Value Engineering

HISTORY OF VALUE ANALYSIS

The value analysis methodology was started in the late 1940's by Lawrence D. Miles.
Lawrence D. Miles started the value analysis methodology in the late1940’s while working in the
purchasing department at General Electric. Faced with a lack of strategic materials, the company
asked Miles to identify new materials to reduce costs. He, then, gradually put into place a
rigorous work plan which yielded reductions of 40 %.
In today’s environment of reduced budgets and staffing, the Department of Defense (DoD) can
no longer afford the extensive time delays and increased costs that programs have experienced in
the past. When one program costs more than planned, decision makers are forced to delay or
cancel other programs. Such actions result in criticisms and may prompt outside involvement by
the Government Accountability Office, the Inspector General, or even Congress. Value
Engineering (VE) can play a key role in ensuring programs stay within budget or even save
money.
VE can be an effective mechanism for generating cost savings or cost avoidance for contractors
and the U.S. Government. It is intended for multiple audiences. For Government practitioners, it
gives details on the basics of the VE methodology and discusses how to establish a VE program.
For Government program office personnel, it explains the impact VE can have on their success.
For Government contracting officers and industry, it describes best practices for applying VE on
Government contracts. For both Government and industry management, it provides an overview
of the benefits of a strong VE program.

VALUE ENGINEERING DEFINED

VE is an organized/systematic approach directed at analyzing the function of systems,

equipment, facilities, services, and supplies for the purpose of achieving their essential functions
at the lowest life-cycle cost consistent with required performance, reliability, quality, and safety.
The implementation of the VE process on a problem typically increases performance, reliability,
quality, safety, durability, effectiveness, or other desirable characteristics.
Because “costs” are measurable, “cost reduction” is often thought of as the sole criterion for a
VE application, and indeed, cost reduction is primarily addressed in this document. It is,

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however, important to recognize that value improvement is the real objective of VE, and that
may not result in an immediate cost reduction.
In fundamental terms, VE is an organized way of thinking or looking at an item or a process
through a functional approach. It involves an objective appraisal of functions performed by parts,
components, products, equipment, procedures, services; and so on— anything that costs money.
VE is performed to eliminate or modify any element that significantly contributes to the overall
cost without adding commensurate value to the overall function.
VE is not primarily centered on a specific category of the physical sciences; it incorporates
available technologies, as well as the principles of economics and business management, into its
procedures. When viewed as a management discipline, it uses the total resources available to an
organization to achieve broad management objectives.
Thus, VE is a systematic and creative approach for attaining a return on investment (by
improving what the product or service does in relation to the money spent on it.

What is value engineering?

“A systematic inter-disciplinary examination of design and other factors affecting the cost of a
product or service in order to devise means of achieving the specified purpose most
economically, at the required standard of quality and reliability”.

VE History

During World War II, many manufacturers were forced to use substitute materials and designs as
a result of critical material shortages. When the General Electric Company found that many of
the substitutes were providing equal or better performance at less cost, it launched an effort (in
1947) to improve product efficiency by intentionally and systematically developing less costly
alternatives.
Lawrence D. Miles, a staff engineer for General Electric, led this effort. Miles combined a
number of ideas and techniques to develop a successful methodological approach for ensuring
value in a product. The concept quickly spread through private industry as the possibilities for
large returns from relatively modest investments were recognized. This methodology was
originally termed value analysis or value control.

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In 1957, the Navy’s Bureau of Ships became the first DoD organization to establish a formal VE
program. Miles and another General Electric employee, Raymond Fountain, set up the Bureau of
Ships program to help reduce the cost of ship construction, which had nearly doubled since the
end of World War II. The Bureau of Ships asked that the technique be called “Value
Engineering” and staffed the office with people under the general engineer position description.
In 1959, the contractual requirement for VE was added to the Armed Services
Procurement Regulation the forerunner of today’s Federal Acquisition Regulation (FAR).
VE was initially used only with command approval, but in June 1962, the Defense Department’s
procurement regulations were modified to establish VE as a mandatory program both for the
Department and for its contractors.
VE remained basically a DoD program until Office of Management and Budget (OMB) Circular
A-131 was issued in 1988 to expand the program into other organizations “where appropriate.”
OMB Circular A-131 contained some loopholes, which were closed by a 1993 reissuance. The
circular now requires that all Federal Departments and Agencies use VE and that OMB be
advised annually of top VE projects, and net life-cycle cost savings, cost avoidance, and cost
sharing achieved through VE. In 1996, VE was given further support when President Clinton
signed P.L. 104-106, which requires each executive agency in the Government to establish and
maintain cost effective VE procedures and processes.

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Since its inception, the VE concept has proved to be so successful that today it is practiced
throughout the world, with many organizations dedicated to its use and promotion.
The DoD VE program continues to have two distinct components:

• An in-house effort performed by DoD military and civilian personnel; and

• An external effort performed by DoD contractors and applied to contracts after Department
approval.

This latter component is extremely important. The mandatory VE provisions in most DoD
contracts encourage contractor participation and thereby realize the full benefits from cost
reduction opportunities and innovations. These contract provisions provide the basis for the
contractor to obtain a share of the savings that result from an approved VE effort. Before this
development, submitting a cost-reduction change led to a commensurate decrease in the size of
the contract and usually reduced profit by a proportional amount. The VE provisions changed
this paradigm by providing the contractor with an incentive to submit proposals to reduce cost.

VE Terminology

Value Engineering Project: A preplanned effort to study a specific area or task, the primary
objective being to improve value using VE methodology while maintaining required functions.
• Function: The purpose or use of an item or process. The VE approach first concerns itself with
what the item or process is supposed to do. The consideration of function is the fundamental
basis of the VE method.
• Worth: The lowest cost to reliably achieve the required function. Worth is established by
comparing various alternatives to accomplish that function and selecting the lowest cost
alternative.
• Value Engineering Proposal: A specific proposal developed internally by DoD personnel for
total value improvement from the use of VE techniques. Since Value Engineering Proposals are
developed and implemented by Government personnel, all resulting savings accrue to the
Government. A Value Engineering Proposal can also be the result of a technical support
contractor effort if it is funded by the Government specifically to conduct a VE study on a
contract to which it is not a party.
• Value Engineering Change Proposal (VECP): A proposal submitted to the Government by
the contractor in accordance with the VE clause in the contract. A VECP proposes a change that,
if accepted and implemented, provides an eventual, overall cost savings to the Government and a
substantial share in the savings accrued as a result of implementation of the change for the
contractor. It provides a vehicle through which acquisition and operating costs can be reduced
while the contractor’s rate of return is increased.

What is value?
The relationship between the worth or utility of an item (expressed in monetary terms) and the
actual monetary cost of the item. The highest value is represented by an item with the essential
quality available at the lowest possible overall cost that will reliably perform the required
function at the desired time and place.
Value is the required or needed performance at minimum cost. Value in general is the ratio of
function and cost.

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 Value = Function
Cost

Types of value

Use Value: It is defined as the qualities and prosperities needed to accomplish a service, product
or work.
Esteem Value: It provides properties, features and attractiveness to a service, product or work
which make the ownership desirable.
Scrap Value: It is the money which can be recovered when the item is not needed. It is the scrap
value.
Cost Value: It is the total cost of material, labour, overhead and services to produce an item.
Exchange Value: It is the property and qualities which enables to exchange a product for
something else, which is needed by the exchange.

How can the value be increased?

• To secure the best combination of ideas processes materials methods and approach to
problems involving the least expenditure of resources, time and money.
• Identification and removal of unnecessary costs and hidden costs which provide neither
quality, nor use, nor life, nor appearance, nor customer features, are the just rewards for
value studies.
Value = Function
Cost

So to increase value we many increase Function taking cost constant and may decrease cost
without affecting function.

Objective of value study

The systematic application of recognized technique
• To identify the function of a product or service.
• Establish norms for the function.
• And provide the necessary function with lowest cost.

Value Analysis and Product life cycle

Value analysis is the application of set of techniques to an existing product with a view to
improve its value.
Reasons for Value Analysing Existing Products

The majority of the information here is geared towards New Product Development and New
Product Introduction. In contrast to this, as stated above, VA is based upon products you already
sell. On the face of it, the reasons for value analysing existing products may seem obvious.
However you may find yourself in a situation where you need to convince others and make the
case for undertaking a VA exercise. Senior managers may require justification as to why it’s

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worth the investment of time and effort. Below are some points that may help. Consider applying
them to your specific situation.

• VA reduces costs (in all areas such as materials, parts and production), as well as
improving product function. Therefore, the value of the product is increased to the
customer.

• Reducing the cost of products increases revenue and profit per product. Therefore,
giving your company the option of reducing price to sell more or investing in R&D.

• VA enables improvements to be made to the product in a variety of areas, such as design

and engineering, material selection, testing, manufacturing, assembly, shipping,
installation, use by the customer, service, maintenance and recycling.

• For many manufacturing businesses their product range has evolved over time, as a
collection of solutions to meet new customer needs, rather than being the result of
strategic planning. Often products have been developed under tight time constraints and
as a result, a wide variety of parts and materials have been sourced and used. This leaves
lots of scope for component rationalisation across the range. In-turn this opens the door
to cost reduction negotiations based on ordering greater quantities and economies of
scale. A value analysis exercise can deliver this.

• A VA project enables your business to take commercial advantage of the constantly

falling price of some technologies, as well as source alternative components and
materials.

• The above factors all increase perceived value of the product by all those who interact
with it, throughout its product life (including of course, the customer).

• The prestige value of the product increases, therefore making ownership more desirable,
which should help product sales (and indeed the process of marketing and selling it).

• A customer who perceives the value of the product as being more prestigious is more
willing to pay a premium for it or choose it over rival products if it is priced the same.

• An all-round better quality product is easier and less costly to produce, assemble, ship,
install, use, service and recycle. The result is to reduce all associated costs throughout the
product lifecycle (importantly, including ownership costs for the customer).

• VA, in conjunction with other world class manufacturing techniques, can help realise
substantial company-wide improvements, thereby delivering significant competitive
advantage.

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 Steps involved in VA:
Blast: Select the product, for which we want to increase value and collect all the information
regarding function and cost of the product.
Create: Develop new alternate function/ process at lesser cost & critically examine all those
alternates.
Refine: Select the best alternate which increases the value of product and install it.

VE BENEFITS
As depicted in Figure 1, the Government and its contractors depend upon each other to improve
their joint value proposition.

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While the value propositions are different, there is overlap; actions that benefit one can benefit
the other. Incentives are typically used in the contract so that the contractor behaves in a way that
will enhance both value propositions. VE provides, and is based on, a shared value concept
through incentives for the Government, incentives for the contractor, and the equally shared
incentive of providing the best possible war fighting capability and systems to the military within
the context of a successful business relationship. VE gives industry the incentive to use its best
engineering talent in a way that helps solve problems that are important to the Government.

Benefits to the Department of Defense

In today’s market, VE has proven to be a sound economic venture. Its overall record of
performance (where it has been intelligently applied, discreetly managed, and honestly reported)
is impressive. From 2000 through 2005, the average return on investment within the Defense
Department was 7.6 to 1. Figure 2 shows DoD VE savings and cost avoidance since fiscal year
(FY) 1981. Cumulatively, more than $30 billion has been saved, with an average savings of
about $1 billion annually.
From a qualitative perspective, VE creates opportunities for the Defense Department to achieve
long-term benefits in cost reduction, communications, procedures, waste reduction, performance,
efficiency, reliability, productivity, quality, effectiveness, readiness, war fighting capability,
cycle time, and so on. Conceptually, if VE is planned prior to contract award, the contract can be
structured to better take advantage of VECP savings that might develop (e.g., unfunded options
that can be exercised with the acceptance of a VECP). In addition, the program manager may
take steps to emphasize that VE is “planned for” and is therefore an encouraged outcome.

Benefits to Contractors
From the contractor’s perspective, the benefits of using VE are also substantial. The Contractor:
• Shares in the savings that accrue from implementation in that VECPs provide a source of
profit not available under other provisions of the contract and excluded from profit
limitations on Government contracts;
• May increase the work to be performed on the contract if the Government share is placed
back on the contract for previously unfunded efforts;
• May secure a price advantage during system re-procurement after implementing a
successful VECP on a previously completed system/item;
• Establishes a reputation as a cost-conscious supplier (the Defense Department presents
VE Achievement Awards to contractors);
• Improves communication with the customer; Receives reimbursement of development
cost on approved VECPs to the extent that such costs are reasonable, allowable, and
allocable;
• May obtain usable technology for other product lines; and
• Enhances the retention and growth of corporate technical expertise through advanced
technology insertion and fostering a positive working environment

AREAS OF APPLICATION
Value Analysis has been successful in several domains:
o Defense
o Automotive

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o Aeronautical
o Software development
o Water treatment
o Civil engineering

It has also proven very effective in "soft" areas such as:

o Client services
o Work processes
o Information Systems
o Organizational development

THE REASONS FOR UNNECESSARY COST

Cost information There is little doubt that engineers, designers and draughts men are well
aware of the need to minimize cost, and in most instances they are anxious to receive and use
better cost information. However, there are other reasons why unnecessary cost occurs in the
products they are specifying.
User’s Needs For example the needs of the user are not always clear. Where there is a lack of
information, then it is inevitable that the exact requirements of the customer or user will be
exceeded.
New processes New lower cost products, processes and materials become available at a
confusing rate, and quickly render existing design concepts obsolete.
Time Many designs evolve over a period of years, and the lack of time which persists in most
engineering organizations encourages these design approaches to be perpetuated even if in
modified form. Clearly, whilst it is not practicable to question every design, if those areas of
significantly high cost likely to be repeated in the future are not regularly reviewed, the amount
of unnecessary cost contained in them will increase as the design approach, materials and
methods used, become out of date.
Ideas Lack of time also can lead to a lack of ideas and adoption of the first solution which will
satisfy technical requirements, irrespective of its ultimate cost.
Wrong beliefs Proposed solutions to problems and new ideas are frequently rejected because of
erroneous but sincerely held beliefs. For example, a material can be dismissed as unsuitable or a
tool cost assumed to be too high to justify a suggested change. Good ideas arc often discarded
without proper consideration and examination of today's facts. (The use of a notched belt to drive
the valve gear of an internal combustion engine has been considered and rejected many times as
impracticable although today it is commonly used.)
Emergencies Most companies are faced with emergency measures at some time when a material,
machine or supplier readily available is accepted as a temporary solution regardless of cost and
continues in use after the emergency has been overcome.
Change Circumstances Circurnstances can also change. The fact that a feature is no longer
required is frequently not known or overlooked. Costs are incurred in providing these features
which are due to historical requirements of test, development, manufacture or procurement, but
which are no longer relevant.
Attitudes In all aspects of life, mental attitudes affect the speed at which change can take place.
Fear of failure resulting in a loss of status or ridicule, and a subconscious reaction to change in
favor of well-established practices will restrain people from thinking and from proposing or

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accepting new ideas. These restraints in the creative ability latent within a company control the
rate of innovation, profitability and sales.
These reasons for unnecessary cost probably apply to most aspects of human activity. They will
and do occur in well-organized companies having skilled management and technical staff, and do
not necessarily reflect on any one individual or group of individuals.
These arguments suggest:-
I. That the decisions made prior to production/process planning largely control works cost.
2. That better cost and other information should be provided as a service during the design
process.
3. That the cost problem cannot be solved by any one discipline and that effective corporate team
work and communications are necessary for its control.

Clearly, a procedure which will meet these requirements must provide cost information and other
facts, must question everything of significant cost and must encourage new ideas to be put
forward and considered in a positive way by all those involved with the product and its cost.
Of course, there is nothing new in the suggestion of people of differing disciplines, meeting to
examine and reduce the cost of the products and systems around them, but cost reduction alone is
likely to be insufficient in the future.
Experience has shown that technical and marketing requirements (functions) must be defined and
examined at the same time as cost. In addition, if the time of the team or group involved is not to
be wasted, systematic procedures and disciplines are necessary which will isolate significant
areas of cost or poor value and concentrate attention upon them in such a way that lower cost
alternatives can be generated, evaluated and put into effect quickly and without excessive risk.
Value engineering is a convenient name to identify the systematic disciplines and procedures
which can effectively provide this form of product cost control.

POTENTIAL VE APPLICATIONS
VE is applicable at any point in the life cycle, but the savings potential decreases as the program
ages. VE should therefore be applied as early as possible in the program life cycle. Early VE
tends to produce greater savings (or cost avoidance) because that is where most of the costs are
committed—there are greater opportunities for change, and the changes cost less to implement.
However, if early opportunities are missed, VE can still be applied. Late in a program VE is
precluded only in those rare instances where the cost of the VE effort and subsequent
implementation would be greater than the savings potential. Many systems remain in inventory
for a substantial amount of time, often longer than originally planned. While later VE normally
adds implementation costs and affects smaller quantities, such deterrents can be offset by
improved performance and reliability through advances in technology and by savings generated
from increased product life. Some opportunities offer net savings at any stage of a program.

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So, we can say the improvement of a process must never put into jeopardy the quality of a
product, especially in terms of the safety and reliability of a product. Value analysis can make an
existing process profitable or optimize the effectiveness and the profitability of a process at the
time of its design.

VALUE METHODOLOGY
A. The Value Methodology can be applied wherever cost and/or performance improvement is
desired. That improvement can be measured in terms of monetary; aspects and/or other critical
factors such as productivity, quality, time, energy, environmental impact, and durability. VM can
beneficially be applied to virtually all areas of human endeavor

B. The Value Methodology is applicable to hardware, building, or other construction projects,

and to "soft" areas such as manufacturing and construction processes, health care and
environment services programming management systems and organization structure. The pre-
study efforts for these "soft" types of projects utilizes standard industrial engineering techniques
such as flow charting, yield analysis, and value added task analysis to gather essential data.

C. For civil, commercial, and military engineering works such as buildings highways, factory
construction and water / sewage treatment plants, which tend to be one time applications, VM is
applied on a project-to-project basis. Since these are one – time capital projects, VM must be
applied as early in the design cycle as feasible to achieve maximum benefits. Changes or
redirection of design can be accomplished without extensive redesign, large implementation cost,
schedule impacts Typically for large construction projects, specific value studies are conducted
during the schematic stage, and then again at the design development (up to 45%) stage.
Additional value studies may be conducted during the construction or build phase.

D. For large or unique Products and systems such as military electronics or specially designed
capital equipment, VM is applied during the design cycle to assure meeting of goals and
objectives. Typically a formalized value study is performed after preliminary design approval but

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before release to the build / manufacture cycle. VM may also be applied during the build /
manufacture cycle to assure that the latest materials and technology are utilized.

E. VM can also be applied during planning stages and for project / program management control
by developing function models with assigned cost and performance parameters. If Specific
functions show trends toward beyond control limits, value studies are performed to assure the
function’s performance remains within the control limits.

THE VALUE METHODOLOGY JOB PLAN

The VM Job Plan covers three major periods of activity: Pre-Study, the Value Study, and Post-
Study. All phases and steps are performed sequentially. As a value study progresses new data
and information may cause the study team to return to earlier phases or steps within a phase on
an iterative basis. Conversely, phases or steps within phases are not skipped.

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I. PRE-STUDY
Preparation tasks involve six areas: Collecting/ defining User / Customer wants and needs,
gathering a complete data file of the project, determining evaluation factors, scoping the specific
study, building appropriate models and determining the team composition.

A. Collect User / Customer Attitudes

The User/Customer attitudes are compiled via an in-house focus group and/or external market
surveys. The objectives are to:
1. Determine the prime buying influence.
2. Define and rate the importance of features and characteristics of the product or project.
3. Determine and rate the seriousness of user-perceived faults and complaints of the product or
project.
4. Compare the product or project with competition or through direct analogy with similar
products or project.
For first time projects such as a new product or new construction, the analysis may be tied to
project goals and objectives. The results of this task will be used to establish value mismatches in
the information Phase.

B. Gather a Complete Data File

There are both Primary and Secondary sources of information. Primary sources are of two
varieties: people and documentation. People Sources include marketing (or the user), original
designer, architect, cost or estimating group, maintenance or field service, the builders
(manufacturing), constructors, or systems designers), and consultants. Documentation sources
include drawings, project specifications, bid documents and project plans.
Secondary sources include suppliers of similar products, literature such as engineering and
design standards, regulations, test results, failure reports, and trade journals. Another major
source is like or similar projects..
Another secondary source is a Site visitation by the value study team. “Site” includes actual
construction location, manufacturing line, or office location for a new/improved system. If the
actual “site “not available, facilities with comparable functions and activities may prove to be a
valuable source of usable information.

C. Determine Evaluation Factors

The team, as an important step in the process. Determines what will be the criteria for evaluation
of ideas and the relative importance of each criterion to final recommendations and decisions for
change. These criteria and their importance are discussed with the user /customer and
management and concurrence obtained

D. Scope the Study

The team develops the scope statement for the specific study. This statement defines the limits of
the study based on the data-gathering tasks. The limits are the starting point and the completion
point of the study. Just as important, the scope statement defines what is not included in the
study. The scope statement must be verified by the study sponsor.

E. Build Models

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Based on the completion and agreement of the scope statement, the team may compile models
for further understanding of the study. These include such models as Cost, Time, Energy, Flow
Charts, and Distribution, as appropriate for each study.

F. Determine Team Composition, Wrap-Up

The Value Study Team Leader confirms the actual study schedule, location and need for any
support personnel. The study team composition is reviewed to assure all necessary customers,
technical, and management areas are represented. The Team Leader assigns data gathering tasks
to team members so all pertinent data will be available for the study.

II. THE VALUE STUDY

The value study is where the primary Value Methodology is applied. The effort is composed of
six phases. Information, Function analysis, creativity, Evaluation, Development, and
Presentation.

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A. Information Phase
The Objective of the Information Phase is to complete the value study data package started in the
Pre-Study work. If not done during the Pre-Study activities, the project sponsor and / or designer
brief the value study team, providing an opportunity for the team to ask questions based on their
data research. If a “site” visitation was not possible during Pre-Study, .It should be completed
during this phase.
The study team agrees to the most appropriate targets for improvement such as value, cost,
performance, and schedule factors. These are reviewed with appropriate management, such as
the project manager, value study' sponsor, and designer, to obtain concurrence. Finally, the scope
statement is reviewed for any adjustments due to additional information gathered during the
information Phase.

B. Function Analysis Phase

Function definition and analysis is the heart of Value Methodology. It is the primary activity that
separates Value Methodology from all other “improvement” practices. The objective of this
phase is to develop the most beneficial areas for continuing study.
The primary objective of the Function Analysis Phase is to determine the most beneficial areas
for value improvement, while unnecessary cost removal has been the traditional target for value
studies, it is important to emphasize that more frequently today value studies are conducted to
improve a product or service's performance such as time or quality without increasing cost.

The team performs the following steps:

1. Identify and define both work and sell functions of the product, project, or process under study
using active verbs and measurable nouns. This is often referred to as Random Function
Definition.
2. Classify the functions as basic or secondary
3. Expand the functions identified in step I (optional)
4. Build a function Model - Function hierarchy / logic or Function Analysis System Technique
(FAST) diagram.
5. Assign cost and / or other measurement criteria to functions
6. Establish worth of functions by assigning the previously established
User/customer attitudes to the functions
7. Compare cost to worth of functions to establish the best Opportunities for improvement
8. Assess functions for performance / schedule Considerations
9. Select functions for continued analysis
10. Refine study scope

FUNCTION: DEFINITION AND ANALYSIS

I. Identifying and Defining Functions:

“The determination of function(s) is a requisite for all Value studies". “All cost is for function”.
Thus after the steps in the Information Phase have been completed, the next task is to investigate
the project thoroughly using function analysis. Function analysis is concerned with locating
unnecessary costs and specific requirements and determining the value of the project selected for
study.

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A function is that which makes an item or service work or sell - in other words; an item’s
function is why the customer buys the product or service. An item, including structures and
services, is a means to the end of providing a function, not the end itself.

Function Definition
Preliminary attempts to define the functions of an item or process often involve several concepts
that seem to need extensive description. Although this could conceivably describe the functions
satisfactorily, it is neither concise nor workable enough for successful analysis. The longer the
description the more confusing it becomes.
A function is always expressed by a verb and noun. This two-word description has several
advantages.
(i) The description pinpoints the functions and is not cluttered with superfluous information,
thereby forcing the planner to decide what data is fundamental and should be retained and what
is unimportant and should be rejected.
(ii) Possible alternative solutions for providing the functions are not restricted.
(iii) Functions that repeat in the design can easily be identified and often combined or even
eliminated.
(iv) And very important, the definitions promote full understanding by all team members
regardless of their knowledge, educational and technical backgrounds.
A function must be expressed in a measurable parameter in order to obtain a value for it later in
the analysis.
Nouns can be either measurable or non-measurable. Non-measurable nouns must be explained so
that they can be translated into a measurable element and later evaluated.

II. Classifying Functions

In value studies functions exist in two categories - basic and secondary.
1. Basic function is the primary purpose(s) for which the item or service was designed when it is
operating in its normally prescribed manner. This function must be accomplished to meet the
purpose of the product, structure, or service. A product or service may have more than one basic
function.
2. Secondary functions are ones that support the basic function (and hence are sometimes
referred to as "support functions"). They result from a specific design approach to achieve the
basic function. If the design changes, the need for existing secondary functions may be modified
or even eliminated. To enhance the analytical an evaluation process some practitioners break
secondary functions into a sub-classification of "required" (by the current design, “aesthetic" and
“unwanted" such as the “emits heat “function of an overhead projector.

III. Developing Function Relationships

As Value studies became larger and more complicated, it was readily apparent that the Random
Function Analysis technique was not adequate. The development of function models depicting
relationships of functions within the project became essential and evolved into two major types -
Hierarchy and Function Analysis System Technique (FAST) models.

Two principal techniques have been developed to create a better understanding of

functional relationships—a Function Hierarchy Logic model and the Function Analysis
System Technique (FAST).

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FAST was developed by Charles W. Bytheway of the Sperry Rand Corporation and introduced
in a paper presented at the 1965 National Conference of the Society of American Value
Engineers in Boston. Since then, FAST has been widely used by Government agencies, private
firms, and VE consultants. FAST is particularly applicable to a total project, program, or process
requiring interrelated steps or a series of actions. The basic customer-oriented FAST steps are
briefly described below.
Step 1—Determine the task function: A FAST diagram begins with the basic functions on the top
and the secondary functions on the bottom. A task function is “that function which fulfills the
overall needs and wants of the user—in other words, is the main reason for the existence of the
product or process in the eyes of the customer or user.” If the task function is among the basic
functions already identified, it should be pulled to the left side of the FAST diagram. If it does
not exist, it must be created. Determining the task function is not always an easy process. For
instance, the most offered task function for a cigarette lighter is “lights cigarettes.” This,
however, immediately stumbles over the obvious question, “What about pipes and cigars?” An
alternative might then be “generates flame.” However, the electrical resistance lighter in a car
only “emits energy.” It becomes apparent that the thought process must focus in either one
direction or another to develop a multiplicity of two-word abridgements from which one or more
levels may be chosen as the level of the primary functions to be studied.

Step 2—Identify the primary basic functions: Select the basic functions that directly answer the
question “How does (the product or process) perform the task function?” If all direct answers are
not among the existing basic functions, create a new one. All of these “primary” basic functions
are grouped at the top of the first column to the right of the task function.

Step 3—Identify the primary supporting functions: All customer-oriented FAST diagrams
contain primary supporting functions that assure dependability, assure convenience, satisfy the
user, or attract the user. In the FAST diagram, place all of the primary support functions to the
right of the task function, below the primary basic functions.

Step 4—Expand the FAST diagram to the right: Keep asking how (the product or process) does
this from the viewpoint of a user. Most answers will be found among the existing functions. Add
second, third level, and lesser functions as needed, but don’t expand a function unless the “how”
question is answered by two or more functions. Both primary basic and primary supporting
functions should be expanded in this way. Repeating the “how” question in this way is
sometimes called the ladder of abstraction method. It is a thought-forcing process. Because using
more than one definition can generate more creative ideas, this approach leads to greater fluency
(more ideas), greater flexibility (variety of ideas), and improved function understanding of the
problem.

Step 5—Verify the FAST diagram: The FAST diagram (see Figure 6) is verified by driving one’s
thinking up the ladder of abstraction. Asking “why” raises the level, making the function
description more general. In practice, the desired level is one that makes possible the largest
number of feasible alternatives.
Since the higher levels are more inclusive, affording more opportunities, what is desired is the
highest level that includes applicable, achievable alternatives. A practical limit to the “why”
direction is the highest level at which the practitioner is able to make changes. If the level

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selected is too low, alternatives may be restricted to those resembling the existing design. If the
level is too high, it may obscure achievable alternatives and suggest alternatives that are beyond
the scope of effort.

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The Function Analysis System Technique (FAST) diagram is usually prepared in a workshop
setting and led by someone with experience in preparing FAST diagrams. Input for the diagram
is received from workshop participants.
There is no 'correct' FAST diagram but there is a valid method of representing the logic in a
diagram. The validity of a FAST model for a given situation is dependent on knowledge and
scope of the workshop participants. The FAST diagram aids the team in reaching consensus on
their understanding of the project.

Examples

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ESTIMATE FUNCTION COST
The cost of the original or present method of performing the function (i.e., the cost for each
block of the FAST diagram) is determined as carefully and precisely as possible given the time
constraints for preparing the estimate.

FUNCTION WORTH
The Function–cost–worth analysis is an excellent tool to identify the value improvement
potential in any function. This tool will not only help to identify the potential but will also give
some creative ideas as to how to achieve that. This may also be considered the first step towards
creativity.

FUNCTION WORTH VALUE GAP AND VALUE INDEX

The difference between cost and worth is known as ‘value gap’.
It indicates the scope of possible value improvement.
The value index is the ratio of cost by worth.
In other words, it is the cost per unit of worth.
Value Index >1, means there is potential for value improvement.
The ultimate aim of the Function–cost–worth analysis is to find out the value improvement in
various functions. Based on these findings, the team will approach the problem.
The following steps are required to draw the Function–cost–worth matrix:
1. Write down all functions for the project as a whole.
2. Divide the project into parts.
3. Function(s) of each part to be defined in two words.
4. Apply three tests to identify the basic and secondary functions.
1) Is this function what users are looking for?
Yes: Basic No: Secondary
2) If this function is eliminated, will the item continue to do the job?
No: Basic Yes: Secondary
3) Will the function disappear, if the design approach is changed?
No: Basic Yes: Secondary
5. Cost of each part to be ascertained.
6. Cost of the part to be transformed into function.
7. Check whether the costs of the functions are equal to the sum of the costs of the parts.
8. Assess the worth (least cost of achieving) functions. First list all functions and costs in
descending order. Then ask the following questions:
Will you pay if it is your money?
If not, what do you consider reasonable?
By whom or where a similar function is available at lower cost?
What should you do to obtain the function within that cost?

The Economic Analysis Concept

Product Life Cycle: A new product progresses through a sequence of stages from introduction
to growth, maturity, and decline. This sequence is known as the product life cycle. When value is
added at maturity period this would result into extended life of the product.

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Life Cycle Costing (LCC)
LCC analysis can be carried out in any and all phases of the project's life cycle, helping the
decision maker by providing economic input. However, the earlier the analysis is performed, the
better the decision that is attained; studies have pointed out that 80% of the LCC is based on
decisions that are made within the first fifth of the life of the project.
The influence of applying LCC analysis during the planning phase, stating that 80% of the
operation, maintenance and replacement costs can be influenced in the first 20% of the design
process.
Life cycle cost (LCC) analysis is very important for any project as it assists the decision maker in
selecting the best alternatives among a certain number of alternatives. The need for life cycle cost
analysis has increased due to the increase in ownership, operating, maintenance and replacement
costs. Moreover, new products are being introduced to the market, which makes the competition
high.

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Methods of Life Cycle Cost
1. Net Present Value (NPV)
Net Present Value is defined as a tool to measure “the value in today’s dollars of
its implementation over the specified time frame. Positive NPV means a
profitable measure. Also, the lower NPV is desirable when considering cost only,
but if benefit is considered, then the highest NPV is more preferable.
NPV can be computed from investment cost (C), replacement cost (R), resale
value (S), annually recurring value (A) and maintenance (M).
𝑁𝑃𝑉 = 𝐶 + 𝑅 − 𝑆 + 𝐴 + M
2. Equivalent Uniform Annual Cost (EUAC) or Benefit (EUAB)
This method is applied upon a comparison based on annual cash flow is required
Besides; Equivalent annual cost has the advantage of comparing alternatives that
have various lifetimes.

3. Internal Rate of Return (IRR)

Return of investment (ROI) it called also, internal rate of return (IRR). Return of
investment is a tool to express cash flow and investment analysis in a monetary
invested unit. Productive investment shows high ROI. ROI can be computed from
Eq.

𝑅𝑂𝐼 = [ ( 𝑃𝑟𝑜𝑓𝑖𝑡=( 𝑃𝑟𝑜𝑗𝑒𝑐𝑡 𝑂𝑢𝑡𝑝𝑢𝑡)−𝑃𝑟𝑜𝑗𝑒𝑐𝑡 𝐶𝑜𝑠𝑡𝑠 (𝐼𝑛𝑝𝑢𝑡)] = 𝑥%

𝑃𝑟𝑜𝑗𝑒𝑐𝑡 𝐶𝑜𝑠𝑡𝑠 (𝐼𝑛𝑝𝑢𝑡𝑠)

The ROI is a rate of return used to compare profitability of investments. If the

ROI is greater than the owner’s stated discount rate, the measure is beneficial

C. Creative Phase
The objective of the Creative Phase (sometimes referred to as Speculation Phase) is to develop a
large quantity of ideas for performing each function selected for study. This is a Creative type of
effort, totally unconstrained by habit, tradition, negative attitudes, assumed restrictions, and
specific criteria. No judgment or discussion occurs during this activity. The quality of each idea
will be developed in the next phase, from the quantity generated in this phase.

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There are two keys to successful speculation: first, the purpose of this phase is not to Conceive of
ways to design a product or service, but to develop ways to perform the functions selected for
study. Secondly, creativity is a mental process in which past experience is a combined and
recombined to form new combination. The purpose is to create new combinations which will
perform the desired function at less total cost and improved performance than was previously
attainable.
There are numerous well-accepted idea generation techniques. The guiding principle in all of
them is that judgment / evaluation is suspended. Free flow of thoughts and ideas - without
criticism - is required.

D. Evaluation Phase
The objectives of the Evaluation Phase are to synthesize ideas and concepts generated in the
Creative Phase and to select feasible ideas for development into specific value improvement.
Using the evaluation criteria established during the Pre-Study effort, ideas are sorted and rated as
to how well they meet those criteria. The process typically involves several steps:
1. Eliminate nonsense or "thought- provoker" ideas.
2. Group similar ideas by category within long term and short term implications. Examples of
groupings are electrical, mechanical, structural, materials, special processes, etc.
3. Have one team member agree to "champion" each idea during further discussions and
evaluations. If no team member so volunteers, the idea, or concept is dropped.
4. List the advantages and disadvantages of each idea.
5. Rank the ideas within each category' according to the prioritized evaluation criteria using such
techniques as indexing, numerical evaluation, and team consensus.

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6. If competing combinations still exist, use matrix analysis to rank mutually exclusive ideas
satisfying the same function.
7. Select ideas for development of value improvement. If none of the final combinations appear
to satisfactorily meet the criteria, the value study team returns to the Creative Phase

E. Development Phase
The objective of the Development Phase is to select and prepare the "best" alternative(s) for
improving value. The data package prepared by the champion of each of the alternatives should
provide as much technical, cost, and schedule information as practical so the designer and project
sponsor(s) may make an initial assessment concerning their feasibility for implementation. The
following steps are included:
1. Beginning with the highest ranked value alternatives, develop a benefit analysis and
implementation requirements, including estimated initial costs, life cycle costs, and
implementation costs taking into account risk and uncertainty.
2. Conduct performance benefit analysis.
3. Compile technical data package for each proposed alternative.
a. written descriptions of original design and proposed alternative(s).
b. sketches of original design and proposed alternative (s)
c. cost and performance data, clearly showing the differences between the original design and
proposed alternative (s).
d. any technical back-up data such as information sources, calculations, and literature
e. schedule impact
4. Prepare an implementation Plan, including proposed schedule of all implementation activities,
team assignments and management requirements ‫ز‬
5. Complete recommendations including any unique conditions to the project under study such as
emerging technology. Political concerns, impact on other ongoing projects, marketing plans, etc.

F. Presentation Phase
The objective of the Presentation Phase is to obtain concurrence and a commitment from the
designer, project sponsor, and other management to proceed with implementation of the
recommendations. This involves an initial oral presentation followed by a complete written
report. As the last task within a value study, the VM study team presents its recommendations to
the decision making body. Through the presentation and its interactive discussions, the team
obtains either approval to proceed with implementation, or direction for additional information
needed. The written report documents the alternatives proposed with supporting data and
confirms the implementation plan accepted by management. Specific organization of the report
is unique to each study and organization requirements.

3. POST STUDY
The objective during Post-Study activities is to assure the implementation of the approved value
study change recommendations. Assignments are made either to individuals within the VM study
team, or by management to other individuals, to complete the tasks associated with the approved
implementation plan. While the VM Team Leader may track the progress of implementation, in
all cases the design professional is responsible for the implementation. Each alternative must be
independently designed and confirmed, including contractual changes if required, before its
implementation into the product, project, process, or procedure. Further, it is recommended that

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appropriate financial departments (accounting, auditing, etc.) conduct a post audit to verify to
management the full benefits resulting from the value methodology study.

CASE STUDIES
1. Cost-function analysis-I

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2. Cost-function analysis-II

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Reliability Engineering

The reliability of an item (a component, a complex system, a computer program or a human

being) is defined as the probability of performing its purpose adequately for the period of time
intended under the operating and environmental conditions encountered.
This definition stresses four elements:
1. Probability
2. Adequate performance
3. Time
4. Operating and environmental conditions.

CAUSES OF FAILURES
The specific causes of failures of components and equipments in a system can be many. Some
are known and others are unknown due to the complexity of the system and its environment. A
few of them are listed below:
1. Poor Design, Production and Use
Poor design and incorrect manufacturing techniques are obvious reasons of the low reliability.
Some manufacturers hesitate to invest more money on an improved design and modern
techniques of manufacturing and testing. Improper selection of materials is another cause for
poor design. Components and equipments do not operate in the same manner in all conditions. A
complete knowledge of their characteristics, applications, and limitations will avoid their misuse
and minimize the occurrence of failures. All failures have a cause and the lack of understanding
these causes is the primary cause of the unreliability of a given system.

2. System Complexity
In many cases a complex and sophisticated system is used to accomplish a task which could have
been done by other simple schemes. The implications of complexity are costly. First it employs
more components thereby decreasing overall reliability of the system. Second, a complex scheme
presents problems in terms of users' understanding and maintenance. On the other hand,
simplicity costs less, causes less problems, and has more reliability. A basic rule of reliability
with respect to complexity is: Keep the system as simple as is compatible with the performance
requirements.

3. Poor Maintenance
The important period in the life cycle of a product or a system is its operating period. Since no
product is perfect, it is likely to fail. However its life time can be increased if it can be repaired
and put into operation again. In many cases preventive-measures are possible and a judiciously
designed preventive-maintenance policy can help eliminate failures to a large extent.
The adage Prevention is better than cure applies to products and equipments as well.

4. Communication and Coordination

Reliability is a concern of almost all departments of an organization. It is essentially a birth-to-
death problem involving such areas as raw material and parts, conceptual and detailed
engineering design, production, test and quality control, product shipment and storage,
installation, operation and maintenance. A well-organized management with an efficient system
of communication is required to share the information and experiences about components.
Sufficient opportunity should be available for the people concerned to discuss the causes of

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failures. In some organizations, rigidity of rules and procedures prohibits the creative-thinking
and design.

5. Human Reliability
In spite of increased application of automation techniques in industries and other organisations, it
is impossible to completely eliminate the human involvement in the operation and maintenance
of systems. The contribution of human-errors to the unreliability may be at various stages of the
product cycle. Failures due to the human- error can be due to:
* Lack of understanding of the equipment
* Lack of understanding of the process
* Carelessness
* Forgetfulness
* poor judgmental skills
* Absence of correct operating procedures and instructions
* Physical inability

USEFUL LIFE OF COMPONENTS

If we take a large sample of components and operate them under constant conditions and replace
the components as they fail, then approximately the same number of failures will occur in
sufficiently long periods of equal length. The physical mechanism of such failures is a sudden
accumulation of stresses acting on and in the component. These sudden stress accumulations
occur at random and the randomness of the occurrence of chance failures is therefore an obvious
consequence.
If we plot the curve of the failure rate against the lifetime T of a very large sample of a
homogeneous component population, the resulting failure rate graph is shown in Fig 1.3. At the
time T=O we place in operation a very large number of new components of one kind. This

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population will initially exhibit a high failure rate if it contains some proportion of substandard,
weak specimens. As these weak components fail one by one, the failure rate decreases
comparatively rapidly during the so-called burn-in or debugging period, and stabilizes to an
approximately constant value at the time T b when the weak components have died out. The
component population after having been burned in or debugged, reaches its lowest failure rate
level which is approximately constant. This period of life is called the useful life period and it is
in this period that the exponential law is a good.
When the components reach the life T w wear out begins to make itself noticeable. From this
time on, the failure rate increases rather rapidly. If up to the time T w only a small percentage of
the component population has failed of the many components which survived up to the time
T w, about one-half will fail in the time period from T w to M. The time M is the mean wear out
life of the population. We call it simply mean life, distinguished from the mean time between
failures, m = 1/'A. in the useful life period.

THE EXPONENTIAL CASE OF CHANCE FAILURES

In the simplest case, when a device is subject only to failures which occur at random intervals,
and the expected number of failures is the same for equally long operating periods, its reliability
is mathematically defined by the well-known exponential formula

R(t) = exp(- At)

In this formula A is a constant called the failure rate, and t is the operating time. The failure rate
must be expressed in the same time units as time, t usually in hours. However, it may be better to
use cycles or miles in same cases. The reliability R is then the probability that the device, which
has a constant failure rate A will not fail in the given operating time t.

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RELIABILITY ANALYSIS OF SERIES PARALLEL SYSTEMS

Mean Time Between Failure (MTBF) is a reliability term used to provide the amount of
failures per million hours for a product. This is the most common inquiry about a product’s life
span, and is important in the decision-making process of the end user. MTBF is more important
for industries and integrators than for consumers. Most consumers are price driven and will not
take MTBF into consideration, nor is the data often readily available. On the other hand, when
equipment such as media converters or switches must be installed into mission critical
applications, MTBF becomes very important. In addition, MTBF may be an expected line item
in an RFQ (Request For Quote). Without the proper data, a manufacturer’s piece of equipment
would be immediately disqualified.

Mean Time To Repair (MTTR) is the time needed to repair a failed hardware module. In an
operational system, repair generally means replacing a failed hardware part. Thus, hardware
MTTR could be viewed as mean time to replace a failed hardware module. Taking too long to
repair a product drives up the cost of the installation in the long run, due to down time until the
new part arrives and the possible window of time required scheduling the installation. To avoid
MTTR, many companies purchase spare products so that a replacement can be installed quickly.
Generally, however, customers will inquire about the turn-around time of repairing a product,
and indirectly, that can fall into the MTTR category.

Mean Time To Failure (MTTF) is a basic measure of reliability for non-repairable systems. It
is the mean time expected until the first failure of a piece of equipment. MTTF is a statistical
value and is meant to be the mean over a long period of time and a large number of units.
Technically, MTBF should be used only in reference to a repairable item, while MTTF should be
used for non-repairable items. However, MTBF is commonly used for both repairable and non-
repairable items.

Series Systems
Series systems Series systems function properly only when all their components function
properly. Examples are chains made out of links, highways that may be closed to traffic due to
accidents at different locations, the food chains of certain animal species, and layered company
organizations in which information is passed from one hierarchical level to the next.

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The reliability of a series system is easily calculated from the reliability of its components. Let
Yi be an indicator of whether component i fails or not; hence Yi = 1 if component i fails and Yi
= 0 if component i functions properly. Also denote by Pi = P[Yi = 1] the probability that
component i fails. The probability of failure of a system with n components in series is then

P[system failure] = 1 − P[system survival]

= 1− P[(Y1 = 0) ∩ (Y2 = 0) ∩... ∩(Yn = 0)] (1)

If the components fail or survive independently of one another, then this probability becomes n

n
P[system failure] = 1 −∏(1 − Pi) (2)
i =1
In the even more special case when the component reliabilities are all the same, Pi = P and Eq. 2
gives

P[system failure] = 1 − (1 − P)n (3)

Parallel systems

In this case, the system fails only if all its components fail. For example, if an office has n copy
machines, it is possible to copy a document if at least one machine is in good working
conditions.

The probability of failure of a parallel system of this type is obtained as

P[system failure] = P[(Y1 =1) ∩(Y2 =1) ∩...∩(Yn =1)]

n
= ∏Pi , if the components fail independently (4)
i=1

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 = Pn, if in addition Pi = P for all i

REDUNDANCY TECHNIQUES IN SYSTEM DESIGN

“Redundancy is the provision of alternative means or parallel paths in a system for

accomplishing a given task such that all means must fail before causing a system failure”.
System reliability and mean life can be increased by additional means by applying redundancy at
various levels. The different approaches of introducing redundancy in the system are:

1. A duplicate path is provided for the entire system itself which is known as system or unit
redundancy.
2. A redundant path is provided for each component individually which is called component
redundancy.
3. In the third approach, the weak components should be identified and strengthened for
reliability.
4. In the last approach, a mix of the above techniques is used depending upon the reliability
requirements and configuration of the system which is known as mixed redundancy.

Component versus Unit Redundancy

Duplication at the unit level is easy rather than at the component level. But higher reliability is
achieved through component redundancy than unit redundancy.
Let us consider a two-component series system. Redundancy can be applied in two ways as
shown in Fig. 3.15. Assuming that the units are statistically independent and identical at each
level, the reliability of the system with unit-redundancy is

Ru=1-(1-p1p2)(1- p1p2)

=2p1p2- p12 p22

Where the reliabilities of components C1 and C2 are p1 and p2. In case of component
redundancy, the reliability is

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If we assume p1 = p2 for simplicity sake, we obtain

RU = 2 p2- p4

Rc = p2 (2-p2)
Then,
Rc- RU = p2 [(2- p) 2 (2- p2)]

= p2 (2-4p+2p2)

=2p2 (1-P) 2

It is obvious from Equation (6.1) that Rc - Ru > 0 for 0 < p < 1 and Rc - Ru = 0 for p =1 which
proves that the redundancy at the component level is more enhanced than redundancy at the unit
level to the level as far as reliability is concerned. This is also correct even if the primary
components of the system are non-identical.

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