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VALUE ENGINEERING (Course Notes)

Article · August 2012

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Table of Contents

INTRODUCTION TO VALUE ANALYSIS ...................................... 2 

VALUE METHODOLOGY STANDARD ......................................... 5 

QUALITY FUNCTION DEPLOYMENT ......................................... 34 

BASIC LCCA CONCEPTS ............................................................... 39 

LCC EXAMPLE ................................................................................ 50 

WORK SHOPS .................................................................................. 54 

Prof. Karim El-Dash www.ProjacsTraining.com 1

 INTRODUCTION TO VALUE ANALYSIS

HISTORY OF VALUE ANALYSIS

The value analysis methodology was started in the late 1940's by Lawrence D.
Miles Lawrence D. Miles started the value analysis methodology in the late
1940’s while working in the purchasing department at General Electric. Faced
with a lack of strategic materials, the company asked Miles to identify new
materials to reduce costs. He, then, gradually put into place a rigorous work
plan which yielded reductions of 40 %.

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PRINCIPLES OF THE METHODOLOGY

Value analysis is a systematic and creative method to improve competitiveness.

It is aimed at satisfying user needs by means of a specific procedure for
invention (or modification) which is functional (the purpose), economic (what it
costs), and multidisciplinary (how).

In other words, value analysis identifies the activities necessary for a process to
develop a product or service, and finds the most economic way to accomplish it.
This method permits the effective identification of that part of process cost
which does not contribute to ensure process quality.

The improvement of a process must never put into jeopardy the quality of a
product, especially in terms of the safety and reliability of a product. Value
analysis can make an existing process profitable or optimize the effectiveness
and the profitability of a process at the time of its design.

Potential saving from VE study

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AREAS OF APPLICATION

Value Analysis has been successful in several domains:

o Defense
o Automotive
o Aeronautical
o Software development
o Water treatment
o Civil engineering
o Etc...

It has also proven very effective in "soft" areas such as:

o Client services
o Work processes
o Information Systems
o Organizational development
o Etc...

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 VALUE METHODOLOGY STANDARD

VALUE METHODOLOGY APPLICABILITY

A. The Value Methodology can be applied wherever cost and/or
performance improvement is desired. That improvement can be measured in
terms of monetary; aspects and/or other critical factors such as productivity,
quality, time, energy, environmental impact, and durability. VM can
beneficially be applied to virtually all areas of human endeavor
B. The Value Methodology is applicable to hardware, building, or other
construction projects, and to "soft" areas such as manufacturing and
construction processes, health care and environment services programming
management systems and organization structure. The pre-study efforts for these
"soft" types of projects utilizes standard industrial engineering techniques such
as flow charting, yield analysis, and value added task analysis to gather essential
data.
C. For civil, commercial, and military engineering works such as buildings
highways, factory construction and water / sewage treatment plants, which tend
to be one time applications, VM is applied on a project-to-project basis.
Since these are one – time capital projects, VM must be applied as early in the
design cycle as feasible to achieve maximum benefits. Changes or redirection of
design can be accomplished without extensive redesign, large implementation
cost, schedule impacts Typically for large construction projects, specific value
studies are conducted during the schematic stage, and then again at the design
development (up to 45%) stage. Additional value studies may be conducted
during the construction or build phase.
D. For large or unique Products and systems such as military electronics or
specially designed capital equipment, VM is applied during the design cycle to
assure meeting of goals and objectives. Typically a formalized value study is
performed after preliminary design approval but before release to the
build / manufacture cycle. VM may also be applied during the build /
manufacture cycle to assure that the latest materials and technology are utilized.
E. VM can also be applied during planning stages and for project / program
management control by developing function models with assigned cost and
performance parameters. If Specific functions show trends toward beyond
control limits, value studies are performed to assure the function’s performance
remains within the control limits.

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 THE VALUE METHODOLOGY JOB PLAN

Figure 1: The VM Job Plan

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 The VM Job Plan covers three major periods of activity: Pre-Study, the Value
Study, and Post-Study. All phases and steps are performed sequentially. As a
value study progresses new data and information may cause the study team to
return to earlier phases or steps within a phase on an iterative basis. Conversely,
phases or steps within phases are not skipped.

I. PRE-STUDY
Preparation tasks involve six areas: Collecting/ defining
User / Customer wants and needs, gathering a complete data file of the project,
determining evaluation factors, scoping the specific study, building appropriate
models and determining the team composition.

A. Collect User / Customer Attitudes

The User/Customer attitudes are compiled via an in-house focus group and/or
external market surveys. The objectives are to:
1. Determine the prime buying influence.
2. Define and rate the importance of features and characteristics of the
product or project.
3. Determine and rate the seriousness of user-perceived faults and
complaints of the product or project.
4. Compare the product or project with competition or through direct
analogy with similar products or project.
For first time projects such as a new product or new construction, the analysis
may be tied to project goals and objectives. The results of this task will be used
to establish value mismatches in the information Phase.

B. Gather a Complete Data File

There are both Primary and Secondary sources of information. Primary
sources are of two varieties: people and documentation. People Sources include
marketing (or the user), original designer, architect, cost or estimating group,
maintenance or field service, the builders (manufacturing), constructors, or
systems designers), and consultants. Documentation sources include drawings,
project specifications, bid documents and project plans.
Secondary sources include suppliers of similar products, literature such as
engineering and design standards, regulations, test results, failure reports, and

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trade journals. Another major source is like or similar projects. Quantitative
data is desired
Another secondary source is a Site visitation by the value study team. “Site”
includes actual construction location, manufacturing line, or office location for a
new/improved system. If the actual “site “not available, facilities with
comparable functions and activities may prove to be a valuable source of usable
information.

C. Determine Evaluation Factors

The team, as an important step in the process. Determines what will be the
criteria for evaluation of ideas and the relative importance of each criterion to
final recommendations and decisions for change. These criteria and their
importance are discussed with the user /customer and management and
concurrence obtained

D. Scope the Study

The team develops the scope statement for the specific study. This statement
defines the limits of the study based on the data-gathering tasks. The limits are
the starting point and the completion point of the study. Just as important, the
scope statement defines what is not included in the study. The scope statement
must be verified by the study sponsor.

E. Build Models
Based on the completion and agreement of the scope statement, the team may
compile models for further understanding of the study. These include such
models as Cost, Time, Energy, Flow Charts, and Distribution, as appropriate for
each study.

F. Determine Team Composition, Wrap-Up

The Value Study Team Leader confirms the actual study schedule, location
and need for any support personnel. The study team composition is reviewed to
assure all necessary customers, technical, and management areas are
represented. The Team Leader assigns data gathering tasks to team members so
all pertinent data will be available for the study.

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II. THE VALUE STUDY

The value study is where the primary Value Methodology is applied. The
effort is composed of six phases. Information, Function analysis, creativity,
Evaluation, Development, and Presentation.

A. Information Phase
The Objective of the Information Phase is to complete the value study data
package started in the Pre-Study work. If not done during the Pre-Study
activities, the project sponsor and / or designer brief the value study team,
providing an opportunity for the team to ask questions based on their data
research. If a “site” visitation was not possible during Pre-Study, .It should be
completed during this phase.
The study team agrees to the most appropriate targets for improvement such as
value, cost, performance, and schedule factors. These are reviewed with
appropriate management, such as the project manager, value study' sponsor, and
designer, to obtain concurrence.
Finally, the scope statement is reviewed for any adjustments
due to additional information gathered during the information Phase.

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B. Function Analysis Phase
Function definition and analysis is the heart of Value Methodology. It is the
primary activity that separates Value Methodology from all other
“improvement” practices. The objective of this phase is to develop the most
beneficial areas for continuing study.

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The team performs the following steps:
1. Identify and define both work and sell functions of the product, project, or
process under study using active verbs and measurable nouns. This is often
referred to as Random Function Definition.
2. Classify the functions as basic or secondary
3. Expand the functions identified in step I (optional)
4. Build a function Model - Function hierarchy / logic or Function Analysis
System Technique (FAST) diagram.
5. Assign cost and / or other measurement criteria to functions
6. Establish worth of functions by assigning the Previously established
User/customer attitudes to the functions
7. Compare cost to worth of functions to establish the best Opportunities for
improvement
8. Assess functions for performance / schedule Considerations
9. Select functions for Continued analysis
10. Refine study scope

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Prof. Karim El-Dash www.ProjacsTraining.com 12
FUNCTION: DEFINITION AND ANALYSIS

Abstract:
The primary objective of the Function Analysis Phase is to determine the
most beneficial areas for value improvement, while unnecessary cost removal
has been the traditional target for value studies, it is important to emphasize that
more frequently today value studies are conducted to improve a product or
service's performance such as time or quality without increasing cost.

I. Identifying and Defining Functions:

“ The determination of function(s) is a requisite for all Value studies". “All cost
is for function”.
Thus after the steps in the Information Phase have been completed, the next
task is to investigate the project thoroughly using function analysis. Function
analysis is concerned with locating unnecessary costs and specific requirements
and determining the value of the project selected for study.
A function is that which makes an item or service work or sell - in other
words; an item’s function is why the customer buys the product or service. An
item, including structures and services, is a means to the end of providing a
function, not the end itself.

Function Definition
Preliminary attempts to define the functions of an item or process often
involve several concepts that seem to need extensive description. Although this
could conceivably describe the functions satisfactorily, it is neither concise nor
workable enough for successful analysis. The longer the description the more
confusing it becomes.
A function is always expressed by a verb and noun. This two-word
description has several advantages.
(i) The description pinpoints the functions and is not cluttered with superfluous
information, thereby forcing the planner to decide what data is fundamental
and should be retained and what is unimportant and should be rejected.
(ii) Possible alternative solutions for providing the functions are not restricted.
(iii)Functions that repeat in the design can easily be identified and
often combined or even eliminated.

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(iv) And very important, the definitions promote full understanding by all team
members regardless of their knowledge, educational and technical
backgrounds.
A function must be expressed in a measurable parameter in order to obtain a
value for it later in the analysis.
Nouns can be either measurable or nonmeasurable. Nonmeasurable nouns must
be explained so that they can be translated into a measurable element and later
evaluated.

II. Classifying Functions

In value studies functions exist in two categories - basic and secondary.
1. Basic function is the primary purpose(s) for which the item or service was
designed when it is operating in its normally prescribed manner. This
function must be accomplished to meet the purpose of the product,
structure, or service. A product or service may have more than one basic
function.
2. Secondary functions are ones that support the basic function (and hence
are sometimes referred to as "support functions"). They result from a
specific design approach to achieve the basic function. If the design
changes, the need for existing secondary functions may be modified or
even eliminated. To enhance the analytical an evaluation process some
practitioners break secondary functions into a sub-classification of
"required" (by the current design, “aesthetic" and “unwanted" such as the
“emits heat “function of an overhead projector.

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III. Developing Function Relationships
As Value studies became larger and more complicated, it was readily apparent
that the Random Function Analysis technique was not adequate. The
development of function models depicting relationships of functions within the
project became essential and evolved into two major types - Hierarchy and
Function Analysis System Technique (FAST) models.

IV. Assigning Cost and/or Other Measurement Criteria to Functions

Another key step in Function Analysis is to relate cost to functions. It is
useful to use a Function - Cost Worksheet to assist in the application of the
function/cost process. Figure 4 illustrates the allocation of costs to functions for
the guiderail assembly. It is the cost function relationship that often vividly
illustrates where unnecessary cost exists within the study project.
The procedure is:
1. List the functions within the scope of the project across the top of the form.
2. List parts, major subassemblies/sub-systems steps of a procedure etc.
vertically on the left side of the form with their associated costs determined
from the Information Phase.
3. Check off which functions are impacted by each item/step.
4. Determine how much cost of each item belongs to each function
5. Add all columns vertically to determine how much cost is allocated to each
function.
Function-Cost relationships provide direction for the study team as to
opportunities for greatest value improvement on a cost basis. There of course
may be other key criteria such as quality, reliability, or producibility. Similar
matrices can be developed for those and / or other key management concerns.
Figure 5 illustrates a Function-Time matrix for a factor, rehabilitation project.

V. Establishing Function Worth

In the value methodology, worth is defined as the lowest overall cost to
perform a function without regard to criteria or codes'. Comparing function cost
to function worth is the primary technique to help study teams identify areas of
the greatest potential value improvement. Dimensioning the function models or
random function worksheets with cost and /or other key performance
parameters often in itself highlights obvious functions needing improvement.
Typical observations are, “that function costs too much” “all that time for that

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function?", or “there’s our quality problem “.
VI. Selecting Functions for Study
As discussed above, the very act of establishing the worth of a function will
often create obvious choices for improvement. Another step is to create the
Value Index. This index reflects the basic value theory that value is the
relationship between cost and worth. The formula is:
Value = Worth /Cost
The goal would be to achieve a ratio of 1.0.
Caution is made that the choice of areas to focus on must be made in
consonance with the project objectives and goals. It is important to recognize
the emphasis may not be on cost but rather other performance factors such as
time or quality.

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Prof. Karim El-Dash www.ProjacsTraining.com 17
THE MECHANICS OF THE PROCESS
To begin the process, a basic model is offered. The following figure is
showing the FAST components and describing their parts.

A. Scope Of the problem under study

Depicted as two vertical dotted lines-, the scope lines bound the problem
under study, or that aspect of the problem with which the study team is
involved.
B. Highest order function(s)
The objective or output of the basic function(s) and subject under study, is
referred to as the highest order functions, and appears outside the left scope line,
and to the left of the basic functions.
Note: Any function to the left of another on the critical path is a "higher" order
function
C. Lowest Order Function
These functions to the right and outside of the right scope line represent the
input side that "turn on" or initiates the subject tinder study and are known as
lowest order functions. Any function to the right of another function or the
critical path is a "lower" order function.

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D. Basic Function(s)
Those function(s) to the immediate right of the left scope line representing
the purpose or mission of the subject under study.
E. Concept
All functions to the right of the basic function(s) describe the approach
elected to achieve the basic function(s). The "concept" represents either existing
conditions or proposed approach, which approach to use (current or proposed) is
determined by the task team and the nature of the problem under study.
F. Objective or Specifications
Objective or specifications are particular parameters or restrictions which
must be achieved to satisfy the highest order function in its operating
environment. Although they are not themselves functions, they may influence
the concept selected to best achieve the basic function(s) and satisfy the users
requirements.
G. Critical Path Function(s)
Any function on the How or why logic is a critical path function If a function
along the why direction enters the basic function(s) it is a major critical path,
otherwise it will conclude in an independent (supporting) function and be a
minor critical path.

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H. Dependent Functions
Starting with the first function to the right of the basic function, each
successive function is "dependent" on the one to its immediate left or higher
order function, for its existence. That dependency becomes more evident when
the How question and direction is followed.

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Prof. Karim El-Dash www.ProjacsTraining.com 21
I. Independent (or Supporting) Function (s)
Functions that do not depend on another function, or method selected to
perform that function. Independent functions are located above the critical path
function(s), and are considered secondary, with respect to the scope, nature, and
level of the problem, and its critical path.
J. Function
An end or purpose that a “ thing" or activity is intended to perform, expressed in
a verb-noun form.

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ALONG THE CRITICAL PATH - AND
“AND” is represented by a split or fork in the critical path. In the example the fork is read as
“AND.” In an Example, How do you “Build System”? By “Constructing Electronics)” AND
“Constructing Mechanicals.”

ALONG THE CRITICAL PATH - “OR”

“Or” - represented is represented by multiple exit lines indicating a choice.
Using the Example, the answer to the question, how do you “convert bookings,” is by
“Extending bookings” OR “Forecast Orders.” When going in the Why direction one path at a
time is followed.
Therefore: “Why do we “Extend Bookings?” So you can “Convert Bookings.” Also, why do
you “Forecast Orders?” So you can “Convert Bookings to Delivery.”

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K. Activity
The method selected to perform a function (or group of functions).
To those who are system oriented, it would appear that the FAST diagram is

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constructed backwards, because in systems terms (or the why direction) the
"input" is normally to the left side, and the "output" to the right. However, note
that when a method to perform a function on the critical path is changed, it
affects all functions to the right of the changed function, or stating it in function
analysis terms, changing a function will alter the functions dependent upon it.
Therefore, the How (reading left to right) and why (reading right to left)
directions are properly oriented in FAST logic.

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FAST MODEL EXAMPLE
Now that you have an idea of the FAST concept, let's try an example.
Remember the overhead projector mentioned earlier? We have already
identified several functions. The objective, or higher order function is "convey
information."
The basic function, since we have chosen the overhead projector as the method
that is going to be used to "convey information" is "project image. " Next we
ask, "How do you 'project image'?" A logical answer to that question is by
"generate light." These functions are place on the FAST model from left to
right.

Next the functions are tested in the "Why" direction. This will identify any
missing functions because it won't sound right if there is one missing.
Therefore, why do you "generate light?" Answer: To "project image." And, why
do you "project image?' To "convey information." This process is continued
until all the functions identified function brainstorming exercise are exhausted.
The idea is to complete the critical path first. Once the critical path has been
extended to the point it is out of the scope of the system, the remaining
functions are positioned in the when direction to describe the supporting
functions, independent functions, specifications and activities that fully describe
the system.

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Now, note the supporting functions under "convert energy." The functions with
the double lines around them, "generate heat" and "generate noise," are
"unwanted", or "undesirable" functions. In the case of the overhead projector,
the "generate heat" function is caused by the light bulb used to "convert energy"
in order to "generate light." Excessive heat buildup significantly reduces the life
of the light bulb.
Therefore, the "dissipate heat" function has been added to resolve this problem.
In doing so, however, it has caused another unwanted function, "generate
noise."
Next, the objectives, or specifications can be added to the diagram. Note the
"facilitate portability" and "allow safety" specification functions positioned over
the basic function "project image." These are specified by the customer,
regulations, or other sources. This is one way of depicting these functions, or,
other methods simply position them in the upper right corner of the diagram.
These are also called "all the time" functions.
Once the whole system has been described using the FAST model, opportunities
can be identified for improvement in the system if this is a re-engineering
project. Alternatively, if it is a product development effort, opportunities can be
seen to avoid problems, improve the original design, and reduce cost. In the
Value Engineering methodology, cost would be allocated to the functions in
order to identify the high cost functions.

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C. Creative Phase
The objective of the Creative Phase (sometimes referred to as Speculation
Phase) is to develop a large quantity of ideas for performing each function
selected for study. This is a Creative type of effort, totally unconstrained by
habit, tradition, negative attitudes, assumed restrictions, and specific criteria. No
judgment or discussion occurs during this activity. The quality of each idea will
be developed in the next phase, from the quantity generated in this phase.

There are to keys to successful speculation: first, the purpose of this phase is
not to Conceive of ways to design a product or service, but to develop ways to
perform the functions selected for study. Secondly, creativity is a mental
process in which past experience is a combined and recombined to form new
combination. The purpose is to create new combinations which will perform the

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desired function at less total cost and improved performance than was
previously attainable.
There are numerous well-accepted idea generation techniques. The guiding
principle in all of them is that judgment / evaluation is suspended. Free flow of
thoughts and ideas - without criticism - is required.

D. Evaluation Phase
The objectives of the Evaluation Phase are to synthesize ideas and concepts
generated in the Creative Phase and to select feasible ideas for development into
specific value improvement.
Using the evaluation criteria established during the Pre-Study effort, ideas are
sorted and rated as to how well they meet those criteria. The process typically
involves several steps:
1. Eliminate nonsense or "thought- provoker" ideas.
2. Group similar ideas by category within long term and short term
implications. Examples of groupings are electrical, mechanical, structural,
materials, special processes, etc.
3. Have one team member agree to "champion" each idea during further
discussions and evaluations. If no team member so volunteers, the idea, or
concept is dropped.

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4. List the advantages and disadvantages of each idea.
5. Rank the ideas within each category' according to the prioritized evaluation
criteria using such techniques as indexing, numerical evaluation, and team
consensus.
6. If competing combinations still exist, use matrix analysis to
rank mutually exclusive ideas satisfying the same function.
7. Select ideas for development of value improvement.
If none of the final combinations appear to satisfactorily meet the criteria, the
value study team returns to the Creative Phase

E. Development Phase
The objective of the Development Phase is to select and prepare the "best"
alternative(s) for improving value. The data package prepared by the champion
of each of the alternatives should provide as much technical, cost, and schedule
information as practical so the designer and project sponsor(s) may make an
initial assessment concerning their feasibility for implementation. The following
steps are included:
1. Beginning with the highest ranked value alternatives, develop a benefit
analysis and implementation requirements, including estimated initial costs,
life cycle costs, and implementation costs taking into account risk and
uncertainty.
2. Conduct performance benefit analysis.
3. Compile technical data package for each proposed alternative.
a. written descriptions of original design and proposed alternative(s).
b. sketches of original design and proposed alternative (s)
c. cost and performance data, clearly showing the differences between the
original design and proposed alternative (s).
d. any technical back-up data such as information sources, calculations, and
literature
e. schedule impact
4. Prepare an implementation Plan, including proposed schedule of all
implementation activities, team assignments and management requirements‫ز‬
5. Complete recommendations including any unique conditions to the project
under study such as emerging technology. political concerns, impact on other
ongoing projects, marketing plans, etc.

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F. Presentation Phase
The objective of the Presentation Phase is to obtain concurrence and a
commitment from the designer, project sponsor, and other management to
proceed with implementation of the recommendations. This involves an initial
oral presentation followed by a complete written report.
As the last task within a value study, the VM study team presents its
recommendations to the decision making body. Through the presentation and its
interactive discussions, the team obtains either approval to proceed with
implementation, or direction for additional information needed.
The written report documents the alternatives proposed with supporting
data and confirms the implementation plan accepted by management. Specific
organization of the report is unique to each study and organization
requirements.

3. POST STUDY
The objective during Post-Study activities is to assure the implementation of
the approved value study change recommendations. Assignments are made
either to individuals within the VM study team, or by management to other
individuals, to complete the tasks associated with the approved implementation
plan.
While the VM Team Leader may track the progress of implementation, in all
cases the design professional is responsible for the implementation. Each
alternative must be independently designed and confirmed, including
contractual changes if required, before its implementation into the product,
project, process, or procedure. Further, it is recommended that appropriate
financial departments (accounting, auditing, etc.) conduct a post audit to verify
to management the full benefits resulting from the value methodology
study.

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 QUALITY FUNCTION DEPLOYMENT

Introduction

Quality function deployment enables the design phase to concentrate on the cus-
tomer requirements, thereby spending less time on redesign and modifications.
The saved time has been estimated at one-third to one-half of the time taken for
redesign and modification using traditional means. This saving means reduced
development cost and also additional income because the product enters the
market sooner.

The QFD Team

When an organization decides to implement QFD, the project manager and team
members need to be able to commit a significant amount of time to it, especially
in the early stages. The priorities of the projects need to be defined and told to
all departments within the organization so team members can budget their time
accordingly. Also, the scope of the project must be clearly defined so questions
about why the team was formed do not arise. One of the most important tools in
the QFD process is communication.

Benefits of QFD
Quality function deployment was originally implemented to reduce start-up
costs. Organizations using QFD have reported a reduced product development
time. For example, U.S. car manufacturers of the late 1980s and early 1990s
needed an average of five years to put a product on the market, from drawing
board to showroom, whereas Honda put a new product on the market in two and
a half years and Toyota did it in three years. Both organizations credit this
reduced time to the use of QFD. Product quality and, consequently, customer
satisfaction improve with QFD due to numerous factors depicted in Figure 1.

Customer Driven
Quality function deployment looks past the usual customer response and
attempts to define the requirements in a set of basic needs, which are compared
to all competitive information. All competitors are evaluated equally from
customer and technical perspectives. This information can then be prioritized
using a Pareto diagram. Management can then place resources where they will
be the most beneficial in improving quality. Also, QFD takes the experience and
information that are available within an organization and puts them together as a

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structured format that is easy to assimilate.
Reduces Implementation Time
Fewer engineering changes are needed when using QFD, and, when used
properly, all conflicting design requirements can be identified and addressed
prior to production.
This results in a reduction in retooling, operator training, and changes in
traditional quality control measures. By using QFD, critical items are identified
and can be monitored from product inception to production. Toyota reports that
the quality of their product has improved by one-third since the implementation
of QFD.

Promotes Teamwork
Quality function deployment forces a horizontal deployment of communication
channels. Inputs are required from all facets of an organization, from marketing
to production to sales, thus ensuring that the voice of the customer is being
heard and that each department knows what the other is doing. This activity
avoids misinterpretation, opinions, and miscues. In other words, the left hand
always knows what the right hand is doing. Efficiency and productivity always
increase with enhanced teamwork.

Provides Documentation
A database for future design or process improvements is created. Data that are
historically scattered within operations, frequently lost and often referenced out
of context, are now saved in an orderly manner to serve future needs. This
database also serves as a training tool for new engineers. Quality function
deployment is also very flexible when new information is introduced or things
have to be changed on the QFD matrix.

Prof. Karim El-Dash www.ProjacsTraining.com 35

The Voice of the Customer
Because QFD concentrates on customer expectations and needs, a considerable
amount of effort is put into research to determine customer expectations. This
process increases the initial planning stage of the project definition phase in the
development cycle. But the result is a total reduction of the overall cycle time in
bringing to the market a product that satisfies the customer.
Quality function deployment begins with marketing to determine what exactly
the customer desires from a product. During the collection of information, the
QFD team must continually ask and answer numerous questions, such as:
 What does the customer really want?
 What are the customer's expectations?
 Are the customer's expectations used to drive the design process?
 What can the design team do to achieve customer satisfaction?
The goal of QFD is not only to meet as many customer expectations and needs
as possible, but also to exceed customer expectations. Each QFD team must
make its product either more appealing than the existing product or more
appealing than the product of a competitor. This situation implies that the team
has to introduce an expectation or need in its product that the customer is not
expecting but would appreciate. For example, cup holders were put into
automobiles as an extra bonus, but customers liked them so well that they are
now expected in all new automobiles.

House of Quality
The primary planning tool used in QFD is the house of quality. The house of
quality translates the voice of the customer into design requirements that meet
specific target values and matches those against how an organization will meet
those requirements. Many managers and engineers consider the house of quality
to be the primary chart in quality planning.
The parts of the house of quality are described as follows:
The exterior walls of the house are the customer requirements. On the left side
is a listing of the voice of the customer, or what the customer expects in the
product. On the right side are the prioritized customer requirements, or planning
matrix.

Prof. Karim El-Dash www.ProjacsTraining.com 36

Prof. Karim El-Dash www.ProjacsTraining.com 37
QFD Process

The QFD matrix (house of quality) is the basis for all future matrices needed for
the QFD method. Although each house of quality chart now contains a large
amount of information, it is still necessary to refine the technical descriptors
further until an actionable level of detail is achieved. Often, more than one
matrix will be needed, depending on the complexity of the project. The process
is accomplished by creating a new chart in which the HOWs (technical
descriptors) of the previous chart become the WHATs (customer requirements)
of the new chart. This process continues until each objective is refined to an
actionable level. The HOW MUCH (prioritized technical descriptors) values are
usually carried along to the next chart to facilitate communication. This action
ensures that the target values are not lost during the QFD process. If the target
values are changed, then the product is not meeting the customer requirements
and not listening to the voice of the customer, which defeats the purpose of
QFD.

Prof. Karim El-Dash www.ProjacsTraining.com 38

 BASIC LCCA CONCEPTS

As a long-term, multi-year investment, a bridge is the product of decisions made

and actions taken during its planning, design, construction, use and maintenance
over the course of many years. Possibly the most basic issue in BLCCA is the
determination of how long a bridge’s service life is likely to be. In practice, the
end of a bridge’s useful life often comes decades or even centuries after its
initial construction.

Models of bridge deterioration

Figure 2.1 illustrates typical representations of a how the condition of a bridge

or its elements deteriorate and define the service life, in the absence of any
particular action to make repairs or otherwise change conditions. This basic
model applies to a bridge as a whole or to any of its elements, e.g., deck,
substructure, bearings, columns.
If a bridge is placed in service following its construction (at time T0), the
deterioration curve represents the bridge’s condition as it declines with wear and
aging, from its initially high level to a level considered unacceptable (Cf) .
Example A might represent a concrete deck where the damage of gradual
cracking accumulates and then begins to accelerate as water and chemicals
penetrate more deeply beneath the surface.
Example B might be more representative of a bridge as a whole where the
overall condition progresses through a series of defined states. The shape of the
deterioration curve, of course, is dependent of the definition of the various
condition states. Regardless of the deterioration curve’s shape, the service life
(SL) represents the length of time until unacceptable conditions prevail.

Prof. Karim El-Dash www.ProjacsTraining.com 39

 Typical model of life-cycle condition repairs

Expenditure accompanying the life cycle

In most cases a bridge is not left to follow the basic deterioration path and reach
an unacceptable condition without interruption. Instead, the responsible agency
will from time to time undertake repairs, rehabilitations, or renewals that return
conditions to a higher level and extend the service life.

The sequence of actions and events that determine the bridge-element’s

condition throughout its life cycle is sometimes referred to as the “life-cycle
activity profile.” Actions will typically have associated expenditures and these
expenditures may be plotted as a function of the time when the expenditures are
made.

Prof. Karim El-Dash www.ProjacsTraining.com 40

Time-Value and Equivalence of Economic Resources
The various actions taken during a bridge’s life cycle entail use of economic
resources. An agency spends money for construction, normal maintenance and
repairs. Bridge users sacrifice time and out-of-pocket expenses (e.g., extra fuel)
while repairs are being made, for the sake of the improved conditions and
extended service life gained thereby. These uses of resources occur at times
throughout the service life.

The relationship between the amount of a future expenditure and its equivalent
present worth or value is then calculated using the discount rate [DR]:

The discount rate (DR) generally is described as having three components

measuring
1. the “real” opportunity cost of capital [cc],
2. the required premium for financial risk associated with investments to be
analyzed [fr], and
3. the anticipated rate of inflation in prices [pi].
Each component is typically stated as a percentage representing the rate of
annual increase (or decrease, in the event of economic deflation), and the
“current” discount rate is calculated as

The opportunity-cost of capital is sometimes termed the “real” discount rate.

Historical trends suggest that the real time-value of money is typically in the
range of 2 to 4 percent per year.

Prof. Karim El-Dash www.ProjacsTraining.com 41

Because the three components of the discount rate are typically small fractions,
the second- and third-order terms in the discount-rate equation above are
sometimes neglected to yield a frequently used approximation

As long as inflation rates and required risk premiums are low, errors associated
with this approximation remain relatively small. The federal-agency discount
rate may then be understood to represent a “real” cost of capital of about 4
percent and an anticipated inflation rate of just over 2 percent.

Financial intermediaries such as mortgage lenders may charge 2 to 4 percent

over this risk-free level, to cover their costs of doing business and the risks of
non-payment and higher-than-expected inflation.

Prof. Karim El-Dash www.ProjacsTraining.com 42

Uncertainty
A simple form of probability distribution will often be used to represent many
uncertain parameters in BLCCA, formed from a few specific values assumed to
be plausible for the parameter in question.

Examples of discrete probability density distributions

For example, the time required for a bridge-deck’s surface condition to

deteriorate from its value at the end of construction to a low level that warrants
a deck overlay might be estimated as 11 to 15 years (assuming normal
maintenance).
If the analyst feels the need for the overlay is equally likely to occur in any one
of the five one-year periods of this range (example A), the probability of its
occurring in any particular year is 20 percent for years 11 through 15, and 0
otherwise. If he or she has some reason to assume otherwise, greater probability
may be assigned to one or another period (e.g., example B), as long as the total
probability assignments total to 1.0 or 100 percent.

Prof. Karim El-Dash www.ProjacsTraining.com 43

 Probability density distributed on best estimate

BLCCA may often be conducted using a best estimate of an uncertain parameter

as a basis for estimating (in turn) a probability function for the likely range of
that parameter. The analyst bases the initial “best estimate” on limited available
data, his or her judgment, or perhaps default values suggested in a guidance
manual. Considering whether the best estimate represents a mean, median or
mode is useful in developing a distribution to be used subsequently in the
BLCCA, such as that illustrated in Figure 2.6.

Prof. Karim El-Dash www.ProjacsTraining.com 44

Monte Carlo Simulation
The use of Monte Carlo simulation poses a particular problem in the treatment
of very rare, low-probability events. The occurrence of such events, e.g., severe
storm-induced flooding, is unlikely to be sampled adequately with only 1,000
computational repetitions. For example, the probability of a 100-year storm
occurring in any given year is 1 percent; the expected number of computations
involving this storm over the course of simulating, for example, a 50-year
planning period, is then 0.5 (i.e., 50 computation repetitions for each year at one
percent probability of occurrence). However, the estimated costs incurred if the
storm does occur are likely to be very large; the expected value of these storm-
related costs will then be a significant factor in a BLCCA. Assessing the
consequences of low-probability, high-cost events–what was termed
“vulnerability costs” in Chapter 1, therefore requires either a much larger
number of computational repetitions or analysis by other means than the full-
scale Monte Carlo simulation used for routine costs.

Prof. Karim El-Dash www.ProjacsTraining.com 45

Life Cycle Costing Guidelines

The Economic Analysis Concept

Technical Guidelines.
The value of an item includes not only consideration of what the costs are to
acquire it, but also the cost to use it or the cost of performance to the user for as
long as the user needs it. It is the user who determines value. Therefore, one
measure of value to the user is to calculate the cost of ownership or use. Costs
of repairs, operations, preventive maintenance, logistic support, utilities,
depreciation and replacement, in addition to capital cost, all reflect on the total
value of a product to a user.
Calculation of LCC for each alternative during performance of a VE study is a
way to judge whether product quality is being maintained in sufficient degree to
prevent degradation of necessary reliability, performance, and maintainability.
The concept of economic analysis, which is used in LCC, requires that
comparisons be made between things similar in nature. For example, one cannot
compare the LCC of a bus to a car on a product basis, nor can one compare a
house to a school on a product basis. In VE all ideas can be compared on a LCC
basis if all alternatives were defined to satisfy the same basic function or set of
functions.
In addition to comparable functions, economic analysis requires that alternative
choices be considered on the same:
(1) Time Frame
(2) Quantities
(3) Quality Level
(4) Levels of Service
(5) Economic Conditions
(6) Market Conditions
(7) Operating Conditions

Prof. Karim El-Dash www.ProjacsTraining.com 46

Cost Elements
In performing LCC for a VE study the emphasis is on performing a comparative
estimate rather than on developing a full budget estimate over the life span. This
means that the VE team should identify, and quantify, only those elements of
cost that they consider statistically significant in the decision making process.
The applicable cost elements will vary with the item, system, or facility being
studied. However, some of the types of costs to consider fall into the following
three categories.

A. Initial Costs
1. Item Cost:
These are costs to produce or construct the item.
2. Development Cost:
These are costs associated with design, testing, prototype, and models.
3. Implementation Cost:
These are costs expected to occur after approval of the idea such as:
redesign, inspection, testing, contract administration, training, and
documentation.
4. Miscellaneous Cost:
These costs depend on the item and include costs for owner furnished
equipment, financing, licenses and fees, and other one-time expenditures.

B. Annual Recurring Costs

1. Operation Cost:
These costs include estimated annual expenditures associated with the
item such as for utilities, fuel, custodial care, insurance, taxes, other fees,
and labor.
2. Maintenance Cost:
These costs include annual expenditures for scheduled upkeep and
preventative maintenance for an item to keep it in operable condition.
3. Other Recurring Costs:
These include costs for annual use of equipment associated with an item
as well as annual support costs for man agement overhead.

Prof. Karim El-Dash www.ProjacsTraining.com 47

C. Nonrecurring Costs:
1. Repair and Replacement Cost:
These are costs estimated on the basis of predicted failure and
replacement of major system components, predicted alteration costs for
categories of space related to the frequency of moves, and capital
improvements predicted necessary to bring systems up to current
standards at given points in time. Each estimated cost is for a specific
year in the future.
2. Salvage:
Salvage value is often referred to as residual value. Salvage value is an
equivalent credit and is entered as a negative amount in the LCC
calculation. Salvage value represents the remaining market value or use
value of an item at the end of the selected LCC life span.

Prof. Karim El-Dash www.ProjacsTraining.com 48

Recommended Approaches
The two most frequent methodologies used to calculate LCC are:

1. Present-Worth Method
GSA recommends the use of the present worth method of Life Cycle Cost
Analyses of competing alternative design solutions. The present-worth method
requires the conversion of all present and future expenditures to a base line of
today’s costs. Initial costs are already expressed in present worth. Conversion
tables are to be found in most VE and LCC textbooks for converting recurring
and non-recurring costs into present-worth values.

2. Impact of Escalation:
Department of Energy guidelines for escalating future cost increases for fuel
will be followed. This usually will result in a 3-5 percent differential escalation
rate (e.g. above general inflation) for energy.

Prof. Karim El-Dash www.ProjacsTraining.com 49

 LCC EXAMPLE

Prof. Karim El-Dash www.ProjacsTraining.com 50

Prof. Karim El-Dash www.ProjacsTraining.com 51
Prof. Karim El-Dash www.ProjacsTraining.com 52
Prof. Karim El-Dash www.ProjacsTraining.com 53
 WORK SHOPS
Value Engineering Workshop Function Analysis
Name/s Date
Company

Construct a function analysis worksheet for a laptop.

Function Cost
Component Function Cost Worth Comments
Type Worth

Prof. Karim El-Dash www.ProjacsTraining.com 54

Value Engineering Workshop FAST
Name/s Date
Company

Draw a FAST diagram for a car.

Prof. Karim El-Dash www.ProjacsTraining.com 55

Value Engineering Workshop Creativity (01)
Name/s Date
Company

Fill out some of the following circles so as to generate specific figure in 200
seconds.

Prof. Karim El-Dash www.ProjacsTraining.com 56

Value Engineering Workshop Creativity (02)
Name/s Date
Company

Using the following squiggle create a complete figure in 5 minutes.

Prof. Karim El-Dash www.ProjacsTraining.com 57

Value Engineering Workshop Decision Making (01)
Name/s Date
Company

Allen Young has always been proud of his personal investment strategies and
has done very well over the past several years. His invests primarily in the stock
market. Over the past several months, however, Allen has become very
concerned about the stock market as a good investment. In some cases it would
have been better for Allen to have his money in a bank than in the market.
During The next year Allen must decide whether to invest $10,000 in the stock
market or in a certificate of deposit (CD) at an interest rate of 9%. If the market
is good, Allen believes that he could get a 14% return on his money. With a fair
market, he expects to get an 8% return. If the market is bad he will most likely
get no return at all. Allen estimates that the probability of a good mark is 0.4,
the probability of a fair market is 0.4, and the probability of a bad marker is 0.2.
Develop a decision table for this problem.
What is the best decision?

Prof. Karim El-Dash www.ProjacsTraining.com 58

Value Engineering Workshop Decision Making (02)
Name/s Date
Company

Monica Britt has enjoyed sailing small boats since she was 7 years old, when
her mother started sailing with her. Today. Monica is considering the possibility
of starting a company to produce small sailboats for the recreational market.
Unlike other mass-produced sailboats, however, these boats will be made
specifically for children between the ages of 10 and 15. The boats will be of the
highest quality, and extremely stable, and the sail size will be reduced to
prevent problems of capsizing.
Because of the expense involved in developing the initial molds and acquiring
the necessary equipment to produce fiberglass sailboats for young children,
Monica has decided to conduct a pilot study to make sure that the market for the
sailboats will be adequate. She estimates that the pilot study will cost her
$10,000.
Furthermore, the pilot study can be either successful or not successful. Her basic
decisions are to build a large manufacturing facility, a small manufacturing
facility, or no facility at all. With a favorable market, Monica can expect to
make $90,000 from the large facility or $60,000 from the smaller facility. If the
market is unfavorable, however, Monica estimates that she would lose $30,000
with a large facility, while she would lose only $20,000 with the small facility.
Monica estimates that the probability of a favorable market given a successful
pilot study is 0.8. The probability of as unfavorable market given an
unsuccessful pilot study result is estimated to be 0.9. Monica feels that there is a
50-50 chance that the pilot study will be successful. Of course, Monica could
bypass the pilot study and simply make the decision as to whether to build a
large plant, small plan, or no facility at all. Without doing any testing in a pilot
study, she estimates that the probability of a successful market is 0.6. What do
you recommend?

Prof. Karim El-Dash www.ProjacsTraining.com 59

Prof. Karim El-Dash www.ProjacsTraining.com 60
Value Engineering Workshop Dual Comparison Weighing
Name/s Date
Company

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Value Engineering Workshop Employing VE
Name/s Date
Company

Prof. Karim El-Dash www.ProjacsTraining.com 62

 Value Engineering Workshop Employing VE
Name/s Date
Company

Mark all the appropriate sentences:

VE may not be employed because:

( ) We had not heard of this term before.
( ) We lacked knowledge of this technique.
( ) The owners/consultants have not recommended such service.
( ) Carrying out such a study requires extra cost.
( ) We did not consider future running cost, maximization of profit was more
important.
( ) This method requires extra time for study.
( ) Good planning and management were already adopted.
( ) Feasibility is always assessed, so VE is not needed.
( ) It is not a “must”.
( ) Schedule is too tight, redesign may delay the project.
( ) VE should be part of the design process.
( ) Benefits cannot be guaranteed.

VE may be employed only if:

( ) The size of the project warranted the profit.
( ) Reasonable fees are charged for carrying out this study.
( ) There are capable professionals to carry out the study.

Comments:

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