What is Value Engineering?

Value engineering sounds like a term reserved for civil engineers building bridges or architects designing skyscrapers. While it originated in those industries, the concept is vital for any founder building a business.

At its core, value engineering is a systematic method to improve the value of goods or products and services by using an examination of function. Value, in this context, is defined as the ratio of function to cost. Value can therefore be increased by either improving the function or reducing the cost.

For a startup, this is not just about saving money. It is about resource allocation.

To understand this concept, you have to look at the formula used to define it.

Value = Function / Cost

Function is what the product or service must do to work. It is the specific job the customer is paying for. Cost is the life cycle cost of the product. This includes the price to manufacture, maintain, and eventually replace it.

When you apply this to a startup, you are looking for ways to keep the function at the necessary level while removing unnecessary costs associated with achieving that function.

It is easy to confuse value engineering with simple cost cutting, but they are fundamentally different approaches.

Cost cutting focuses on reducing expenditures, often at the expense of quality or performance. If you switch to a cheaper server provider that causes your app to crash more often, you are cost cutting. You lowered the cost, but you also lowered the function.

Value engineering focuses on the function first. The goal is to preserve the necessary performance while finding a more efficient way to achieve it.

If you find a server provider that offers the same uptime and speed for half the price, you are value engineering. You maintained the function and lowered the cost, thereby increasing the value.

Founders can apply this thinking during the early stages of product development, specifically when building a Minimum Viable Product (MVP).

Consider a software startup building a new platform.

• The Function: The user needs to authenticate their identity to log in.
• The Expensive Route: Building a proprietary, custom biometric security system from scratch.
• The Value Engineered Route: Integrating a trusted, third party authentication API.

In both scenarios, the function (logging in) is achieved. However, the second option drastically reduces the cost in terms of time and developer salaries. The value of the second option is higher because the necessary function is provided at the lowest necessary cost.

This applies to hardware as well. Do you need a custom molded plastic enclosure for your prototype, or will an off the shelf case perform the same function of protecting the electronics?

The challenge with value engineering is determining what constitutes a “necessary function.” This is not always a black and white fact. It requires investigation.

You have to ask yourself difficult questions.

• Does the customer actually care about this specific feature?
• Are we over-engineering a solution because it is technically impressive rather than practically useful?
• What is the lifespan of this solution?

If you reduce the cost but the product fails two months earlier than the competitor’s product, you may have miscalculated the function. You must constantly test your assumptions against market feedback to ensure you are not stripping away value in the pursuit of efficiency.