Value Engineering vs Cost Cutting: Know the Difference
At Engineered Mechanical Systems, our goal has — and will — always be to provide the greatest possible value for our clients. If your company has the resources and support from vendors like ours, then you can grow. We’re invested in helping make that happen for you.
In our experience, value engineering results in greater added value and reduced costs for our clients. Our team is able to carefully consider all aspects of your projects and work with you to improve your costs and turnaround times.
Many stakeholders confuse this process with cost-cutting. While both processes result in reducing your overall cost for your project, they are very different.
Let’s take a look.
Value Engineering vs Cost-Cutting
Saving money makes sense. Your customers are always looking for the best deal, and will often choose your competitor simply to save a few dollars.
You have to be competitive — we understand. However, it’s important to be strategic about how you’re going to reduce your costs.
Cutting costs is all about saving money on the overall production of your components. You find typical ways to reduce your costs in programming, design, and operations.
Taken to the extreme, cost-cutting can involve using cheaper, low-quality components. Some companies even spend less or even eliminate, research and development, quality control, and other safety and quality aspects.
Over time, cost-cutting can drastically destroy the concept of value in a given market.
Every company that produces that material is forced to find a way to produce their products cheaper if they want to compete. This drives product quality further down while setting the expectation with consumers that this product is meant to be cheap and used until it breaks and then trashed.
Value engineering (VE) was first introduced during World War II. The war caused shortages across the board — skilled labor, raw materials, and component parts.
The men in charge at General Electric Co. sought to find acceptable substitutions. They began to realize that the substitutions typically included reduced costs, better products, or both.
“Value Analysis” — as they called it — started out as an accident and turned into a useful systematic process. Now, the United States government defines it as “an analysis of the functions of a program, project, system, product, item of equipment, building, facility, service, or supply of an executive agency, performed by a qualified agency or contractor personnel, directed at improving performance, quality, safety, and life-cycle costs.”
Simply put, VE is designed to find the best value, not the best price. Unlike cost-cutting, value engineering focuses on cost optimization. It might actually cost you more in an upfront investment in order to save money on production or optimization costs in the long term.
The goal of value engineering is to save money while retaining or improving the quality of the design, engineering, or operations. It doesn’t alter the scope of the project while optimizing it. A primary tenant of VE is that basic functions must be preserved and not be reduced as a result of pursuing value-based improvements.
In this process, value is defined as the ratio of function to cost. You can increase the value by either improving the function of a product or reducing the cost of it. It uses rational logic and the analysis of function to identify relationships that increase value.
A typical process for value engineering includes:
Gathering information. The parties involved come together and review the project requirements and existing details. They seek to uncover the objectives, key criteria, and overall definition of value.
Brainstorming. Armed with knowledge, the team works together to brainstorm ways to reduce the initial or lifetime cost of producing this component while still maximizing its function and value.
Evaluation. Now that your team has the initial details and suggestions, it’s time to put them under scrutiny and decide which ideas are worth pursuing and which ones are scrapped.
Manufacturing. At this stage, you take a look at the list of ideas that you created that were worth pursuing. You put them to the test and develop simulations or working prototypes to determine if your suggestions actually deliver the results you were seeking.
Ways to Reduce Costs with Value Engineering
There are a few different ways to reduce costs while still following the core principles of VE.
Use alternative products. A different grade of material may reduce costs while improving overall functionality and not compromising quality.
Find alternative methods. Your design specification may require a bend where a weld would be more cost-effective or vice-versa.
Eliminate unnecessary components. Some pieces of the design may simply not be necessary to maintain the functionality or aesthetic of the piece.
The end result of this process is a product that has high value at the lowest possible cost without reducing the intended functionality.
Get Started with Value Engineering at EMS
Our team takes pride in their ability to truly help our customers meet their goals. You don’t have to take my word on it though.
“I wanted to take a moment and brag on Chris Dowden and your team at EMS. Over the past five years, I have been working with EMS, everyone has gone out of their way to be very helpful and courteous. You all really have the customer’s needs in mind. Not only are you willing to take on difficult projects, but you make it seem easy. You really have a great team there.” — Design Engineer at Phoenix USA™, Inc.
“Your responsiveness to our needs is outstanding and I do appreciate the service. We are very blessed to have a supplier such as EMS which can respond to critical needs as has been done in this case. You are going way beyond what is required of a vendor. ” — Alstom Power, Inc.
Our customers tell us over and over again how much our team has put their needs first. Helping you meet your business needs is what our business is built on.
If you’re ready to move forward with your next value engineering project and would like to talk to our team and see how we can help, then let’s talk.