is analyzed to determine if there are
improvements to be made and if a new function is required.
➢An example of a function can be “disinfect water.”
➢The function should be as non-specific as possible, to leave room for
multiple options that perform the function presented by the project.
➢A cost is assigned to each identified function.

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3. Creative
➢The creative phase follows the function analysis phase, and it involves
exploring the various ways to perform the function(s) identified in the
function analysis phase.
➢This allows team members to brainstorm alternatives to existing
systems or methods that are in use.
➢Brainstorming forces people to be creative and allows team members
to speculate on all possible solutions to the problems presented, or
alternatives to the function.
➢The team is required to develop a list of potential solutions to the
function formulated by the verb/noun combination.

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4. Evaluation
➢In the evaluation phase, the merits and demerits of each of the
suggested solutions and alternatives from the creative phase are
listed.
➢ The team should describe each advantage and disadvantage in
general terms.
➢When the disadvantages exceed the advantages, the alternative is
dropped in favor of other solid alternatives.
➢The team performs a weighted matrix analysis to group and rank
the alternatives, and the best alternatives are selected for
consideration in the next phase.
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5. Development

➢The development phase involves conducting an in-depth

analysis of each best alternative to determine how it can be
implemented and the cost involved.
➢The examination of each alternative may involve creating
sketches, cost estimates, and other technical analysis.
➢Team members formulate an implementation plan for
the project, which describes the process to be followed in
implementing the final recommendations.

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6. Presentation
➢The presentation phase is where the team meets with the management and
other stakeholders to present their final report.
➢The team is required to present their findings to the decision-makers using
reports, flow charts, and other presentation materials to convince them that
the final ideas from the development phase should be implemented.
➢The ideas should be described in detail, including associated costs, benefits,
and potential challenges.
➢The final report acts as a record of the team’s accomplishments during the
study and a summary of the team’s deliberations and findings.
➢It can also act as a reference tool for the company in future projects.

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7. Implementation
➢Implementation of the project begins after the management’s approval
of the team recommendations.
➢ If there are changes requested by the management or other decision-
makers, these changes should be incorporated into the implementation
plan before the implementation begins.
➢When implementing the project, the team should ensure that the
primary goal of increasing value is achieved.
➢The actual cost savings of the project should be determined based on
the implementation of the recommendations.

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Purpose
1. Determine the best design alternatives
2. Reduce cost
3. Improve quality
4. Increase reliability and availability
5. Enhance customer satisfaction
6. Improve organizational performance
7. Identify problems
8. Develop recommended solutions
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 Potential Saving From VE
Potential Saving From VE
Early changes are naturally less expensive than later ones, as shown in
the diagram below.

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 Principles
Value Engineering principles:

1 Systematic method for evaluating product performance

and value

2 The use of multi-functional teams

3 Focus on a simplified product

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Value Analysis:
Meaning, Phases, Merits and Limitations

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Value Analysis
➢Value Analysis is one of the major techniques of cost reduction and
control.
➢It is a disciplined approach which ensures the necessary functions for
the minimum cost without diminishing quality, reliability, performance
and appearance.
➢It is a creative approach to eliminate the unnecessary costs which add
neither to quality nor to the appearance of the product.
➢It is a systematic application of techniques to identify the functions of
a product or a component and to provide the desired function at the
lowest total cost.
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Value Analysis
➢These are the days of providing the customer with really best quality
products at least cost which is possible through value analysis which
proves wrong rightly “Best and Cheap” or “Best is never cheap” or
“Cheap is Costly”.

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Phases of Value Analysis:

1. Phase of 6. Phase of 7. Phase of

Origination: Implementation: Review:

2. Phase of 5. Phase of
Information: Choice:

3. Phase of 4. Phase of
Innovation: Evaluation:

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 1. Phase of 3. Phase of 5. Phase of 7. Phase of
Origination: Innovation: Choice: Review:

2. Phase of 4. Phase of 6. Phase of

Information: Evaluation: Implementation:

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Phases of Value Analysis:
1. Phase of Origination:
➢In the first phase, a value analysis study team is constituted. The project is
selected and clearly defined. The team examines in detail the product and its
components to understand thoroughly their nature.
2. Phase of Information:
➢After familiarization, a functional analysis is carried out to determine the
functions and uses of the product and its components. The cost and importance of
each function are identified. A value index is calculated on the basis of cost
benefit ratio for each function. A list is being prepared in which the items of
functions are arranged in decreasing order of value.
3. Phase of Innovation:
➢This is the creative phase concerned with the generation of new alternatives to
replace or removing the existing ones.

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Phases of Value Analysis:
4. Phase of Evaluation:
➢Each and every alternative is analysed and the most promising alternatives are selected.
These alternatives are further examined for economic and technical feasibility. The
alternatives finally selected must be capable of performances the desired functions
satisfactorily. These must meet the standards of accuracy, reliability, safety, maintenance
and repairs, environmental effects and so on.
5. Phase of Choice:
➢In this phase, report is prepared. This report contains a summary of the study, conclusions
and specific proposals. The decision makers choose the alternative. The programs and
action places are then developed to implement the chosen alternative.
6. Phase of Implementation:
➢The chosen alternative is put to the actual use with the help of the programs and action
plans so developed in advance.
7. Phase of Review:
➢The progress of analysis changes in continuously monitored and followed up in order to
provide assistance, to clarify any misconceptions and to ensure that the desired results are
achieved.
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Merits of Value Analysis:
➢1. Improvement in Product Design:
➢2. High Quality is maintained:
➢3. Elimination of Wastage:
➢4. Savings in Costs:
➢5. Generation of New Ideas and Products:
➢6. Encourages Team-Spirit and Morale:
➢7. Neglected Areas are brought under Focus:
➢8. Qualification of Intangibles:
➢9. Wide Spectrum of Application:
➢10. Building and Improving Company Image:

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Merits of Value Analysis:
Value analysis is really a very valuable technique of cost reduction and quality improvement. The specific merits
of its are:
1. Improvement in Product Design:
➢ It leads to improvements in the product design so that more useful products are given shape. Now in case of
ball points, we do not have clogging, there is easy and even flow of ink and rubber pad is surrounding that
reduces figures fatigue.
2. High Quality is maintained:
➢ High quality implies higher value. Thus, dry cells were leaking; now they are leak proof; they are pen size
with same power. Latest is that they are rechargeable.
3. Elimination of Wastage:
➢ Value analysis improves the overall efficiency by eliminating the wastages of various types. It was a problem
to correct the mistakes. It was done by pasting a paper. Now, pens are there and liquid paper is developed
which dries fast and can write back.
4. Savings in Costs:
➢ The main aim of value analysis is to cut the unwanted costs by retaining all the features of performance or
even bettering the performance. Good deal of research and development has taken place. Now milk, oils,
purees pulp can be packed in tetra packing presuming the qualities and the tetra pack is degradable unlike
plastic packs.
5. Generation of New Ideas and Products:
➢ In case of took brushes, those in 1930’s were flat and hard, over 60 to 70 years brushes have come making
brushing teeth easy, cosy and dosy as it glides and massages gums.

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6. Encourages Team-Spirit and Morale:
➢ Value analysis is a tool which is not handled by one, but groups or teams and an organisation itself is a team
of personnel having specification. A product is the product of all team efforts. Therefore, it fosters team spirit
and manures employee morale as they are pulling together for greater success.
7. Neglected Areas are brought under Focus:
➢ The organisational areas which need attention and improvement are brought under the spot-light and even the
weakest gets a chance of getting stronger and more useful finally join’s the main strain.
8. Qualification of Intangibles:
➢ The whole process of value analysis is an exercise of converting the intangibles to tangible for decision
making purpose. It is really difficult to make decisions on the issues where the things are (variables) not
quantifiable.
➢ However, value analysis does it. The decision makers are provided with qualified data and on the basis of
decisions are made. Such decisions are bound to be sound.
9. Wide Spectrum of Application:
➢ The principles and techniques of value analysis can be applied to all areas-man be purchasing, hardware,
products, systems, procedures and so on.
10. Building and Improving Company Image:
➢ The company’s status or image or personality is built up or improved to a great extent. Improvement in
quality and reduction in cost means competitive product and good name in product market; it is a good pay
master as sales and profits higher and labour market it enjoys reputation; it capital market, nobody hesitates to
invest as it is a quality company.

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Limitations:
The most common excuses given are:
➢Lack of motivation
➢Resistive to change
➢Inertia
➢Lack of knowledge and patience
➢Attitude of ‘It will not work in India
➢We are very small or very big
➢This has been tried earlier and failed
➢The change is too big
➢Let competitors try before we try’
➢Difficulty of teams meeting or team meeting for getting consensus.

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VALUE ENGINEERING-Conclusion
Value Engineering helps us to learn how to :
➢Improve our career skills
➢Separate "Symptoms" from "problems"
➢Solve "root cause" problems and capture opportunities
➢Become more competitive by improving "benchmarking" process
➢Take command of a powerful problem solving methodology to use in
any situation
➢Reduction in cost of existing products or systems

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 Case Study

Focus Adjustment Knob for Slit Lamp

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 Case Study
Introduce the Product

➢ In this presentation we have considered a medical instrument manufacturing

company, Aadarsh Instruments, located in Ambala.

➢ This firm is producing different types of microscopes which they export to various
countries around the globe.

➢ One of their model SL250 has a component named Focus Adjustment Knob for
Slit Lamp in microscope. This microscope has found application in the field of eye
inspection.

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 Case Study
The steps used for this purpose are as follows:

1. Product selection plan

2. Gather information of product

3. Functional analysis

4. Creativity Worksheet

5. Evaluation sheet

6. Cost analysis

7. Result

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 Case Study

➢1. Plan For Product Selection

• This Product is used to adjust the focus of lens for magnification purpose.
• The present specifications of this part and its material used are costlier than the average industry
cost.
• Value of this product can be increased by maintaining its functions and reducing its cost or keeping
the cost constant and increasing the functionality of the product.

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 Case Study
2. Obtain Product Information

i. Material – Aluminum Bronze Alloy

ii. Diameter of base plate –30 mm
iii. Thickness of plate--3 mm
iv. Cost of the scrap is – 293 rupee/Kg
v. Pieces Produced annually – 8000
vi. Process used – C.N.C. indexing milling
vii. Cycle time—2.5 min
viii. Anodizing—2/min
ix. Material cost—65 gm (gross margin)
x. Total Present cost – 29.99 rupee /piece

*{1$=76 rupee}*
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 Case Study
3. Functional Analysis of Present Functions

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 Case Study
4. Develop Alternate Design Or Methods

During brainstorming these ideas were listed:

i. Change design
ii. Change material
iii. Use plastic
iv. Make it lighter
v. Change the production process
vi. Use nylon indexing unit

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 Case Study

5. Evaluation Phase

For judging the ideas, the following design criterions were considered:

A. Function
B. Cost
C. Maintainability
D. Quality
E. Space

each of the above criteria was compared with others , and depending on
their relative importance, three categories were formed, major, medium, and
minor.

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 Case Study

Comparing this criteria according

to relative importance :

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 Case Study
❖ From the paired comparison we get the following result:

❖The above ideas were discussed and the best feasible ideas
were separated which were:

a) Change the material to steel

b) Use Nylon unit
c) Use existing material

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 6. Cost Analysis

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 Case Study
7. Result

➢ The total savings after the implementation of value engineering are given below:

• Cost before analysis – 29.99 rupee

• Total Cost of nylon knob – 18.40 rupee
• Saving per product – 11.59 rupee
• Percentage saving per product – 38.64 %
• Annual Demand of the product – 8000
• Total Annual Saving – 92,720 rupee
• Value Improvement - 62.98 %

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 Conclusion

Three goals that we're looking at value engineering:

1. Identify additional functions that aren’t

attractive to customers.

2. Add attractive functions for customers.

3. Saving because of the elimination of

redundant functions.

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IoT Business Models For
Monetizing Your IoT Product
With their ability to gather data after a product has been deployed, IoT products provide a
platform to generate new and innovative business models that haven’t been seen before.

https://www.synthesis-systems.com/iot-subscription-monetization/

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1. Subscription Model
➢One of the greatest benefits of a connected device is that it enables
recurring revenue.
➢Now instead of having a one-time sale, you can offer a subscription
model in which you charge your customer a fee for providing
continuous value.

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Cont’d
➢A subscription model enables you to implement many of the benefits
available to software-only products within your IoT solution.
➢Basically, you are introducing an “as a Service” model but for a
system including both software and hardware.
➢By using SaaS models as an example, you can find ways to monetize
your product not only with a monthly subscription, but also by
providing paid upgrades, or even implementing a “freemium” model if
your strategy supports it.

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Cont’d
➢Another benefit of this IoT business model is that it empowers you to
foster an active relationship with your customer.
➢In the past, hardware manufacturers used to “throw their products
over a wall”, meaning that once they completed the sale, they rarely
interacted with their customer anymore.
➢ IoT products break that barrier down. As your device gathers more
data, you will be able to learn more about your customer and provide
more valuable features tailored to their specific needs.
➢Some common IoT applications using the subscription model include
“monitoring as a service” and “predictive maintenance as a service”.

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IoT Subscription Monetization Pricing Models
Here are the most popular Subscription Monetization pricing models that can
be used based on the monetization model in play:
➢One-Time: The customer pays one time during the original purchase
➢Periodic: The payment happens at periodic intervals. E.g. Monthly,
quarterly or Semi-annually
➢Pay as you go: Payment based on usage with an ability to disconnect the
service at will
➢Pay as you grow: The payments change based on how the subscriptions are
scaling
➢Outcome-based pricing: Payment is based on the outcome of usage, e.g.
savings made through the IoT app usage

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2. Outcome-Based Model
➢The outcome-based model is an example of an innovative approach
enabled by IoT products. The idea is for customers to pay for the
outcome (or benefit) the product provides, as opposed to the product
itself.

➢Remember the saying, “People don’t buy drills, they buy holes”?
Well, the outcome-based model works in the same way. Customers
pay for the “holes” they make as opposed to paying for the drill.

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Outcome-Based Model
➢For example, think of a water pump manufacturer.
➢In the past, their business revolved around selling pumps, and they
measure success by meeting quota on a certain number of pumps per
quarter.
➢But let’s be real. Customers are not looking to buy a pump. They are
looking to move water from point A to point B for some purpose. For
example, they need water to cool another system, to water plants, or to
power a generator. That’s their real need.

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Outcome-Based Model
➢Now imagine a sophisticated pump manufacturer who creates a next-
generation pump that monitors the amount of water it pumps. Now, the
manufacturer can talk to the customer in the language they care about:
amount of water pumped (similar to “holes drilled”). In this case, the
customer is not buying a pump. Instead, they are paying a variable fee per
month for the amount of water they source. They are paying for the
outcome, which is, water sourced.
➢Companies can be creative with how to monetize IoT solutions as part of an
outcome-base model. For example, the manufacturer can decide whether
they’ll lease or sell their pumps. If the customer is interested in the outcome
(water sourced), then they might not want to have a depreciating asset on
their balance sheet (pump).
➢ Therefore, having them pay for the water sourced as opposed to paying for
the pump itself can reduce the customer’s objection to buying expensive
equipment.

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3. Asset-Sharing Model
➢A big concern when buying expensive equipment is whether the
customer will be able to utilize the equipment to its maximum
capacity.
➢This is where the idea of sharing assets comes into play. We are
starting to see this model already with car-sharing or bike-sharing
companies. Think about it like this: why do I need to pay for the full
price of a car if it’s going to be parked outside my house 90% of the
time. Could I just pay for the amount of car I use?
➢IoT has the potential to solve this problem, and we are already starting
to see solutions with self-driving cars, virtual power plants, shared
drones, and more.

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➢This IoT business model revolves around selling your extra capacity back
into the market. The goal is to maximize the utilization of your product
across multiple customers.
➢That way, each customer pays a reduced price and you are able to get faster
market penetration, compared to when a single customer has to pay for your
complete product.
➢I had the opportunity to work within this model deploying smart batteries
for commercial buildings. The batteries provided energy to the building, and
if they had any extra capacity, they were able to sell that energy back to the
Grid.
➢In this model, the batteries are a shared asset between the building and the
Grid. This approach allowed our customers to get our systems at a reduced
price since now they didn’t have to carry the burden of paying for the whole
system, whether they use the extra capacity or not.

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➢You might be thinking, “Why not just install a smaller battery?” And
that’d be a fair question. Sometimes, they don’t make smaller batteries
(or smaller pumps, or turbines, you name it).
➢Most of these systems are very complex, so you can’t get custom
sizes. So, you can just throw away that extra capacity or you can
figure out a way to monetize it. That’s where the intelligence built into
smart devices can help you.

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4. IoT Products as a Proxy to Sell Another
Product
➢Your IoT product can be a conduit for selling other products. In this
model, you might sell the IoT product at cost or even at a loss since
the goal is to get the product in the customer’s hands so you can start
selling your other products.
➢This approach reminds: the early strategy from Ford, where the plan
was not to make money on the cars themselves, but on the parts and
service.
➢Amazon uses this model with their Amazon Dash Buttons. These
“connected buttons” come pre-configured to order a specific product,
say detergent or toilet paper. When you press the button, it re-orders
that item from Amazon and it arrives at your door within a few days.

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IoT Products as a Proxy to Sell Another
Product
➢Amazon’s goal is to provide “contextual shopping”, meaning the
ability to reorder a product right when you need it. By introducing this
clever connected product, Amazon is reducing the barriers for you to
re-order any product you need.
➢In this case, the Amazon Dash Button is not a revenue maker in
itself, it is just a vehicle to sell other products in Amazon’s catalog.
➢We are seeing more and more manufacturers adopting this approach
for products that require refills.
➢Printer manufacturers are creating “smart printers” that automatically
order ink when they are low. We have a connected pitcher that
automatically orders new filters and many other examples.
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IoT Business Model: Monetize Your IoT Data
➢The value of the Internet of Things is in the insights you can derive
from the data you collect. The question is, who benefits from those
insights?
➢Think about companies like LinkedIn or Facebook. They collect a
huge amount of data from all of us (often for free) and although they
provide us (the user) with value for providing that data, the real value
is provided to advertisers and other third party companies that use the
data to promote their products and services.
➢In this case, LinkedIn or Facebook are tools for collecting data to offer
it to advertisers. That’s how they make money.
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IoT Business Model: Pay-Per-Usage
➢Having sensors on your hardware device means you can monitor your
customer’s environment and how much they use your product.
➢This opens the door to an innovative IoT business model where you
charge your customer for the amount of time they are actively
interacting with your product.
➢In this IoT business model, the goal is not to make money on the
device itself. Instead, you are using the data produced by the IoT
device to track usage.

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IoT Business Model: Offer a Service
In this IoT business model, the IoT product can be an enabler and
differentiator for your company to sell a service. Here are a few
examples of this IoT business model:
➢Use an IoT product to monitor machinery, predict maintenance, and
then sell a maintenance contract.
➢Install IoT devices in a smart building to measure energy
consumption. Then sell an energy audit and energy optimization
services.
➢Implement IoT devices in a manufacturing floor to measure efficiency
and throughput. Sell consulting services to optimize your customer’s
process
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