When a budget comes under pressure, someone usually asks for the design to be “value engineered”. In practice, that often means cutting: thinner materials, cheaper components, removed features, reduced contingencies. The product or project becomes cheaper to buy or build. It does not necessarily become more valuable, and sometimes it becomes considerably less so.
Cost reduction and value improvement can coincide, but they are not the same thing. A change creates value only when it improves the relationship between what the customer or business needs and the full resources, risks and consequences required to deliver it. A cheaper design that fails earlier, needs more maintenance, uses more labour or limits future options may reduce the purchase price while destroying value over its life.
This article explains what value engineering actually is, why it starts with functions rather than components, how to generate real alternatives instead of cosmetic variations, how to stop savings being transferred to someone else’s budget and how a small business can run a practical value review.
Value management and value engineering
Two related terms are often used interchangeably.
Value management works early, before detailed design. It clarifies what the investment is for, who it serves, what matters and how options will be judged. At this stage, high-value alternatives are still available: different locations, processes, product architectures or even different ways of meeting the need altogether.
Value engineering applies the same functional thinking when solutions are defined enough to test components, methods and configurations. The approach is commonly traced to US manufacturing in the 1940s, where engineers found that asking what a part needed to do, rather than what it was, often revealed cheaper and better ways to do it.
The distinction matters because timing matters. Once a design is mature and commitments are made, many of the most valuable alternatives have gone. Value engineering applied only after a budget overrun can substitute materials and trim features, but it can rarely reconsider the bigger choices that set most of the cost.
Start with functions
The core technique of value engineering is function analysis: describing what something must do, separately from how it currently does it. Functions are usually written as a verb and a noun: support load, seal joint, drain water, protect operator, display status, resist corrosion.
Functions can be sorted into:
- Basic functions: the reasons the product or part exists. Remove them and it no longer serves its purpose.
- Secondary functions: those that support the basic functions or arise from the chosen design, such as features needed for assembly, appearance or compliance.
Writing functions this way separates the need from the inherited solution. “Bracket, machined, 7 parts” describes a solution. “Support motor” describes a function, and opens the question of how else the motor could be supported.
Common misreadings
- Value is a property of the product. Value depends on who is judging, over what time and in what system. Automation may create value through throughput while reducing flexibility. Standardisation may cut operating cost while limiting premium offerings.
- Function means technical performance only. Required functions can include safety, maintainability, adaptability, compliance, user experience, appearance and resilience.
- Purchase price is the right comparison. Installation, energy, consumables, downtime, training, maintenance, spares and disposal can change the answer.
- More features mean more value. Unused features add cost, complexity, support obligations and failure points. The question is which functions are needed to produce the intended outcome.
The value relationship
Value is often described as the relationship between the functions delivered and the whole-of-life cost and consequences of delivering them. It is a discipline for comparison, not a formula to be calculated mechanically. Many benefits and harms cannot responsibly be reduced to a single number. Its usefulness is in forcing two questions about every proposal: does this still deliver every function that matters, and what does it cost over the whole life, including the costs that fall on others?
Agree criteria before generating alternatives
An effective value process agrees how options will be judged before anyone becomes attached to a solution. Criteria might include:
- Safety and regulatory confidence.
- Customer outcomes and satisfaction.
- Whole-of-life cost.
- Delivery time and disruption.
- Reliability and maintainability.
- Adaptability for future changes.
- Environmental consequences.
- Effect on the people who build, install, operate or maintain it.
Weight or rank the criteria openly. Otherwise, the loudest voice or the lowest initial price tends to decide.
Generate real alternatives
The quality of alternatives matters more than their number. Alternatives that differ only in supplier or minor specification are cosmetic. Real alternatives meet the same functions in genuinely different ways. A request for another large machine might reflect functions such as more capacity, shorter changeovers, safer handling and better traceability. Alternatives could include removing a bottleneck on existing equipment, redesigning tooling, outsourcing some work, changing the product design or adding smaller modular equipment. The original machine may still be the best answer, but choosing it from real alternatives earns confidence that it is.
Useful prompts for generating alternatives include: can this function be eliminated, combined with another, achieved with a standard part, achieved by a different process, or moved to a different stage where it is cheaper?
Stop savings from moving downstream
Project teams are usually measured on budget and schedule. Operating costs appear after handover and may belong to someone else. That creates an incentive to approve savings that simply move cost into operations: a cheaper pump that uses more energy, a coating that needs repainting sooner, a software tool with higher support costs, a layout that adds handling.
Require every significant substitution to state its whole-of-life consequences: maintenance, energy, reliability, spares, training, warranty and disposal. If a saving cannot show those consequences, it has not yet been evaluated.
Where value is usually found
Experience across many designs shows that value opportunities tend to cluster in a few places:
- Part consolidation: combining several parts into one, which reduces purchasing, assembly, inspection and failure points at once.
- Standard parts: replacing custom components with standard ones that meet the same function, which also simplifies spares.
- Process change: making a part by a different process, such as folding instead of welding or moulding instead of machining, where volumes justify it.
- Tolerances and finishes: relaxing requirements that serve no function, while keeping those that do.
- Unused features: removing features customers do not use or value.
- Maintainability: changes that raise purchase cost slightly but reduce maintenance, downtime or replacement significantly.
- Installation: designs that are quicker and safer to install, which often matters more than small savings in manufacture.
Not every opportunity is a saving. Some raise first cost to reduce whole-of-life cost, which is still value engineering.
Inviting suppliers’ ideas
Suppliers and contractors often know cheaper or better ways to meet a function, because they see many designs. Some contracts invite them to propose alternatives after award, with any agreed saving shared between the parties. That sharing matters: without it, a supplier has little reason to suggest a change that reduces its own revenue. If you use this approach, be clear about how proposals are submitted, how they are evaluated against the agreed functions and criteria, how savings are calculated and shared, and who carries the risk if a proposed change does not perform. Take advice on contract wording for significant agreements.
A seven-stage process
| Stage | Purpose |
|---|---|
| Understand | Confirm the need, stakeholders, constraints and value criteria |
| Analyse functions | Separate required functions from the inherited solution |
| Generate | Create genuinely different ways to deliver the functions |
| Evaluate | Compare whole-of-life value, risk, feasibility and reversibility |
| Develop | Work up the strongest alternatives and resolve their interfaces |
| Decide | Select, defer or reject, with the reasons recorded |
| Verify | Confirm the promised value survives detailed design and delivery |
The last stage is often skipped. A saving agreed in a workshop can be eroded by later changes, and a function quietly dropped can return as a problem after delivery.
Running a value review in a small business
A value review does not need a large team or a week-long workshop. For a small business, a half-day session can work well:
- Who: the designer, someone from production or installation, someone who deals with customers, someone who maintains or services the product, and the person accountable for cost.
- Before: circulate the current design, its cost breakdown and the agreed criteria.
- During: list functions, mark which parts of the cost serve which functions, generate alternatives for the most expensive functions and screen them against the criteria.
- After: develop the best two or three alternatives, test them and record the decision and expected savings.
Focus on the functions that carry the most cost. That is usually where the largest opportunities sit.
A worked example
This is an illustration. A small business designs stainless steel wash stations for food processing customers. A new model’s cost has come in at $2,760 against a target of $2,400, about 15% over.
The first suggestion is classic cost cutting: use 1.2 mm sheet instead of 1.5 mm, saving about $180. The team checks the consequences and finds a likely increase in denting and flexing during heavy cleaning, more warranty claims and a weaker reputation in a market that values durability. It sets that option aside.
Instead, the team runs a short value review. It lists the functions: contain water, deliver water, drain water, support load, resist cleaning chemicals, allow thorough cleaning and secure to the floor. It then examines which parts of the cost serve which functions, and finds:
- Five welded brackets support the basin. A single folded under-frame does the same job with less welding: saving about $140.
- Hidden surfaces are polished to the same standard as food-contact surfaces, which has no function. Food-contact surfaces stay polished, and hidden surfaces use a standard finish: saving about $90.
- A special tap model is used only on this product. Switching to the standard tap used across the range simplifies spares: saving about $60.
- A custom drain fitting can be replaced with a standard one that meets the same requirements: saving about $45.
Together these save about $335, bringing the cost to about $2,425, within about 1% of target, with fewer parts, simpler spares and no loss of hygiene or durability. The team verifies the changes with a prototype and a cleaning trial before release.
How this applies to a small Australian business
Small manufacturers and product businesses often face cost pressure late in development, when options are narrowest. Practical steps:
- Hold a value review early, before designs are fixed, not only after a budget problem.
- Describe functions as verb and noun to separate need from solution.
- Agree criteria first, including whole-of-life cost and customer outcomes.
- Look for real alternatives, not just cheaper versions of the same thing.
- State whole-of-life consequences for every significant substitution.
- Involve production, installation and service people.
- Verify savings through prototypes and testing before committing.
- Check that changes still meet regulatory and customer requirements, such as food-contact, electrical or safety standards.
The articles on the cost you commit before you spend and quality starts before the specification cover related ideas.
Signals worth watching
- Value engineering beginning only after a budget problem.
- Savings reported without whole-of-life effects.
- Functions or acceptance criteria quietly changing after a cheaper option is chosen.
- Operations or service teams carrying costs that were not in the business case.
- Alternatives that differ only in supplier or specification.
- Maintainability and adaptability carrying no weight in decisions.
- Features added that nobody can link to an outcome.
Common mistakes
- Using value engineering as a label for cuts.
- Starting with components rather than functions.
- Comparing purchase price only.
- Generating cosmetic alternatives.
- Leaving out the people who build, install and maintain.
- Skipping verification after the decision.
- Applying value engineering too late to affect the big choices.
Frequently asked questions
Is value engineering only for large projects? No. The same function-based thinking works for a single product, a fit-out or a piece of equipment. A half-day review can find meaningful savings.
How do we stop a value review becoming a cost-cutting exercise? Agree the functions and criteria before discussing savings, include people who will live with the consequences, and require every proposed change to state what happens to each function and to whole-of-life cost.
Can value engineering increase cost? Yes. Sometimes the best value is a more expensive option that lasts longer, costs less to maintain or performs better. The aim is value, not the lowest price.
What if customers specify the solution rather than the function? Ask what the specification is meant to achieve. Many customers welcome alternatives that meet their real needs better or more cheaply, provided the change is clearly explained and agreed.
Questions to ask
- Which functions must this design deliver, and which features merely reflect the current solution?
- Whose idea of value is dominating the decision?
- What cost or risk would this saving move to operations, service or customers?
- Have we considered genuinely different ways of meeting the need?
- Are we removing waste, reducing performance or only lowering first cost?
- How will we confirm that the promised value survives delivery?
Bringing it together
Value engineering is not a polite word for cost cutting. It is a disciplined challenge to assumptions: what must this design do, what other ways could it be done, and which option gives the strongest outcome over its whole life? Start early, describe functions separately from solutions, agree criteria before generating alternatives, look for genuinely different options, make whole-of-life consequences visible and verify that savings survive delivery. The goal is not to defend every specification. It is to make sure savings do not quietly buy a weaker product.
Source: KEVOS notes. Examples and figures in this article are illustrations.
