2. Value Method History

   ---

   1. Method Origination and Development.

      Initial Development. Larry Miles is acknowledged as the "father" of the Value Method. Along with his design and purchasing background, he had a reputation for great enthusiasm, promoting cost-effective operations, and using unique methods for problem solving. He became the procurement officer for low military priority materials in General Electric (GE's) shortly after the United States (US) entered World War II in 1942.

      Raw materials, products, personnel, and other resources, available for low priority activities in a time of war, were scarce. Mr. Miles was unable to obtain materials and products. To obtain these products he began specifying products on the basis of function. This made it possible for him to obtain needed products because he was not simply specifying a component that may be unavailable. By the end of the war Mr. Miles had developed a procedure for procuring, designing, and using products based on functions.

      Mr. Miles found that his function based procedure also made it possible to produce goods less expensively. It generated both increased production and operational efficiency. As a result of the success of the procedure, after the war, GE founded a new section to further develop and implement it. Mr. Miles headed the Department. Using functions as its basis, they collected additional historical wisdom and generated a formal methodology. GE called the technique "Value Analysis." Mr. Miles' group generated the basic procedural plan, team concepts, and most of the other primary components of the methodology that are used to this day.

      The results of the group Mr. Miles' headed was astounding. During this time, GE reduced their costs more than $200 million at a cost of less than one million dollars. To remain competitive and ensure their profitability, the manufacturing industry quickly adopted the procedure and implemented their own Value Programs. By the end of the 1950's, a nation-wide organization to support the use and development of the Value Method had been formed (now known as SAVE International).

      In the mid-1960's, three US Government organizations, US Army Corps of Engineers, Navy Bureau of Shipyards and Docks, and the Department of the Interior's Bureau of Reclamation adopted the Value Method within their organizations. Due to the nature of their work and staffing used, these organizations named their application of the method "Value Engineering". Partially due to the large national influence of these organizations, the name Value Engineering, or VE, became one of the most universally accepted names for the function-based procedure.

      FAST Diagramming. The most crucial component added to the basic Value Method occurred in 1964. During his VA work for Sperry UNIVAC, Charles Bytheway developed a functional logical path analysis procedure. Using the natural "ladder of abstraction" (logic order) present in all languages, he developed a diagramming process that indicates the purposes behind a component or project. This made the critical and less critical features were much easier to determine and highlight. Its use generated improved discussion between people involved and helped people focus their creative efforts.
      
      
      After Mr. Bytheway presented several papers, from 1965 through about 1968, Value Method practitioners adopted, in the standard methodology, a function-logic diagramming procedure called "Functional Analysis System Technique" (FAST). After several versions of FAST diagrams were developed, three basic FAST diagrams formats became generally accepted: Traditional FAST, Technical FAST (Wayne Ruggles of Value Analysis, Inc.), and Customer FAST (Tom Snodgrass, Value Standards, Inc.). All the diagramming procedures use a similar "how? - why?" approach.
      
      
      In 1975, a workshop at the University of Wisconsin at Madison was held with the intent to combine the FAST procedures into a unified approach. The workshop was composed of some of the best known Value Method practitioners of the period. To the surprise of everyone, including the practitioners, they found that each approach was optimal for the applications they were designed to be used. As a result of this workshop, it was resolved that a unified approach was not appropriate and each application should use the FAST procedure best suited to it. Accordingly, all three basic FAST procedures are accepted in the accreditation procedures of SAVE International.
      
      
      Other Improvements. While Value Method procedures are continually advancing and improving, the basic core of the procedures have been relatively stable since the mid-1970's. Additional team concepts, costing methods, and other specialized advances have been incorporated to the basic methodology as the procedures were applied in different applications. Hence, the term Value Management was coined to describe the application of the procedure to operational and management activities, and Value Planning for activities at a planning stage.
      
      
      Acceptance. Before Mr. Miles death in 1985, his basic method had been refined and improved, gained world-wide acceptance, and spawned an international organization dedicated to its practice and the certification of competent practitioners (SAVE International). Further, for those that had used the system, it had saved untold billions of dollars. (In FY95 alone, the method generated more than a billion dollars in cost savings for the Federal Government.)

   2. Private Industry Use of the Value Method.

      The Value Method was generated by private industry first and they have often been the leaders in its use in manufacturing and administrative areas. It has been so effective, that many private industries have declared their Value Method application a trade secret. As a result, standardization of measurements and use have mainly been generated through Federal groups that voluntarily adopted the Value Method's use in construction applications.
      
      
      Use in private industry usually follows the basic SAVE International generic certification standards. However, these standards have been heavily influenced by legislation and regulations spawned by successful use in the Federal sector. In general private industry is more structured and detailed in their cost and component identification and its relationship to the FAST. These are usually used in the application of the Value Method and are then followed throughout the manufacturing cycle so as to highlight when a feature is beginning to develop poor value return.
      
      
      

   3. Background and Value Program History of Use in Federal Applications.

      General. The Federal government has had a profound affect on the Value Method. Due to the success of the Method in private industry some agencies voluntarily started Value Programs as early as 1955. The amount of money involved in these programs were very large and the results generated much interest. The successful Federal application in the construction industry created a construction slant to the methodology (as most people thought of it). Due to its success and pressure to find ways to reduce overall government costs in 1988 Congress and state governments began to pass legislation requiring "VE" use. These laws, regulations, and directives, fostered some unique features that are now, incorrectly sometimes, accepted as a required component in the Value Method.
      
      

      Initial Federal Activities. The most extensive Federal Value Engineering endeavors began in about 1965. To take advantage of the benefits that value studies were producing in private industry, three Federal agencies, and several state engineering organizations, voluntarily began to apply the Value Method in construction specific applications. Their initial experiences with VE were very positive.
      
      

      While not all value studies yielded tangible monetary savings, many other worthwhile "value added" benefits resulted from these early Federal VE efforts. For example, as a result of these studies, many of the design concepts and guidelines used today were developed. These techniques were used to further improve designs and cost/worth relationships, and provide more fiscally responsible projects for many years after the demise of these initial value study team efforts.
      
      

      The government also began to include VE Incentive Clauses for contractor generated Value Engineering Change Proposals (VECP's) in all supply and construction contracts of over $100,000 during this era. This practice has continued over the years, although the contract monetary threshold for its use and cost sharing percentages has varied.
      
      

      Despite the tremendous successes, the early emphasis on the application of VE in several agencies design process died out in the 1970's. Reorganizations reduced funding and personnel levels in the agencies that were using it. Vital governmental management support was absent.
      
      

      In 1982, the General Accounting Office (GAO), the "watchdog" agency for Congress, reviewed the Department of the Interior's Bureau of Reclamation and commended them for saving of $2.9 million from 39 contractor submitted VECP's generated by the VE Incentive Clause. At the same time, it pointed out that the Army Corps of Engineers, with a fully active VE specific Value Program, had saved over 20 times that amount in the same time frame. In 1983, the President's Private Sector Survey on Cost Control released its "Report on Federal Construction Management" ("The Grace Commission Report"). It proposed Federal expansion in the use of the Value Method and pointed out that the Method should be used in more non-construction applications within the Federal establishment. As a result, several Federal agencies reinstated a more complete VE specific Value Programs.
      
      

      Legislation and Regulations Initiated. The reports from the GAO, Office of Inspector General (OIG), and private sector, coupled with Congressional queries and Executive interest, spurred the Executive Branch to issue a mandate for agency use. Thus, the Office of Management and Budget (OMB), an executive branch office, issued their Circular A-131 directive in January 1988. This directive required value studies on construction related projects using one million dollars or more in Federal funds government-wide. The OMB Circular also encouraged Federal agencies to expand the use of their Value Method Programs by applying it to non-construction projects. After considerable discussion, meetings, and consultations Government-wide, a few agencies implemented portions of the directive in construction related projects in late 1990.
      
      

      The lack of movement in most agencies caused more Congressional and private sector pressure to issue legislation. Accordingly, the OMB revised the A-131 Circular again in 1993 to include a mandate for value study of all Federal activities. The "mandated" Programs currently are expected to operate mandated programs in compliance with the latest release of June 14, 1993 which applies the program to all Programs, Projects, and Activities (PPA's) one million dollars or more. Agencies actually often operate under different thresholds. For example the Department of the Interior's 369 DM1 (Departmental Manual as revised in 1995) uses a threshold of $500,000 for construction related activities.
      
      
      

      In February 1996, Congress, citing continued lack of agencies implementing an effective Value Program for management use, passed Public Law 104-106 requiring all executive agencies to establish and maintain Programs to use VE to reduce and control costs. In 1997, few agencies have established programs or adhere to either the intent or principles behind the law.
      
      
      

      Federal Success. When used, governmental use has produced much success. Independently audited Government records show that the average fiscal year cost savings due to use of the Value Method for the last three years exceeds one billion dollars per year. The Return on Investment has been more than $20 for every dollar invested in the Value Method. However, the potential for its application in the federal sector is much larger. In spite of a public law, regulations, and directives, many agencies continue to ignore use of the Value Method. Further, in those that do use it, it is grossly under used and responsible use is often abused. For example, the FY96 Interior's Bureau of Reclamation budget was $855 million, with $411 million going to construction and $273 million going to Operation and Maintenance activities. Thus, since 1991, less than 20-percent of its activities were value studied. Similar results are present in the Corps of Engineers and other agencies. Some agencies with some of the largest capital expenditures, such as the Department of Energy and Environmental Protection Agency have basically ignored Value Method use in spite of the law, regulations, and its potential. In spite of private industry successes using the Method in organizational and profit making endeavors, most Federal agencies have never used the Value Method at all and fewer yet have used it outside of a construction application (VE).

Content © 1995-2003 by SAMI, http://www.value-engineering.com