Chapter I
History of Value Management
Theory and Techniques
As early as 1731, Daniel Bernoulli, presenting a paper at the Imperial Academy of Sciences in St. Petersburg, stated that the value of an item must not be based on its price, but rather on the utility which it yields (in Bernstein, 1996). This concept of the relationship between value and function is at the heart of all value disciplines.
As a formalized methodology, value management is not new; its origin dates from World War II when it was codified as value analysis/engineering. Its success was challenged at times, yet flexibility and continued improvements have enabled value analysis and value engineering to overcome roadblocks with remarkable results. As the old saying goes, the proof of the pudding is in the eating.
I will explore the theory and techniques of value management through the value professionals who have contributed to value engineering and value analysis growth and recognition throughout the years.
1940 to 1960: More for Less
Value analysis/engineering was first developed by Lawrence D. Miles, an electrical engineer with General Electric (GE), now universally known as the “father of value engineering.” When World War II broke out, material shortages began occurring, and electrical components that once were plentiful were committed to strategic applications. A product that had been produced easily in the past had to be redeveloped using different materials. The function remained the same, but the method of providing that function had to be changed. Miles, who had often in the past been dissatisfied with the high cost of many of GE’s projects, realized that often, when circumstances force people to do things differently—altering a design or using a different material, for example—the result was superior performance combined with reduced cost.
At first, the functional approach was related to decreasing cost; subsequently, it was expanded to evaluate the overall value of the product. The program developed by Miles was called value analysis/engineering, and its purpose was to analyze the cost necessary to achieve the required function without jeopardizing the reliability of the product. The first value analysis seminars at General Electric were conducted in 1952. A multidisciplinary team was organized to involve the key decision makers, and the team concept was an instant success. In the late fifties, Miles structured value engineering through a job plan concept and published Techniques of Value Analysis and Engineering (2nd Ed., 1972).
1960 to 1980: Opening New Paths
In 1965, Carlos Fallon, then director of purchasing research at RCA, worked on a matrix analysis approach to decision making. This system offered the basic benefits of mathematics-oriented analysis, yet was relatively easy to use and understand; he called it “Combinex” (Fallon, 1965).
In the early sixties, Charles W. Bytheway, an engineer with Sperry Rand’s Univac Division, developed the function analysis systems technique (FAST) (1985). FAST is a diagrammatic structure aimed at organizing functions in a logical and orderly manner; it may have been inspired by the concepts of work breakdown structure (WBS) and critical path method (CPM) that were introduced and very popular in project management at the time.
Many value engineers developed individual versions of function analysis systems technique diagramming; two of them are more notable. Wayne Ruggles, then executive vice president of Value Analysis Inc., developed—with the help of J.K. Foulkes and John Groothuis—what is now known as the “technically oriented FAST.” Thomas J. Snodgrass, president of Value Standards Inc. and a professor at the University of Wisconsin, devised a market research-based technique to compare a function’s “worth to the customer” with its actual cost and, with Theodore C. Fowler, developed the “customer-oriented FAST” (Snodgrass and Kasi, 1986; Snodgrass and Fowler, 1972, sec. 9.0).
1980 to late 1990s: Toward Value Management
In 1986 Thomas Cook simplified and modified Snodgrass’ data based methodology in order to assess value mismatches with a customer-oriented point of view (Cook, 1986, 145–156). This and other developments of the sixties and eighties paved the way for value analysis and value engineering’s expansion from manufactured product analysis and construction into new fields. In the eighties, basic value engineering methodology was well established and clearly described by Larry Zimmerman and Alphonse Dell’Isola (Zimmerman and Hart, 1982; Dell’Isola, 1988).
The late eighties and early nineties saw the rise of new methods that enabled value practitioners to implement value analysis techniques at a much earlier stage and to integrate them into the project management process, thereby creating a true management tool. Some of those new methods are the Cahier des charges fonctionnel (CdCF) developed in France (Brun, 1993; Tassinari, 1985); customer-oriented value engineering (COVE) (Bryant, 1986), strategic value planning (SVP) (Kirk, 1993), modern value engineering (MVE) (Ellegant, 1993) in the United States; and value management by John Kelly and Steven Male in the United Kingdom (1993).
Last 15 years: Value Management
Although the term value management was first used in the 1970s, it was only in the late 1990s that value management emerged as a discipline distinct from VA/VE, drawing on management techniques and fully integrating it in the project life cycle as a “collaborative group-learning approach” (Barton, 2000). Today, VM is used in a number of new fields, like strategic planning, process reengineering, organizational management, change management, concurrent engineering, and others; it is also integrated with known processes like organizational effectiveness, quality management, design to objectives (DTO), and risk management.
For the last 10 years, a small group of practitioners around the world have used value management to help formulate strategies and master their execution. This is the subject of Chapter IV.
Outlook: Integration
More and more value practitioners are questioning the traditional forty-hour value engineering workshop because of its focus on cost reduction and its alienation of the project team. Many are evolving towards a more integrated form of value management that spans throughout the entire project life-cycle. Several practitioners are using techniques to apply value management much earlier in the project and promote post-workshop follow-up. This evolution has opened new possibilities for value integration into project management and even more so in strategic and program management. New fields are being explored for the application of value management techniques, such as reengineering (Hays, 1995), organizational management, change management, concurrent engineering, and others. Value concepts also are integrated into known processes, such as project management (PM) (Thiry, 1996), total quality management (TQM) (Fuerstenberg, 1994; Ellegant, 1993), design to cost (DTC) (Ruskin, 1995), and program management (Thiry, 2004, 2010), for example. The concept of value is so universal that the only obstacle to furthering value management development is the inhibition of value practitioners.
Value Management Expansion
The United States Department of Defense’s Navy Bureau of Ships established the first governmental value program in 1954. The method was to be applied at the engineering stage, which brought about a change in name from value analysis to value engineering. In late 1958, the first group of value engineers united under the name of the Society of American Value Engineers (SAVE). Due to SAVE’s steady lobbying for the use of value analysis and value engineering, many U.S. governmental agencies adopted the methodology for their projects. In the early sixties, the Department of Defense proclaimed that its subcontractors would use value engineering, and in 1973 General Service Administration did the same regarding design and construction management contracts.
Following the Navy’s lead, the United States Army and Air Force began visiting their suppliers, attempting to motivate them to launch value engineering programs in order to help reduce defense costs. But success was an embarrassing moderate to nothing. It was clear that suppliers were being penalized rather than rewarded for suggesting value engineering savings, because their fees or profits were calculated according to the cost of the project. In 1963, the Armed Services Procurement Regulation (ASPR) Committee mandated that value engineering incentives would be included in contracts, thus allowing percentage sharing by the contractor and the supplier on approved savings proposals, known as value engineering change proposals (VECP). On February 10, 1996, the United States Office of Federal Procurement Policy Act (41 U.S.C. 401 et seq.) was amended to include Section 4306, which states the following: “Each executive agency shall establish and maintain cost-effective value engineering procedures and processes.”
The European Community Programme for Innovation and Technology Transfer (SPRINT) has been promoting value analysis since 1988 as one of the innovative management techniques strengthening companies’ innovative capacity and competitiveness. It has published a widely distributed booklet entitled “Better Management Through Value Analysis” in the nine official languages of the community. In Europe, more and more governmental organizations are requiring function-based specifications (for example, CdCF in France) in their public bidding systems and value management in their projects (Many U.K. Governmental Agencies require a VM exercise as part of any project process). Value management is an integral part of the Association for Project Management’s (APM) Body of Knowledge, and the UK Government has recently issued a Value Management Guide.
Soon after the Society for American Value Engineers was founded in 1959, value engineering began to spread around the world. In 1965 the Society of Japanese Value Engineers was founded; in October 1966, the Value Engineering Association was formed in the United Kingdom under the tutelage of the then Ministry of Technology. It became the Institute of Value Management in 1971. Later, value engineering societies were formed in Italy (Associazione italiana per l’analisis del valore), Germany (Verein Deutcher Ingenieure), France in 1978 (Association française pour l’analyse de la valeur), South Korea, Saudi Arabia, Kuwait, Australia (IVMA), Denmark (Danish Technological Institute), India (Society of Indian Value Management), Taiwan and South Africa in the eighties, Hungary (Society of Hungarian Value Analysis) and Canada in 1993 (Canadian Society of Value Analysis). In 1996, SAVE changed its name to SAVE International. In 1999, nine European Associations established the European Governing Board for Value Management Training and Certification, better known as the EGB. The EGB regulates training and practice of value management in Europe.
In 2002 and 2003, SAVE International and the EGB agreed to develop a framework for certification reciprocity. As part of this framework, definitions were developed for common value terms; they are recognized as a common basis for value practice. These definitions were developed as part of the discussions on value reciprocity between the United States and Europe. In the end they were officially adopted only by Europe, but SAVE International has recognized them.
- “Value has been defined as a ratio between ‘quality and cost’, ‘function and cost’, ‘worth and cost’, ‘performance and resources’, ‘satisfaction of needs and use of resources’ and ‘benefits and investment’. All those ratios and others are acceptable, as long as, on one side, lies the satisfaction of an explicit or implicit need and on the other, the resources invested to achieve it.”
In the United States and U.S.-influenced countries like English Canada, the Middle East, and Japan, the focus is on cost, whereas Europe and countries like Australia, French Canada, and Hong Kong have developed a broader view of resources.
- “Value Management (VM) consists of the combined application of value methodologies and other methodologies at
organizational level (from strategic to operational) in order to improve organizational effectiveness.”
In the U.S.-influence zone, it is an umbrella term for VA and VE, whereas in Europe and other countries it is considered a management approach, as described in EN-12973:2000 European Standard.
- “Value Analysis (VA) and Value Engineering (VE) are specific value methodologies aimed at improving existing products or developing new products. Products can include both goods and services.”
Establishing Value Analysis/Value Engineering
Certifications
In 1970, the General Services Administration (GSA) recommended the establishment of a value engineering program for its construction projects, and in 1973 the GSA Public Building Services required that value engineering studies be included in its construction contracts. GSA then asked the Society of American Value Engineers (SAVE) to develop a certification program for value practitioners; the status of certified value specialist (CVS) was established by SAVE as a standard, recognizing competence in the field of value engineering (SAVE, 1993). Today, many such programs exist around the world. In the United States, SAVE International now has three levels of certification: associate value specialist (AVS), value management practitioner (VMP), and certified value specialist (CVS). The associate value specialist represents the basic level and recognizes the ability to participate in a workshop and help facilitate it. Value management practitioner is an intermediate level aimed at managers or coordinators of value management programs that do not need the facilitator certification. Certified value specialist is the highest level of certification and recognizes a seasoned value management practitioner.
The Institute of Value Management of Australia recognizes four levels of membership: associate member, member, member practitioner, and fellow. India and Japan recognize SAVE International certified value specialist certification; Japan also has a value engineering leader certification for junior level personnel that is recognized by the Japanese government. South Africa’s Value Engineering and Management Society of South Africa currently recognizes three levels of accreditation: Value analysis/value engineering/value management practitioner (VA/VE/VM) is the first level; value engineering/value analysis/value management facilitator (VE/VA/VM), the second level, requires some value management facilitation experience; and the third level, value analysis/value engineering/value management trainer (VA/VE/VM) requires training experience.
In Europe, the Association Française pour l’analyse de la valeur in France recognizes three categories of certification. Category I is targeted at the teaching of value analysis and comprises two levels of certification; category II is aimed at practitioners and has four levels, the two higher levels being animateur (CANV) and expert (CEXV). Category III focuses on value analysis program managers and/or sponsors. In Germany, the Zentrum Wertanalyse offers three levels of certification: value analyst, value analyst coordinator, and value analyst teacher. In Ireland, Forbairt certified the first Irish value analysts in 1996, based on the German model. In the United Kingdom, the Institute of Value Management used to deliver three levels of qualification: certificated value practitioner (CVP), capable of leading value management workshops and studies; certificated value educationalist (CVE), skilled in teaching value management; and certificated value manager (CVM), capable of conducting value studies and control value management programs. Most of the European certifications have now been replaced with the unique European Certification PVM (Professional in Value Management) which is achieved following nine days of accredited training and recognized experience. The EGB has also established a trainer certification (TVM), that can be awarded following two years’ experience and a train-the-trainers course. CVS and PVM are the most widely recognized certifications and in 2003 the EGB signed a certification reciprocity agreement with SAVE International to allow a PVM to become CVS and vice versa.
Standards
Germany developed the first value standard in 1973: DIN 69 910 on “Wertanalyse”(value analysis). From 1985 to the early nineties, Association Française de Normalisation (AFNOR) standards X50-100, 150, 151, 152, and 153 on value analysis were introduced in France. In 1987 the Bureau of Indian Standards set up standard IS:11810-1986 on value engineering. The American Society for Testing Materials (ASTM) developed a standard for value engineering in construction in 1995, and a European standard that was developed in 1999 by the Commission Europeenne de Normalisation (CEN) is currently being revised (2012). The Australian Standards Committee on Value Management developed a new standard in 2007.
In 2007, SAVE International (formerly Society of American Value Engineers) issued a Value Methodology Standard and Body Of Knowledge, which outlines SAVE International’s approach to Value Methodologies.
In 2010 the Office of Government Commerce (OGC) in the UK issued a new Best Management Practice Guide: Management of Value that codifies the use of value management in the context of projects and programs. The stated goal of the guide is to help organizations “increase the value they deliver and make better use of resources.” (OGC, 2010, 3).