Value Engineering (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, however, important to recognize that value improvement is the real objective of VE, and that may not result in an immediate cost reduction.
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.
In 1957, the Navy’s Bureau of Ships became the first DoD organization to establish a formal VE program based on earlier work at General Electric (GE) during World War II. Two GE employees, Lawrence D. Miles and 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.
The DoD VE program has two distinct components:
- An in-house effort where VE is performed by DoD military and civilian personnel and
- An external effort where VE is performed by DoD contractors and applied to contracts after DoD 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 in the DoD
Value Engineering is a successful DoD cost avoidance and product improvement program in use for over 40 years and consistently provides cost avoidances of approximately $1B per year. VE is legislatively mandated in accordance with The Office of Federal Procurement Policy Act (OFPP Act) - 41 USC 1711 (updated January 7, 2011) requiring every Federal agency to maintain a VE program. Responsibility for DoD VE resides with AT&L. The USC is further delineated in FARs Part 48 and 52.248. Implementation of these FARs is contained in Office of Management and Budget, “Value Engineering,” Circular No. A-131, May 21, 1993.
The Value Engineering Management Advisory Group (VE MAG), with representatives from all DoD Components and Agencies, oversees VE progress. The Director, Mission Assurance within the Office of the Deputy Assistant Secretary of Defense for Systems Engineering acts as Executive Secretary. The VE MAG oversees the annual VE awards program and the annual awards ceremony, hosted by the USD(AT&L).
For additional information, check out:
- Department of Defense Instruction 4245.14, DoD Value Engineering (VE) Program
October 26, 2012
- Value Engineering: A Guidebook of Best Practices and Tools, June 2011 (SD 24)
- Department of Defense Contractor's Guide to Value Engineering, Version 2.4, August 2011
- Value Engineering Change Proposals in Supplies or Services Contracts
- Value Engineering Throughout a Defense System's Life Cycle
- Value Engineering and Services Contracts
Further resources are available on the Value Engineering website.