The Journal of Value Technology For The Society Of American Value Engineersc.ymcdn.com/sites/ · The Journal of Value Technology For The Society Of American Value Engineers Law Enforcement's

April I May /June 1986 Vol. 9 No. 1

The Journal of Value Technology For The Society Of American Value Engineers

Law Enforcement's Newest Weapon:

V E Value

Engineer

Story on page 5.

VALUE ANALYSIS, INCORPORATED — Established in 1958 —

Specializing in Establishing and Maintaining Value Analysis Programs

Value Analysis, Incorporated has over 28 years of experience in the development and

implementation of Value Analysis and Value Engineering Programs in business, industry,

education and government.

Our professional staff, all principles being Certified Value Specialists (CVS), have over 100 years

of collective V A / V E experience, have trained over 50,000 people, and have implemented in excess

of 1,000 Value Analysis/Value Engineering Programs.

SERVICES INCLUDE: 40-Hour SAVE-qualified V A / V E workshops

Top and middle management V A / V E seminars

Full V A / V E program implementation services

Customer-oriented V E studies (COVE)

Team building and creative problem solving seminars

V A / V E Manager skills development

Product improvement studies

Software and paperwork analysis

V A / V E supplier seminars

Overhead and organizational analysis

CURRENT CLIENTS INCLUDE: American Hospital Supply General Motors Corporation Northern Telecom

Cessna Aircraft Harley-Davidson Motor Co. Rockwell International

John Deere & Company Hewlett Packard Steelcase, Inc.

Eastman-Kodak Multigraphics, Inc. Tektronix, Inc.

PROFESSIONAL STAFF: J. K. "Dusty" Fowlkes, CVS - Chairman & Founder

John D. Groothuis, CVS - President Rudrick G. Otto, CVS - Executive Vice President

John W. Bryant, CVS - Vice President R. Terry Hays, CVS - Director, Program Management

OFFICE LOCATIONS: C A L I F O R N I A O F F I C E - (714) 548-8018 SOUTH C A R O L I N A O F F I C E - (803) 671-5494

M A S S A C H U S E T T S O F F I C E - ( 6 1 7 ) 888-4740 M I C H I G A N O F F I C E - ( 3 1 3 ) 429-2739

F O R E I G N O F F I C E S - Australia, England. Germany, India

FOR FURTHER INFORMATION CONTACT MAIN OFFICE:

Value Analysis, Incorporated 4029 Westerly Place, Suite 116 Newport Beach, California 92660 (714) 548-8018

2 Value World, April/May/June, 1986

VALUE WORLD April/May/June, 1986

Contents

E D I T O R O. James Vogl, CVS

ASSISTANT E D I T O R Harry Coff in

PUBLISHER Society of American Value Engineers 600 South Federal St., Suite 400 Chicago, Illinois 60605 (312) 346-3265

A D V E R T I S I N G and P R O D U C T I O N OFFICE 600 South Federal St., Suite 400 Chicago, Illinois 60605

V A L U E W O R L D is published quarterly by the Society of American Value Engi­neers on the 15th of March, June, September and December, and is distrib­uted internationally.

Contributions: Contributions to V A L U E W O R L D are welcome. Please send articles or other contributions to V A L U E W O R L D Editor, 4909 via el Sereno, Torrance, California 90505. Editorial changes and publication of an article or other contribu­tion in any particular issue are at the discretion of the Editorial Staff. Advertising: Advertising information, rates and specifications are available from Humes & Associates, Advertising and Pro­duction Managers of V A L U E W O R L D .

Subscriptions: Yearly rate to SAVE Members ($16.50) is included in annual dues rate. Non-Members, in U.S., $22.00; International, $26.00 (includes Air Mail postage). Technical society and organiza­tion bulk rates are available upon request from the Society of American Value Engi­neers, Chicago, Illinois. Make all checks payable to SAVE in U.S. Funds on U.S. Bank. Change of Address: Send all address changes to V A L U E W O R L D , 600 South Federal St., Suite 400, Chicago, I L 60605

Copyright ©, Society of American Value Engineers, 1986. All rights reserved.

A Message f r o m Eleanor Mi les

5 V E : L a w Enforcement ' s N e w Weapon by Chief Frank Burrows

7 Customer-Oriented Value Engineering (COVE) by John W. Bryant, CVS

-t q VA Manager's Conference Highl ights JL O by Harry Coffin

-i The Selection of Consultants f o r Saudi A r a b i a n Projects A 3 by Dr. A. H. Mansouri

The Value Engineering Or ien ta t ion Phase by Keith B. Hogan, CVS

V E i n Developing I n d i a by Dr. N. H. Attreya, Ph.D.

S u m m a r y o f D o D V E Conference by John S. Ware, CVS

Spelunker 's Corner by Keith R. Thorson, CVS

There Is M o r e to Value T h a n Money by Owen Rye

EDITORIAL POLICY: To provide informative, time­

ly and interesting communications pertaining to Value Engineering/

Value Analysis and related disciplines. VALUE WORLD enables

contributors to express themselves professionally in advancing the

art. VALUE WORLD is dedicated to the establishment of a mutual

bond among those seeking to better the quality of working life and

establish a communications network through which participants can

interact for mutual benefit.

The views expressed in VALUE WORLD are neither approved nor

disapproved by the Society. They are the expressions of the author(s).

All papers have been edited — frequently condensed — by the editor.

VALUE WORLD is published quarterly on approximately the 15th

of March, June, September and December, and is distributed inter­

nationally.

Value World, April/Muyfjum: l'Mt< I

A Note of Thanks from Eleanor Miles

Thank you. How can such simple words adequately express my feelings of deep gratitude for the beautiful thoughts expressed in the Miles Memorial Issue of V a l u e W o r l d ? Indeed, they cannot, but I know no better.

So please accept my heartfelt thanks. Your expressions of apprecia­tion for Larry's life, and his contributions to yours, were very moving. It is a wonderful tribute to Larry that you took the time to organize your thoughts and express them so eloquently. It pleased me very much that the recurring theme was his greatness as a warm, sincere, caring person. The entire world has benefited from Larry Miles' techniques of VA and VE, but we w h o were privileged to know him personally are the truly fortunate.

I thank you individually and collectively — and a very special thanks to Jim Vogl. Jim just how many hours did you contribute to bring all these beautiful messages together in such an appropriate, pleasing style? I'm sure we would all be startled. Appreciation for your skills and generous donation of time is definitely in order. It was most surely a labor of love. You, Augie, Don, and all of the NBO staff have pulled it all together with pleasing results.

Thanks for the artwork on the cover. Larry was enjoying his baskets of greetings and telexes from around the world. I hope each of you can have such expressions of happiness on your 80th birthday.

I'm looking forward to greeting all my old friends and meeting new ones at the SAVE International Conference in Miami Beach.

See you there.

Eleanor

4 Value World, April/May/June, 1986

VE: Law Enforcement's New Weapon

By Chief Frank Burrows

Chief Frank Burrows has been with the Anderson, Indiana Police Depart­ment since 1973. He was promoted to Chief of Police in 1980. He has attended numerous professional schools and seminars during his career, and was recently appointed by the Governor to a three-year term on the Indiana Criminal Justice Institute. The Anderson Police Department may be the first law enforcement agency to apply the disciplines of VE to the arrest and detention of drunk drivers.

The Fisher/Guide Division of the General Motors Corporation has brought law enforcement into the world of big business. As a guest of Fisher/Guide, the Anderson (Indiana) Police Department entered the world of large corporations when they were invited to participate in a Value Engineering (VE) Seminar con­ducted by Value Analysis, Incorporated.

The police team consisted of Chief Frank Burrows; Assistant Chief Walter Smith; Assistant Traffic Divi­sion Captain John Burke; Captain David Rhorer, Special Services; Lieutenant Terry Richwine, Detective Division; Patrolman Rodney Cummings, Patrol Divi­sion; and Christy Pitts, Records Division.

The idea of inviting the Police Department to join Fisher/Guide in the VE Program developed when Cap­tain Rhorer was assigned the command of the Records Division. Inquiries were made to Mr. Gary Endrai and Mr. David Ball of Fisher/Guide's Engineering Division to determine if the efficiency of the Police Records Division could be improved through methods used by General Motors. Through Mr. Rick Heider, VE Manager at Guide, arrangements were made for a team to participate in their October, 1985 workshop.

The concept of VE was designed specifically for the realm of manufacturing. Its techniques are applied to assembly, materials, design and tooling. Areas that deal wi th a product that can be changed to improve cost efficiency are investigated.

Law enforcement on the other hand is a service organization. A form of service that is like no other; however, it was believed that VE could provide some form of assistance. The Anderson Police Department is similar to virtually every law enforcement agency in the United States in that it is inundated wi th paper­work. The adage "the criminal is out of jai l and on the street before the cops can finish their paperwork" is true. The participation of the Police Department in the VE Seminar was an attempt to resolve the problem of paperwork.

The police team selected the process of arresting a drunk driver, because under the present system it re­quires 3 hours and 35 minutes, 10 different forms, and 4 officers to effect one Driving While Under the In­fluence of Alcohol (DWUI) arrest. On an annual basis, the officers of the Anderson Police Department spent 1,287.5 manhours on D W U I arrests.

The scope of the project was to study the process f rom the time an officer first observed a possible drunk driver to the time that all paperwork was completed by that officer. The objective was to determine a pro­cedure that would reduce the amount of time and forms used in the D W U I process.

Each member of the team was very excited about the prospect of venturing into an area where few, if any, f rom the Police Department had gone before. They found themselves surrounded by people who spoke a foreign language. They used words like profit margin, market requirements, raw material, fabrication pro­cess, manufacturing, etc. The definitions were the same; what was foreign was their use in law enforce­ment dialogue.

The process outlined by VE is also foreign to law en­forcement. Police officers are trained to f ind solutions to problems as quickly as possible, giving little or no thought to the cost efficiency of that solution. The main concern is to resolve a situation and get on to the next problem, which is always awaiting them.

So, when Dusty Fowlkes (Founder of Value Analysis, Incorporated) told the teams not to look for solutions, but to define the problem and then do some creative thinking, the police team was like a fish out of water. Trying to think of innovative ways of doing the job was like learning an entirely new job. Before, innovation came into play because of some unique circumstance of the situation, not because policemen wanted to f ind the most efficient way of handling a situation.

The process of a D W U I arrest had evolved because of requirements of the prosecutor's office and the

Value World, April/May/June, 1986 5

courts. However, when their requirements changed police procedure was modified to accommodate the ad­ditional requirements, not to reevaluate the procedure and delete the unneeded parts. Some of the procedure

The Anderson Police Depart­ment could realize an annual savings of 577.7 manhours based upon the current number of arrests.

was established because it seemed best - w i t h no evaluation to assure that it was efficient.

The definitions, which were the first step of the VE process, were easy. They knew that the problems were too many forms, too many people involved, and too much time to process the arrest. The creative thinking was a little difficult , as was explained earlier As the police team, however, began to use their brains it sur­

prised them all to f ind that the creative juices were still able to f l ow in each of them. Admittedly, some of the ideas developed were sheer foolishness, but the light-heartedness may have helped to spawn the really in­genious ideas. 1

The VE process opened the Police Department's eyes to such a new procedure for handling drunk drivers that they very wel l could eliminate four forms the need for two officers, eliminate the transfer of prisoners, and eliminate 1 hour and 45 minutes f rom the old procedure.

The Anderson Police Department could realize an annual savings of 577.7 manhours based upon the cur­rent number of arrests. The savings would be increas­ed as the number of arrests increase, due to the reduc­ed time and convenience experienced wi th the new procedure.

The sense of excitement by the team members was enhanced by the newly designed procedure . . not so much as to what was accomplished during the seminar but what Value Management w i l l enable them to do in the future. ^

Forward Planning for VE Meeting/Workshops

foT'/nrT ale"%t0 a U A i r F ° r c e L o ^ s t i c Commands

p Z r s T l F B ^ **" ***** C ° ™ * W r i ^

1. The new AFLC Supplement 1 to AFR 320-1 para­graphs 7 b and 8.j(3), requires the VE Program Man­ager and each of the above organizations to " establish and maintain VE liaison by participating in industry, professional society, and other DOD agency meetings to exchange and improve VE concepts and techniques " Also, the H Q USAF VE OPR is preparing a letter that requires VE program management person nel to participate in DOD and industry VE meetings the liaison is necessary to more closely match the ac­tual obtained VE savings to the potential that would ex­ist by exchanging project ideas and techniques. The l i -w V l r l S 1 § n i f i c a n t l y i n c r ease the effectiveness of the

. V E Program by adapting improvements, tech­niques, project ideas, and training that are proven dustry s e r v i c e s < specifically the Army, and in-

2.TO increase the crossfeed of VE across DOD and in­dustry each organization must include VE meeting/ workshop participation by VE Program Management personnel (VE Program Manager and/or other peSon-nel who work VE dedicated positions). Forward plan­ning for VE TOY requirements should be imtiated Im­mediately since the TDY costs are significant (approx-

6 Value World, April/May/June, 1986

imately $4000 or more) for each year. Yearly VE meet­ing/workshop TDY requirements are as follows:

a. Electronic Industries Association (EIA) -Government Procurement Relations Council (GPRC) Value Management Group. The EIA-APRC meets quarterly. The next conferences in 1986 are 12-14 March, 25-27 June, and 12-14 November. Registration is approximately $50. Participation is required f rom one of the VE Program Management personnel at least once per year. Point of contact for the EIA-GRPC is Dr William Copperman, (213) 568-6043.

Th Q A b w ? w e t y ° f A m e r i c a n V a l " e Engineers (SAVE). The SAVE International Conference, occuring annually m Apr i l or May, w i l l next be held on 18-21 May wi th certification exams held on 17-18 May. The conference is devoted primari ly to VE development and offers papers, workshops, seminars, training, certification ex­ams, and meetings on all phases of Value Engineering and related subjects. Registration is $375. Participation is required f r o m one of the VE Program Management personnel at the annual meeting. Although the registra­tion cost may appear high, the fee is small in com-

rZlT t0 SfJ5 S a V i n g S t h a t C a n b e generated by a

crossflow of VE ideas and projects across industry and

nvXvp'p ° ' P A

a r t i c i P a t i o n ^ Wghly encouraged by the VE Program Manager and VE Monitors at the

qT™* Y C h 3 p t e r m e e t i n S s - P o i n t o f c o n t a c t

tor SAVE is John Jackson, AV 739-1110, General Dynamics extension 72224. ^

Customer-Oriented Value Engineering (COVE)

By John W. Bryant, CVS

*I0hu i r ^ i S Yke P r e s i d e n t ° f V a l u e A n a l y s i s ' Incorporated, Newport

Beach, California and a past president of SAVE.

Introduction

Historically, value engineering/analysis (VE/VA) studies have concentrated on use functions. Function is

n r / S t h a t W h k h m a k e s a P r o d u c t both work and sell. Educational seminar and workshops typically stress the "work" functions wi th comments such as

We leave the sell functions to marketing because they are very subjective." Since practitioners are trained this way, they normally carry on that attitude and pro­cedure to their future studies and applications. For­tunately, this has worked quite wel l to date because of the time constraints of a formal workshop, typically 40 hours. Wi th in this constraint, projects are selected for both training and application demonstration. They are normally compact in scope and typically represent components, subassemblies or assemblies of one prod­uct. When working wi th in a product rather than the whole product itself, such emphasis is logical.

However, when attempting to improve the value of products, "sell" functions become vitally important I t is often true that several producers all provide the same basic functions in their competitive products Atter all, it is the use functions that customers buy to

In Customer-Oriented VE (COVE), we are concerned with the ''entire product"

f u l f i l l their needs. But, assuming these basic functions are met in a competitive mode, it is the ability of suc­cessful producers to provide "sell" functions that w i l l attract users to buy their product rather than the com­petitor's. I n VE, this concept is referred to as the value match, or as it is worked with, reducing the value mismatch.

There are two categories of value mismatches. The first is the one referred to above. This mismatch occurs when the producer places a different emphasis or degree of importance on use or sell functions than does the purchaser. Typically, this occurs as a product matures in the marketplace. The producer keeps im­proving the function and features that he is best at pro­ducing or that he thinks are important. The results have been f low meters more accurate than the customer wants, greater amounts of parking or rest space on bridges than needed, or less perceived quality in automobiles than desired.

A further difference between total product value im­provement and the individual component level is reason for project selection. Problems are a frequent basis for an organization selecting projects for value improvement studies. There is an unexplained loss of parts during manufacture, costs have become too high on a particular assembly, or low yields occur in the soldering process. For customer-oriented studies of products, the most frequent input for project selection comes f r o m marketing. For example, on a military electronics radar system the marketing department urged a study to incorporate what they had found would sell the next generation of equipment. On pole type transformers, marketing informed management which features could be improved to assure future competitive position. In short, a critical factor of these studies is assuring the value match between internal objectives and customer needs/wants.

Customer value is a ratio of wants plus needs, to the required resources (money and people) to obtain those wants and needs.

Value = Wants + Needs

Resources

= Sell Functions + Use Functions

$ + People

Value World, April/May/June, 1986 7

The value to the customer can therefore be enhanced by improving either sell or use functions wi th in the range of acceptability (usefulness to the customer), or by decreasing the resources needed, such as purchase price. I n actuality, all are interactive and therefore a value study w i l l work w i t h all pieces of the value for­mula.

Determine the Product/Project Because the majority of VE projects have assemblies,

subassemblies, components, etc., determining the scope of the project is an essential step. Does the pro­ject originate w i t h the delivery of the material to the first work station, or is the removal f r o m inventory in­cluded? Does it conclude wi th the f inal assembly operation? Final inspection? Entry to work-in-process inventory?

In Customer-Oriented VE (COVE), we are concerned w i t h the "entire product." That is, the product that the customer purchases. However, the customer frequent­ly purchases not only the physical product, but associated resources as wel l . Such features include maintenance contracts, warranties and seller originated servicing. Thus life cycle cost is of particular significance in these applications. *

Agreement on project scope must be achieved as an initial step in the process. Typically, this scope w i l l be defined by a team consisting of at least representatives f r o m Marketing, Sales, Field Service, and the Product Manager.

Determine — Who is the "Buyer"

A n early objective of the COVE team is to define who really buys the product. Who is truly the decision maker? I n many cases the "who" is more than one per­son or group. The obvious answer in an industrial set­ting is the Purchasing Agent. But is the agent really the decision maker, or is he/she acting as an agent for Engineering? The engineers create the specifications, but do they make the f inal selection between company A, B, or C's product if all choices meet those specifica­tions? Who is the actual user of the product? I t can eas­ily be a third person or group. What is their role i n the selection now and in the future?

For example, a large steel company known primarily as a high-volume producer of standard materials developed a unique high strength/low alloy steel which was less expensive to produce than double quenched steel. To take f u l l advantage of this new product required a change in marketing strategy. I t would no longer be appropriate to approach company buyers on solely a price and delivery basis. First, selected targets were chosen. Users who would be in­terested in the unique performance characteristics of high strength "and low weight were identified. The company decided to concentrate on transportation, and wi th in that automotive, railroad freight cars, and

* Value Management for Construction. Macedo, Jr., Dobrow & O'Rouke; John Wiley & Sons, NY, pp. 273-277.

* Department of Defense Directive 5000.28, May 23, 1975.

heavy duty truck and earth handlers. I n each case, the developer found the "buyers" were really the engineers—those persons who created the specifica­tions. I f the customer's engineers could be convinced of the advantages of the new product through com­parative analysis of the other steel, they would specify the new product.

Truck and railroad car manufacturers could offer their customers greater payload capacity wi th in the same roadbed limitations, and automobile manufac­turers could, for instance, offer higher strength bumpers while simultaneously reducing the weight of the vehicle. The result was a whole new value marketing strategy aimed at the technical engineering departments. The implementation of this strategy even included special training courses for company salesmen to adapt to the new strategy. Final prices were, of course, still negotiated w i t h the Purchasing "buyers."

For consumer products, a similar situation exists. A dilemma facing a shoe manufacturer was: who actually decides which athletic shoe to buy, the child or the mother? In reality it most likely is a combination. The mother tends to look for quality, how long the shoes w i l l last, and a reasonable price.

The child looks for style, what favorite athlete en­dorses them, and comfort. There has long been a ques­tion of to what degree are toys designed for the parent (who must be initially attracted to them) or the child?

Probably the classic dilemma appears in military products, w i t h their separate funding pools of money. (R&D) systems are designed and developed w i t h Research and Development funds which, wi th in that category, have several distinct pools. They are manufactured in volume w i t h production funds, and operated and maintained w i t h an entirely separate set of funds by the using agency. For the past several years, the military procurement family has espoused the concept of developing new systems under the life cycle cost concept. But, the original buyers of R&D have their own budget limitations. The question clear­ly consists of: is R&D wil l ing to spend more of their own funds to save operational costs since those savings w i l l be reflected in another organization's budget? The increased costs for R&D could very wel l decrease their ability to fund additional R&D projects. The develop­ment contractor must first satisfy the R&D procure­ment function in his proposal to obtain the contract. The developer rarely interfaces w i t h the ultimate user other than at forums, but is constantly interfacing w i t h the R&D contracting officer, laboratories and the pro­ject/program office. Obviously, dissatisfaction w i t h the final product i n the f ield w i l l be fed back for future consideration, but that is long after its development or after production contracts have been awarded.

Neither is another major industry, construction, im­mune to a comparable quandary. A similar triangle ex­ists between the architect, the contractor and the user of the structure. It, of course, may be further com­plicated if the "user" in turn leases to tenants.

Thus, an extremely important facet of COVE is to determine who the decision makers are. I t is f r o m

8 Value World, April/May/June, 1986

these sources that value attitudes w i l l be garnered.

Features/Characteristics

Once the decision-makers have been defined, a representative group of them is assembled. This group most often is a combination of external buyers and in­ternal "experts." If , because of widespread diversity of the buyers (such as consumer products) that assemblage is impractical, market survey techniques can garner the data described below. However, I recommend that even in these cases "test groups" be used rather than the broad scale survey approaches.

The objective of the meeting is to have the buyers/decision makers define the positive features and characteristics that truly sell the product and also describe faults or complaints. Initially, a typical reac­tion of management is that they already have that data, or if not available can easily obtain it f r o m their own organization. Numerous case histories, however, have proved that dependence on internal expertise for this data base has led to value mismatches. These mismat­ches have occurred because of different objectives of the buyers and the producers. More often it occurs because of a difference in emphasis of the product's performance.

The determination of performance criteria involves four major steps: define the performance feature; how those features w i l l be evaluated; the acceptable range of performance for each characteristic; and finally the relative importance of each characteristic to the total buying decision.

The meeting, or market survey process, w i l l enable the participants to state the features, characteristics and complaints. I recommend that this be done in two parts, externally and internally. Comparison of these two lists w i l l determine i f a value mismatch is occurr­ing on basic objectives.

The truck and bus operations of an automotive manufacturer were preparing to conduct a VE study. The traditional design incorporated four batteries for heavy-duty applications. The responsible engineer was convinced that the customers needed and wanted four batteries to assure operation under cold cranking con­ditions. He therefore directed that this concept be a re­quirement of any f inal design, although he was wi l l ing to accept improvements w i t h i n that approach. However, i n the early stages of the study the team determined that the customers were not adamant about the number of batteries i n the system as long as the system satisfied all operational requirements. The team therefore proposed a three,-battery system, which was just as powerful as the four-battery design while reducing the weight by over 70 pounds, a desirable fac­tor. The basis of the achievement was improved bat­teries since the original design had been developed. However, the engineer believed so strongly he was cor­rect that he rejected all suggestions concerning the three-battery concept. Fortunately, the VE team members were equally f i r m in their belief, especially f r o m the customer-oriented viewpoint, and they received permission f r o m higher management to test

their approach under severe conditions, including arc­tic use. I t passed all possible tests. Faced w i t h that data, the engineer reluctantly agreed to the approval, but in­sisted the four-battery design also be offered because he knew that's what the customer really wanted. Over a three-year period, only two four-battery systems were ordered. The annual savings were over $700,000 per year. Unfortunately, because of the honest wrong belief of customer wants/needs, the company lost two years of that savings due to the delay incorporating the new design.

A potential problem that frequently occurs is answering the questions: What do you really mean by that? How can we measure it? How do you know whether you have it or not? During a VE study on a sludge separation system, the team agreed that one performance factor was to "prevent backflow." The team was in the evaluation process before one member asked: "Are we all talking about the same thing? Do we really mean to stop l iquid f rom redirecting wi th in the fluidized bed, or are we preventing sand f r o m entering the nozzles?" I n other words, they had not fu l f i l l ed the step defining how each performance characteristic is defined. Is it in terms of weight, volume, reliability (Mean Time Between Failure), time, etc.? I t is best to define as many characteristics as possible i n measurable terms. They can then be objec­tively evaluated. Admittedly, some w i l l not be of the objective fo rm but rather must be subjectively judged. Appearance is typical of that type.

It is necessary to establish the range of acceptability for each criterion. The "lower l imi t " represents the minimal performance level that can be incorporated into the product and still have it meet all performance and delivery requirements. I f an alternative falls below the least acceptable l imit in any single criterion, that alternative cannot be used no matter what benefits it offers i n all the other criteria. Therefore, great care must be taken in establishing the lower limits.

Typically, the customer w i l l define this l imit wel l because it w i l l represent the crossover of poor quality to them. We must, of course, realize that the customer is considering his perceived quality, which may wel l be different f rom the quantified, measureable quality of the producer.

On the other hand, the "upper l imi t " is most often set by the internal team: The "upper l imi t " is deter­mined by the lesser of two situations; that which can be practically achieved, or the most that can be effec­tively used. The "most" may f ly in the face of a customer's desire—less than infinite reliability, or no downtime, for example.

This assumes that the characteristic has a range of p e r f o r m a n c e a c c e p t a b i l i t y . Howeve r , some characteristics may not. They are what is known as single point characteristics. The characteristic is either met successfully or the product is not acceptable. The product must be available by a certain date, but the customer doesn't want the product earlier. Since the product fits into a total system, the product must meet a reliability factor. More than that w i l l not benefit the total system. The product must display the appropriate logo. These characteristics w i l l not be evaluated for

Value World, April/May/June, 1986 9

degree of acceptability i n future steps; they are simply yes or no evaluations, and are normally evaluated first since any "no" evaluation eliminates that alternative unless it can be overcome and converted to a "yes."

The final step is to determine how important are each of the product's features and characteristics, and how serious are the complaints/faults. There are two common approaches to this step: The first is the "flash card" technique. Each participant at the team meeting is given a set of cards numbered 1 through 10. The meeting leader lists each characteristic/fault, one at a time. The participants each flash their evaluation simultaneously. The ratings are recorded and the mode and range are calculated. The mode is used rather than averages, to reduce the influence of one or two ex­treme ratings. The range is listed to note that occur­rence. The weakness of this approach is that it can, and has, created stress. I f someone does not agree w i t h the others early in the process, particularly the "expert" in that area, they become embarassed and w i l l hesitate to offer their true evaluations in the remaining process. The attempt to answer a "how much" evaluation can

be very diff icul t . Some value practitioners have at­tempted to overcome this quandary by removing the Number 7 card, because many people think that 7 out of 10 is a passing grade. This technique, however, places more stress on the individual and biases the results.

The second approach, favored by most value practi­tioners, minimizes this problem and results i n more ra­tional results. I t is much easier to answer a simple choice of would you rather improve A or B? Just a basic choice of which one, not how much better or worse A is than B. This leads to the technique called "Paired Comparisons."

Paired comparison techniques are basic on the con­cept that the easiest and least subjective decision is "yes" or "no." Each characteristic/feature is com­pared directly w i t h each of the others. This eliminates judging several factors in one decision. It requires only a "which one" choice, rather than the highly subjec­tive "how much" choice.

In considering the product packaging of commercial

VALUE ENGINEERS AVCO Lycoming Textron, the pacesetter i n gas turbine

engine technology, is responding to the challenges of tomorrow in new products and customers on a worldwide basis.

Our expanding marketplace has created several positions for Senior Value Engineers. You will be required to lead, coordinate, and facilitate project groups at all levels in the support of the Division Value Engineering Program. Major responsibilities include supplier cost reduc­tion programs and evaluating and improv­ing supplier manufacturing capabilities and processes to produce quality and cost effective parts and components. You will lead special problem solving studies, cost reduction and value engineering activities, department studies and/or cost analysis as considered necessary relative to product. You must possess the ability to initiate creative design alternatives to facilitate cost effective manufacturing.

The ideal candidate will have a

BSME plus 10 years in-depth experience in Value Engineering. Experience in the gas turbine/aerospace industries is pre­ferred; other industry experience will be considered. You will need strong com­munication skills, ability to interface with suppliers and in-house top level manage­ment and will write comprehensive pro­gress reports on activities.

We provide excellent salaries and a comprehensive paid benefits program that includes major medical/dental/life in­surance, vision care plan. 100% tuition reimbursement, stock savings program, as well as relocation assistance.

Interested candidates should forward resumes including salary history and re­quirements (no phone calls please) in confidence to:

Professional Placement-B1051

Avco Lycoming T E X T R O N Avco Lycoming/Subsidiary of Textron. Inc.

550 South Main Street. Stratford. CT 06497 CONFIDENCE IN THE FUTURE . . .

AND IN OUR PEOPLE An Equal Opportunity Employer M/F/H/V

10 Value World, April/May/June, 1986

automobile batteries, one team decided the perfor­mance features were appearance, identifying customer specifications, on-time shipments, ease of handling and product identification. Each factor was compared as shown below.

Which is Decision # More Important? Decision

1 Appearance or identify customer spec?

Appearance

2 Appearance or delivery? Delivery

3 Appearance or handling? Appearance

4 Appearance or product identification?

Appearance

5 Identify customer spec or delivery?

Delivery

6 Identify customer spec or handling?

Spec

7 Identify customer spec or product identification?

Spec

8 Delivery or handling? Delivery

9 Handling or product identification?

Delivery

10 Handling or product identification?

Prod. Ident.

This comparison is summarized as:

Characteristic Comparison

1 2 3 4 5 6 7 8 9 10 * * *

Appearance X X X 3 .30

Ident Cust Spec X X 2 .20

Delivery X X X X 4 .40

Handling —

Product Ident. X .10

These comparisons were made based on two assumptions:

1. A l l alternatives would meet at least min imum re­quirements of each characteristic.

2. I n choosing between two characteristics, the others remain constant.

Because ease of handling was not chosen in any com­parison does not mean that it isn't important. I t only in­dicates that efforts for improvements should occur in other areas first. Any final product design must meet at least the minimal handling requirements.

A n important advantage of the paired comparison approach can be observed f r o m the above illustration. The "importance" decisions total 100%. I n the flash card approach, everything could be rated highly im­portant. The paired comparison technique forces the discipline of establishing relative importance wi th in a 100% total decision.

"The number of times each characteristic was chosen. * *The number of times each characteristic was chosen, divid­ed by the total number of decisions.

Value Mismatches-Performance Comparison of customer-related criteria and their

relative importance ranking wi th in-house evaluations often have vividly exhibited value mismatches. The obvious cases occur when the characteristic/faults themselves differ.

Equally significant can be a reverse condition, when the supplier ignores a feature or function that the customer wants. A large truck producer decided as part of a cost reduction program to change the design of the window on the driver's side of the cab by eliminating the window post. The post separated the larger window f rom the smaller vent window. The ra­tionale was that experience indicated a separate vent window was not a significant feature; single windows were a commonly accepted design in personal autos. Although this was correct, they missed the habit pat­tern of long-distance truck drivers who wanted the post itself. Their habit is to hold it w i th one hand while driving, because among other things, it increased their "macho" image. Whether the designer/producers agree or not, perceived value by the customer is ex­tremely significant.

Frequently, a more subtle condition occurs. Both the customer and the in-house team agree on the characteristics, but may significantly disagree on their relative importance. That, of course implies where the producer should be intensifying his efforts. One com­pany was producing steel case f low meters. They had been losing market share, so decided to conduct a VE study to help solve the problem. An in-house team composed of the Director of Engineering, Quality Manager, Lead Design Engineer, Sales and Pricing Manager, Director of Marketing, and Production Manager was assembled. They developed what they believed were the important charcteristics to their ma­jor customers and the relative importance of each. Us­ing a 1-10 scale, the producer team concluded:

In-House Rating

Characteristic Importance

Accuracy 9.0 Delivery (meeting) 8.0 Price 5.5 Cycle Life 6.5 Ease of Reading 3.0

Before the study started, customer-oriented analysis was performed w i t h major purchasers. While the characteristics were agreed upon, their relative impor­tance analysis indicated significant differences:

Customer Rating

Characteristic Importance

Accuracy 5.0 Delivery (meeting) 9.0 Price 9.5 Cycle Life 4.7 Ease of Reading 9.5

Value World, April/May/June, 1986 11

Further discussion revealed that the designers, being very proud of their technical achievements, had kept improving the accuracy of the meters to where it was ± 0 . 5 % . They believed that this was the criteria that produced a good meter, and the customer would be wil l ing to pay a " l i t t l e" more for that performance. The ease of meter reading by the operator wasn't very significant because it was so accurate. The customer stated they wanted an inexpensive, easy-to-read meter where +5% was adequate. At least they all agreed that having the meters available for the user was important!

I n another case, a machine producer was losing its competitive position. In creating the customer/in-house criteria/needs lists, it was noted that several features of their basic product line were not rated highly desirable by most of the customers. Investiga­tion revealed that in most instances a feature had been ... added at the request of a specific customer. Since it' ..' became part of the drawings and specifications, it was incorporated as a standard feature on all future equip­ment. The decision was to go back to a truly standard machine at 20% less basic price and offer the other features as individual options to those customers who wanted any or all of them. I n this case, the incorpora­tion of special features as standards for all customers had created a value mismatch.

Performance value mismatches can occur when there is a difference between what the customer and supplier believe are the governing characteristics or the relative importance of them.

Final Application When the data generated in COVE is analyzed and

differences resolved, it becomes a baseline for the value study. Just prior to the Speculative Phase, the cost value mismatches are determined. These may represent a significant percentage of the total function cost. There are three classifications of potential value mismatches:

I . High Cost/Low Need: When the COVE analysis indicates a low level of importance, but during the cost/function step of the VE Job Plan a high percentage of the total cost is assigned to those functions. The extreme instance is when cost is being expended for unwanted function, i.e., no need. Examples include 5% of the cost of a fluidizer to facilitate cleaning when it is only cleaned during a plant shutdown. Or 7% of the cost of an overhead projector to remove heat caused by the unwanted function of generating heat. Or 2% of a computer to "aid replacement" for something that has since been built i n as a non-replaceable unit.

I I . Very High Cost/High Need: When a need is very important but the cost is out of proportion to what is reasonable to achieve the function. The classic VE example has been a tie clasp. Assum­ing the tie must be attached to the shirt for safety, as i n a factory, or that personal appearance would be significantly deteriorated wi th a tie flapping around, a high need exists. A tie clasp probably

cost $5.00-$ 10.00, but its function can be generated by a paper clip (less than $.01). Another typical example is nameplates. The func­tion of identifying product or identifying danger can be high need, but often nameplates are very high cost and screwed on, which in turn requires seals. This approach is used rather than glue/epoxy, even though aircraft are glued together today.

I I I . Low Cost/High Need: Often in VE low cost is automatically considered good. But good value may not be represented if appropriate resources are not expended to achieve high needs. For ex­ample, 0% product cost of a chair for executives to reduce fatigue, or 1% of transformer cost to "seal assembly" which was constantly subject to water damage.

Conclusion VE practitioners, such as Tom Cook, report that,

historically, study teams identify cost value mismat­ches f rom 30% to as high as 80%. This is not to say that they end up reducing the costs by that much, but rather that they pinpoint the highest potential areas in which to develop alternatives. This approach does not resolve the problem of always assuming high cost is bad. High cost for a very high need can wel l represent good value. I t is the relationship of need to cost that should determine the best opportunities for improve-ment^

Customer-oriented VE seeks to assure appropriate value of a product or service to the buyers/users. The COVE procedure w i l l :

— Identify the wants/needs of the buyers.

— Identify the relative position of competing pro­ducts.

— Assure that internal directions are in consonance w i t h user needs.

— Identify high potential areas for improvements that w i l l be meaningful to product value im­provement.

I first encountered this concept in a lecture by Roy Foun­tain at the Heavy Military Electronics Department, General Electric Co. He referred to the concept as "cost/function value mismatch." It was extensively defined and explained in relation to customer value by Thomas Cook at the 1981 SAVE International Conference. A

Bibliography

1. Wasserman, M. Sales Market Value. SAVE Proceedings, 1977 In­ternational Conference, pp 105-114.

2. Brunswick Corporation, Workbook Analysis Job Plan, pp 21, 23. 3. Macedo, M. C, Jr., Dobrow, Paul V., O'Rourke, J. J., Value

Management for Construction (1978), pp 101-102. Wiley and Sons, New York, NY.

4. Department of Defense (1976), Circular A-109, Major Systems Acquisition, p 3.

5. Harbridge House, Inc. (1978), Value Marketing (brochure).

6. Harbridge House, Inc. (1978), Marketing Analysis with the Deci­sion Support, Boston, MS.

12 Value World, April/May/June, 1986

VA Manager's Conference Highlights ^^^^^^

J By Harry Coffin

Harry Coffin is Assistant Editor of Value World. He is a senior consultant with General Electric Information Services Company and has served on the board of the Chicago Metropolitan Chapter of SAVE. t Just as Larry Miles sold his VA beliefs to General Electric years ago, the message is clear to the VA Manager of Today. . . Go forth and do likewise!

Itasca, Illinois was the site of a VA Manager's Con­ference, hosted by Value Analysis, Inc. Leaders f rom industry and education shared collective experiences. The theme of the conference focused on management expectations, Value programs and technology and human element practices.

Dusty Fowkles, founder and chairman of Value Analysis, Inc., and Mrs. Eleanor Miles reminded 62 conference participants of the Genesis and prolifera­tion of VA through the years. Mrs. Miles reiterated her husband's determination to bring VA to fruit ion at General Electric. Fowlkes said the state of the economy w i l l generally determine where the current Value emphasis w i l l go. Examples cited were recent dramatic changes in high tech electronics, agri­business and the health care industry. On the academic side, colleges continue to retain high interest in teaching VA.

Dieter Tannenberg, president of the multigraphics Division of A M International, offered the equation "output divided by effort = productivity" as a starting point for management consideration in managing its business. Real productivity, however, is the result of focused effort that brings short and long term results. Multigraphics relied heavily on focused effort in VA/VE and quality circles programs to emerge f rom bankruptcy to profitability. Tannenberg thinks VA should be considered as an ongoing permanent pro­gram in business in the same manner as purchasing or accounting functions.

The focused approach was repeated by James Wheeler of Northern Telecom, Inc. The philosophy at Northern is that a needs—driven program is best. Head­quarters provides the VE tools for the 20 manufactur­

ing plants through cost models and ROI indicators. In­vestment in VA can be returned ten-fold. The company continues to believe that change is a vital part of cor­porate life.

One of the most successful companies in the world recently introduced VA. Rather than standing on its

Workshops are not considered to be a training program but rather a method of self-development.

laurels, Stelcase, Inc. of Michigan decided to get its sup­pliers heavily involved through VA/VE. Michael Kerr is managing the implementation with a matrix organiza­tional structure along manufacturing plant lines. Func­tional areas such as quality control and industrial engineering are applying VA to the product lines and services within that environment of manufacturing.

Ronald G. MacMeekin, VA manager at Bell Northern Research of Canada, discussed the administrative pro­cess of productivity improvement. Northern views im­provement as a way of life, not just a specific program. It involves everybody and should be practiced in a business-like " f u n " atmosphere. Workshops are not considered to be a training program but rather a method of self-development.

TRW's Steering and Suspension Division introduced VA to help beat its competition. Robert Reddinger,

Value World, April/May/June, 1986 13

director of Plant Operations, said a vital concern for TRW included shrunken U.S. markets caused by foreign competition and a strong U.S. dollar. A vigorous response to the challenge included superior engineering, new technology, material delivery im­provements, productivity improvements, and heavy

Adaptation to new ideas and ways of thinking is inherent in most of us.

employee involvement as typified in VA teamwork. TRW has seen a $4 mil l ion savings related to $250,00 expended in training costs.

I n health care, David Makarewicz, vice president of American Hospital Supply Company, provided a scenario of the industry. Since 1965, the rate of health care expenditures has doubled the growth of the gross national product. This is due to an aging population, changing social attitudes and unique third party in­surance reimbursements. As a result, new trends are developing rapidly in the industry, and the possibility of bankruptcy for some hospitals appears likely.

To meet the changing care competition, American Hospital Supply implemented VA wi th a stipulated condition of one year payback. Objectives include em­phasis on cost/quality versus features, understanding operating room procedures/efficiency, emphasis on standardization, emphasis on product redesign, manufacturing emphasis based on market intelligence and emergence of procedure packs. The goal of American Hospital Supply is to make our life better at affordable prices.

I n the creative area, Dr. Rosemary Fraser offered thoughts for better group dynamics. Her charge was to "go w i t h what works." Since VA systems techniques are powerful and work, use them. Adaptation to new ideas and ways of thinking is inherent in most of us. Two methods used in creative problem solving are convergent thinking, systematically using information we have to get to the solution and divergent thinking,

Using the best publicity and recognition methods avail­able are essential in bringing attention to membership growth possibilities.

which has no right or wrong answers. Both methods are appropriate for VA.

"Best value at lowest cost" equates to "satisfaction on human resources by getting results." Dr. Fraser used a complex team problem to illustrate this princ-ple.

Priscilla Donovan, co-author of "Whole Brain Think­ing" is the director of Whole Brain Development in Denver, Colorado. She elaborated upon the left brain (analytical) and r ight b ra in ( in tui t ive/visual) phenomena. Scientific evidence continues to mount for better understanding of how people can be more creative in problem resolution. (More information w i l l be forthcoming f r o m Donovan in a future issue of Value World.)

Other presentations included:

• "The Importance of Management Support i n Suc­cessful VA programs," by Peter Hogland, general manager of Electro-Motive, Div. of General Motors.

• "40 Hour Supplier Seminars . . . A Natural Exten­sion of Your Management Program," By Jack Mahank, manager of VA at Saginaw Steering Gear of General Motors.

• "VA Suppliers Programs f r o m a Supplier's Point of View," By Frank Firek, president of Prime Tube, Inc.

John Jonelis, president of SAVE, challenged the au­dience to proliferate the use of VA through greater ac­tivity in obtaining members. Using the best publicity and recognition methods available are essential i n br­inging attention to membership growth possibilities. Jonelis compared the book "In Search of Excellence" to VA, noting that both have the same objectives. A

CUSTOMER O R I E N T E D

V A L U E ANALYSIS

O u r s p e c i a l t i e s i n c l u d e t h e a p p l i c a t i o n o f

V a l u e A n a l y s i s T e c h n i q u e s t o o p t i m i z e

c o s t a n d u s e r / c u s t o m e r a c c e p t a n c e i n :

• C O N S U M E R P R O D U C T S

• I N D U S T R I A L P R O D U C T S

• S E R V I C E S

• S Y S T E M S

• S T R A T E G I C P L A N N I N G

• I N D I R E C T C O S T S

• N E W P R O D U C T D E V E L O P M E N T

| V A L U E MANAGEMENT |

| A N A L Y S I S E N G I N E E R I N G PIANNING""]

T H O M A S C O O K A S S O C I A T E S , INC. 2970 Maria Drive, Suite 109 • Northbrook, IL 60062

(312) 498-3870

14 Value World, April/May/June, 1986

The Selection of Consultants for Saudi Arabian Projects

By A. H. Mansouri

Dr. Abdulwahab Hassan Mansouri is member of the faculty of Civil Engineer­ing, Department of Civil Engineering, at the King Saud University, Riyadh, Kingdom of Saudi Arabia. He has extensive experience in engineering construc­tion projects in the USA and Saudi Arabia. His publications have appeared in the Journal of Structural Engineering and Journal of Engineering Sciences. He is an advisor to the Saudi Ministry of Planning and Ministry of Defense for value engineering. He has receied a B.Sc. from Cairo University and a M.Sc. and Ph.D. from the University of Colorado.

Introduction Recently, various agencies of the Government of the

Kingdom of Saudi Arabia have embarked upon the substantial development of large projects. As a result they are seeking A/E consultants who can successfully carry out the planning and designNof various projects. However, apart f r o m the boom of the seventies where projects were rushed without careful consideration of the efficiency of space utilization, operation and maintenance point of view, the clients nowadays in the Kingdom are getting to be more selective in choosing consultants. A growing number of Saudi clients are considering prequalification processes for the selection of A/E consultants, and such a trend is more and more prevailing. A systematic approach to qualify and select foreign and local consultants was developed and suc­cessfully applied for a large project in the Kingdom. The Approach for the preparation of the request for proposals (RFP) document and for the evaluations of proposals is parallel and similar to that of the value engineering (VE) job plan. The RFP includes the following phases:

The information phase which consists of part one, the proposed agreement; part two, the information to bidders; and part five, the scope of work and the speculative phase which consists of part three, the instruction to bidders; and part four, the standards forms for bid preparations. The analytical phase and the proposal phase are reversed in this case; then comes the f inal report and selection of the ap­propriate group of consultants.

I t is believed that such an approach could be adapted by various government agencies in the Kingdom for the selection of the most suitable and qualified groups of A/E consultants to carry out the planning and design of their various projects. The selection of competent consultants could help the client to reduce construction costs and long range operation and maintenance costs.

I t is of vital interest to government agencies these

... the trend these days is to stress the degree of involve­ment of the local partner...

days to carefully consider and evaluate their re­quirements to space and services in order for them to properly budget the financing of their projects. Value engineering is being introduced to some government jobs on a small scale for assessment of their dollar value during construction and life cycle cost. However, as soon as Saudi clients become aware of this concept, it w i l l be part of the future trend of the consultancy ser­vice for some major clients i n the Kingdom — especial­ly under the tight control of finance that is taking place in the Saudi market today.

Prequalification Form A prequalification fo rm shall be prepared and issued

to potential consultants who respond to public an­nouncements. The intention is to select qualified groups to be shortlisted and invited for the preparation of a master plan and/or design of various facilities. Also, during that stage, the (RFP) for planning and/or design of various packages needs to be developed.

The prequalification form should emphasize the following important factors that affect the selection process:

• The previous experience of the consultants, locally and abroad, individually and collectively.

• The experience of the seniors in each f i rm , for • developing similar planning and/or design work.

• The local partner's role and experience.

• The existence of a local working office for the team.

• Bank references.

• Size of each f i r m by disciplines.

Value World, April/May/June, 1986 15

Objectives of the Request for Proposal (RFP)

The (RFP) may be composed in such a way that it would satisfy the following main objectives:

• To ensure proper technical involvement of the local partner i n order to satisfy the technology transfer. The plan of work should clearly demonstrate be­yond any doubt the interactive relationship between the teams of the local partner and the international consultants.

• To make sure that the proposals reflect realistically the capabilities and the experience of the com­petitive bidders.

• To demonstrate clearly the implementation plan that would indicate reasonable abilities for the prop­er execution of the job during the proposed time frame and wi th the proposed budget and manpower for each task without compromising quality.

• To receive competitive bids.

• To get a complete and positive response f rom bid­ders.

• To identify clearly the scope of work for a complete consultancy service for each package.

• To help bidders to understand the scope of work, the goals and the intention of the client, and

• to facilitate standard bidding procedures which would simplify evaluation and proper comparison of the proposal's contents.

The follow up and evaluation of proposals for each design package may be explained through the follow­ing detailed description of the contents of the (RFP) which is composed of the following five different parts:

PART I: Terms and Conditions

This part defines the terms and conditions that ap­pear throughout the RFP. It also includes the main features of the proposed terms of agreement between the client and the successful bidder. A l l terms and con­ditions are of course in accordance wi th the local rules and regulations that control such contracts. The inclu­sion of the terms and conditions in advance during the bidding stage is helpful where no misunderstanding or misgiving f r o m bidders occurs and the proposals shall contain minimum or no reservations.

A standard clause is recommended in the agreement wi th each contracted group of consultants. That calls for consultants to preserve in organized fashion all relevant information related to the planning and/or design, and all collected data along wi th any computer programs related to each planning or design package for at least two years beyond the expiration date of their agreements. Such, information shall be available for the client's use. A complete set of this information shall be handed over to the client during the contract period in a data base form in order for the client to make good use of it.

PART II: Information to Bidders

This second part of the RFP may include the following:

• Concise information about the client's activities, its goals and objectives, its function and organizational charts. Such information is extremely valuable especially during the planning phase.

• A l l available information regarding the site, ex­tracted f rom the master plan i.e., description of its location, topography, geology, preliminary soil report, vegetation, seismology, climatic conditions, w i th related drawings and data including the availability of services and utilities at and around the site, accessibility to site, etc.

• A brief outline of the development plan including the various implementation phases of development.

PART III: Instruction to Bidders

This part may include the outlined procedures for the preparation of proposals and for f i l l ing the pro­posed standard forms. Forms for proposal security, authentication, fo rm of agreement among partners, and a quality assurance fo rm to be attested by the Head Offices of the international consultants shall also be included. A brief explanatory note to demonstrate the bidder's methods of approach for the preparation of the planning and/or design packages shall be called for in this part.

The dates of submission, location of receiving pro­posal and dates of opening bids may be outlined in­cluding ownership and interpretation of bid docu­ments. The RFP may call for all forms to be attested by the relevant authorities as part of the bid submission.

The f u l l development plan and all updated and rele­vant information shall be kept available at the client's offices for review by bidders for various design packages.

PART IV: Form of Proposals

Definit ion of direct labour cost, indirect cost, overhead and profi t along w i t h some prepared stan­dard forms to be f i l led by bidders are recommended in this part — e.g., a fo rm regarding the proposed sub­consultants, and specialists "with proper definitions of their roles and the proposed budget for their tasks. Another fo rm regarding the bidder's man/day rates in and outside the Kingdom for qualified personnel for various categories is also recommended. Such rates in a lump sum contract, as is the case in the Kingdom, are usually helpful guidelines for compensation for addi­tion or deletion of work. The direct and indirect labor cost for various categories along wi th the percentage of overhead and the fee or profit margin may be re­quested in another form.

The consultant's in-house cost, the cost of materials

16 Value World, April/May/June, 1986

and supply, i f any, and any other items — e.g., travel per diem, communications, reproduction, etc. — shall be called for i n another form. Finally, the percentage of the total work that the local partner is expected to share w i t h the team shall be properly identified and clearly stated by each bidder i n those forms.

It should be noted that all forms proposed in the RFP are intended to simplify and unify the response of bid­ders as much as possible and facilitate proper com­parison of cost and fees which w i l l help speed up the evaluation process.

PART V: Scope of Work

A . Master Planning

For large sites w i th several facilities of various func­tions to be developed for a long period of time, it is necessary to prepare a master plan. The scope of work for the master plan may include the following:

• Developing suitable criteria, policies and standards that shall control the development of the entire site.

• Defining clearly the function of the various facilities and outlining the space requirements for them.

• Conducting complete analysis of the site and the various anticipated circulations.

• Defining the various design packages, their scope of work and boundaries.

• Identifying the possible future expansion for each design package.

• Defining the infrastructure facilities required for the site development.

• Developing the most appropriate land use plan for the site.

• Producing proper phasing of the development w i t h time schedules and budgeting for the design and construction phases of the various packages.

• Identifying the construction packages and their pro­jected implementation schedules.

B. Design Phases

The scope of work for the design of the various packages shall contain all related information which was developed during the master plan phase; it shall also call for:

• Consolidating the space program for each design package which was developed during the master plan phase.

• Identifying each design task for each design package.

• Developing the programming and schematic design of each design package wi th appropriate presenta­tions of the product to the clients in accordance wi th international professional practices.

• Consolidating each subpackaging requirement at the end of the schematic design phase.

• Preparing complete working drawings and final draft of specifications and technical reports for all disciplines w i t h realistic cost estimate and cost

analysis report, and updating the implementation plan for each design package wi th proper budgeting of the construction of the facility under considera­tion.

• Refining all drawings and specifications integrating all comments based on the client reviews during and at the end of each design phase, also preparing complete bills of quantities and drafting the contract documents for tendering purposes.

• Preparing a final design report, outlining the space program, the design criteria and the guidelines that led to the design development of the facility.

• Integrating and implementing the construction of each facility wi th in the overall development plan and presenting models for each facility.

Besides the updating of the construction documents, the final design phase shall call for the final refinement of bid documents — e.g., bidding information, bidding forms, general and special contract conditions, fo rm of contract, instruction and invitation forms to potential bidders, etc.

The RFP shall indicate at the end of the design phase that the consultant shall assist the client in the follow­ing:

• Pre-qualifying potential bidding contractors.

• Proposing bidding procedures and preparing replies to any queries f rom bidders.

• Preparing addendums, evaluating tenders and assisting in final negotiation wi th potential contrac­tors.

• Contribute in developing wi th the chosen construc­tion contractor as built data base for the various desciplines.

Evaluation of Proposals

I t is recommended that the client's evaluation pro­cedures of the proposals for the various design packages be carried out in two stages by a carefully selected team of specialists that have wide experience in Architectural and Engineering Practices' Though price is an important factor, it should not be the deter­mining factor in the preliminary stage of evaluation.

It is worth mentioning at this stage that the trend these days wi th in most government agencies is to stress the degree of involvement of the local partner and to enhance his technical and management capabilities. As a result, most invitations are issued to local consulting firms and they are expected to jo in ex­perienced international consultants for preparing pro­posals and for executing design works.

Since this is the case in the Kingdom, the transfer of technology is therefore one of the main goals of clients in Saudi Arabia. As a result, it is recommended that it be carefully considered in the evaluation process. So, in order to see this realized it is important to measure the degree of involvement of the local partner. The client expects that the local partner shall be joint ly responsible for the work and shall not act as a mere agent. The work plan should specify clearly the technical role that the local partner w i l l play as part of

Value World, April/May/June, 1986 17

the team. Therefore it is expected that the local partner team w i l l jo in the international partner's for executing some of the work locally and abroad in their various of­fices.

During the evaluation of the proposals, great em­phasis should be put on the factors that reflect the capabilities of each competing group of consultants. Those factors should be carefully evaluated. Weighing schemes w i t h grades need to be developed for each item, and in order to closely assess the received pro­posals, further break down of the evaluation factors are required. The major factors recommended for the evaluation of the proposals are:

a) The local partner's role.

b) The performance of the proposed team on previous

projects. c) Proper identification of the task that each member

of the team would carry out to f u l f i l l the re­quirements.

d) Careful evaluation of the quality of the design and study teams leadership. The approximate time that each would dedicate to the project, as proposed, shall be consolidated during the f inal negotiation stage.

e) The assurance of the continuity and availability of the proposed leadership as emphasized and clearly indicated in the proposed plan of work needs to be

carefully considered. This would ensure stability and avoid interruptions and reversal of basic aspects of the work that would result f r o m changing the leadership.

The main factors recommended for consideration during the preliminary stage of the evaluation of pro­posals w i t h the proposed distribution of weighing grades are summarized as follows:

Proposed Preliminary Evaluation Factors and Assigned Grades

• Local participation 15

• Design quality 15

• Technical plan of approach 10

• Design philosophy 10

• The experience of each group 10

• Technical skills 10

• Quality and tone of presentation 10

• Budgeting and fees 10

• Assignment of personnel 5

• Implementation plan and schedules 5

100 points

The proposed grades assigned to those headings are based on their importance and priorities. For example,

Larry Miles Influenced VE i n the Construction/Process Industry:

Use of Larry's technique by the VM Division of Smith, Hinchman & Grylls has provided owners with a return of over $50 for every one dollar invested in value engineering.

Currently, we are conducting studies on a large correctional facility, a jet engine manufac­turing facility, a Judicial facility, wastehandling/landfill project, a large 3,000-bed urban hospital, a large rolling mill for aluminum ingots, a postage stamp packaging process, and a computer network system for the City of New York.

The use of function analysis, you can see, applies literally to everything. Thank you, Larry Miles.

Smith, Hinchman & Grylls Associates, Inc. Value Management Division

1050 Seventeenth St., NW-Suite 800 Washington, D.C. 20036

18 Value World, April/May/June, 1986

since the local participation is an objective of the Saudi clients and the design quality reflects i n so many ways the experience of the group, it is therefore proposed to assign the highest weighting grades to them.

The Selection Phase Those proposals which are relatively weak in the

main technical aspects are expected to receive lower total weighing grade points and shall be dropped off the possible negotiation list. Those proposals that clear­ly demonstrate comprehensive understanding of the various tasks are expected to get higher total weighing grades and shall be chosen for further negotiations. The negotiations w i t h those short listed groups shall in­clude clarification of any aspects of their proposals that were not wel l defined. Further general and technical detailed information needs to be called for regarding" , the proposed design implementation plans. Revised budgeting for each task and consolidation of the pro­posed allocation of personnel and time for the leader­ship role i n the design teams w i t h precise definition of the role of the local partner(s) shall also be clarified and properly defined. Visits to the various offices of those potentially chosen consultants are recommended. Their performance wi th previous clients and examples of their previous work needs to be checked. Their responses during the negotiations shall be carefully evaluated. Their present commitments for other works need also to be noted. This last factor is important in order to make sure that the group is not overloaded w i t h other work which might cause slippage or delay in the scheduled development phase.

A second f inal evaluation stage is recommended based on the outcome of the visits and the responses during the negotiations. Interviews w i t h the proposed principals to lead the proposed teams shall be con­ducted during this negotiation stage.

The following main factors are recommended for the final stage of evaluations w i t h their suggested distribu­tion of the weighing grades.

Assigned Factors for final evaluation Grade

• The extent of involvement of the local partner 20

• The quality and completeness of the proposals 20

• The proposed fees for the performance of the work 20

• The quality of the leadership & design approach 15

• The response of each of the consultants during negotiations 15

• The outcome of visits to consultants' offices 10

Total Grade: 100

I t is expected that the outcome of the evaluation pro­cess should lead to a choice of those groups most suitable for the planning or design package under con­sideration. A decision to go ahead for f inal negotiations

w i t h one of those consultants most responsive shall be considered at this stage and should be based upon the outcome of the f inal evaluation stage.

The selected group of consultants then shall finalize w i t h the client the f inal draft of the agreement along wi th the consolidation of the scope of work, the im­plementation plan and the schedule of payments, which shall all be considered as an integrated part of the agreement.

After Selection The first task for the chosen consultants, after sign­

ing the agreement, is to prepare a design procedure manual that clearly outlines the role of each member of the design team in their various disciplines. Any ex­pected role for sub-consultants, specialists, and/or ad­visors on that package along wi th their tasks shall be properly identified and detailed in this document. I t shall also include the implementation plan for the en­tire design phases, the presentation dates and locations including any possible on board reviews, and the scheduled coordination meetings w i t h other con­sultants and their locations. A l l other related manage­ment procedures and manpower assignments which are required in order to properly execute the work, shall also be spelled out in this document. After its ap­proval by the client, the manual shall be distributed to all concerned parties i n order for all of them to adhere to the t iming and functional activities and to ensure the smooth running of each task.

When more than one design package is anticipated to be carried out concurrently w i th proximity to each other, i t is advisable to assign a consultant for the task of "Planning and Design Coordination." The objective of that task and its scope w i l l be presented in a follow-up paper. •

References

1. Alphonse, J. Dell'Isola, "Value Engineering in the Construction Industry," 3rd Ed., Van Nostrand Reinhold Company, New York, 1982.

2. ' 'Master Development Plan for Saudi Arabian National Center for Science and Technology," (A.S.N.C.S.T.), 1981.

3. "Prequalification Form for Professional Architects and Engineers," (S.A.N.C.S.T.), 1981.

4. "Request for Proposals for Professional Services for Headquarters," (S.A.N.C.S.T.) Development Facil­ities, 1982.

5. "Request for Proposals for Professional Services for Housing Package," (S.A.N.C.S.T.) Development Fa­cilities, 1982.

6. ' 'Request for Proposals for Professional Services for Sci­ence Halls and Museums," (S.A.N.C.S.T.) Develop­ment Facilities, 1982.

7. "Request for Proposals for Professional Services for Communal Facilities," (S.A.N.C.S.T.) Development Facilities, 1982.

Value World, April/May/June, 1986 19

The Value Engineering Orientation Phase

By Keith B. Hogan, CVS

Keith B. Hogan, CVS, has a B.S. in Marketing from the University of Utah, 1952. He has been the VE Program Manager for Tooele Army Depot, Utah, since 1968. He is a certified instructor for the U.S. Army Management Engineering Activity in VE for 40- and 80-hour VE workshops and acts as con­sultant/trainer to Department of the Army agencies. He also teaches creativity and Value Management courses. He is a member and past president of the In-termountain Society of Inventors and Designers adn has one patent pending.

Introduction To paraphrase a common saying, "A Value Engineer­

ing (VE) study well begun is half done." In other words, in the VE Job Plan terminology, doing your homework during the Orientation Phase can make all the difference. I 'm assuming that most VE studies are management initiated. If management hands you your VE studies on a silver platter, already identified, staffed, and funded, then the Orientation Phase has lit­tle meaning for you. If, however, you are anything like my army depot, your VE studies become management initiatives only after you f ind the initial problem, struc­ture the potential study, sell it to management — and only then does it become a management initiative. The Orientation Phase is the key to my entire VE Program.

Definition A Department of the Army VE publication discusses

the Orientation Phase as, "an operation prior to the first or Information Phase."1 The same pamphlet iden­tified the operations within the Orientation Phase. (See Figure 1.)

To paraphrase a common saying, "A Value Engineering (VE) study well begun is half done."

The FAST Diagram which represents my thinking about the Orientation Phase is Figure 2. Functions A4, B4, and C4 suggest the initiatives which originate through management. Function C5 presents the routes where raw problems are evaluated for study potential.

Two "how" functions: D5, Conduct Mini-studies, and D6, Encourage Problem Sensitives, are submitted for strategies for identifying suitable problems.

Conduct Mini-Studies The same VE techniques that solve problems are also

effective tools to evaluate suspect areas to "Find Prob-

Figure 1

ORIENTATION PHASE

P R O C E D U R E

Find Problems'

Submit ideas for projects. Evaluate their potential for:

Return on investment and time to implement results.

Select projects for planning; Appoint the team. Allocate resources. Set goals. Set milestones.

Reconfirm project potential. Establish priority. Approve project start.

20 Value World, April/May/June, 1986

lems." FAST Diagraming and the Cost-Function Worksheet as used by Value Analysis Inc. are well suited to f ind high probability areas for suitable studies.

Encourage Problem Sensitives Asking for problems is one of the most productive

sources for VE studies. There are a number of people in every area who, by experience, training, or just plain "cussedness," w i l l tell you about problems if you just ask. In my opinion, there is a difference between a

Asking for problems is one of the most productive sources for VE studies.

B

W h t n Ot

I I

W h e n or

H

C O N O U C T O R I E N T A T I O N P H A S E

P L A N S T U D Y

E S T I M A T E

R E S O U R C E S FAST DIAGRAM OF THE ORIENTATION PHASE

E S T I M A T E MAN H O U R S

I D E N T I F Y

P E R S O N N E L

I D E N T I F Y P O T E N T I A L P R O J E C T S

R E C E I V E M G T P R O P O S A L S

P R E P A R E M A S T E R

P L A N

O R I E N T M G T

TRAIN P E R S O N N E L

FIND

P R O B L E M S

C O N D U C T MINI-

S T U D Y

E N C O U R A G E P R O B L E M S E N S I T I V E S

IDENT IFY P R O B L E M S E N S I T I V E S

O F F E R A S S I S T A N C E

I D E N T I F Y P R O S P E C T S

D E V E L O P NEW P R O B L E M

S E N S I T I V E S

T R A I N / O R I E N T P R O S P E C T S

MAINTAIN P R O B L E M S E N S I T I V E R E L A T I O N S

S E L E C T P R O J E C T S

E S T A B L I S H P R I O R I T Y

O B T A I N S T U D Y A P P R O V A L

M A K E M G T P R E S E N T A T I O N

S A T I S F Y M G T P R I O R I T Y

E S T I M A T E R.O.I.

E S T I M A T E I M P L E M E N T

P R O B A B I L I T Y

ASSIGN

STUDIES

S U P P L Y

I N F O R M A T I O N

NOMINATE

SA&S

AWARD

C O N O U C T O R I E N T A T I O N TRAIN ING

ISSUE

NEWS

LETTER

MAINTAIN

PR

CAMPAIGN

ASSIST

SUGGESTIONS

Figure 2

Value World, April/May/June, 1986 21

problem finder and a problem sensitive. A problem finder knows, quite well , what the problem is and many times also knows the solution. A problem sen­sitive knows there is something wrong and may fa l l somewhere between having the wrong problem w i t h no solution to the other extreme of the problem finder mentioned above. The Orientation Phase must be pre­pared to use the insights of everyone who w i l l con­tribute to potential VE studies.

Our habitual way of seeing and doing things is one of the chief roadblocks to creative problem finding.

Orientation Phase Check List Figure 3 is the checklist developed for Tooele Army

Depot. Note that Section I attempts to suggest a spec­t rum of knowledgeable people. Section I I gives the subjects to be discussed w i t h those in Section I . Section I I I suggests techniques to be used during mini-studies, but excludes FAST Diagraming because of its complex­ity. A VE Action Officer (VEAO) is appointed in each organization. These VEAO's are given three hours of training in finding and submitting subjects for VE study. On occasion, someone f rom one of the 40-hour courses is appointed as a VEAO. I encourage them to include FAST. Section IV is the approach which causes some red faces, but it works. One problem w i t h trying to come up w i t h new ideas in the same old workplace is that we have formed the habit of looking at things without seeing them as they really area. Our habitual way of seeing and doing things is one of the chief roadblocks to creative problem f ind ing . The 20-Question Technique is a kind of visual brainstorm­ing and may be done individually or i n groups as follows:

1. Pick a door behind which a substantial amount of production activity takes place (ABC Analysis).

2. Take 20 steps through that door in a direction where you feel some interesting things may be taking place.

3. At the 20th step, stop and stand riveted to that spot unti l the observer) s) can come up wi th 20 production-oriented questions. After a while, standing there in the open w i t h everyone looking at you, you become more than a little self-conscious, frustrated, and even angry. This is the method to this madness. After you have tried this a few times, you ' l l see a pattern. The first few questions are the obvious, easy ones. By the time you have 10 or so questions, you w i l l have had to go over the entire operation several times. During the search for the second 10 questions, you w i l l have to go over everything again w i t h a more intense search. Now you are uncomfortable, your adrenalin is pumping. You are

looking closer and in more detail than you have ever looked before. This is when you break out of your habitual patterns. You see, feel, and even smell for ideas and problems. Problems no one may have seen before. Problems whose answers can generate impor­tant changes. Try it, I think you w i l l like i t .

Summary A VEAO can survey a large division in 8 to 16

manhours. A survey can uncover two to ten potential studies. These potential studies are then "worked up" into an "Application To Conduct a VE Study" which is sold to management for permission to conduct each study. I f the appropriate manager cannot be persuaded to give the estimated manpower and other costs to do the study, it is not done. A f low chart of the Orientation Phase through to the completion of each study is given in Figure 4. Note that milestones B through H are the Orientation Phase. At Tooele Army Depot, our VE Pro­gram is no better than the caliber of studies we can f ind to conduct. This places great emphasis on f inding and organizing ideas and problems to be applied into the VE Job Plan proper. Wi th our Orientation Phase wel l oiled and operating, we have adequate numbers of good VE studies which our management is eager to support. A

Reference: 1. Department of the Army Pamphlet 4-5-4, Value Engineering Handbook

Figure 3

Checklist to Identify Potential V E Studies

Category I . Interview

a. Supervisors b. Support Personnel c. Problem Sensitives

I I . State-Of-The-Art Techniques a. New Tooling and Equipment b. Automation, Computers, and Robotics c. Parts and Material Movement and Storage

Equipment d. How does private industry do it? e. Identify restrictive regulations, specifications

and policies. f. Prospects for recovery/rebuild methods (Cast

Iron, fiberglass, worn bearing races, etc.) I I I . Analyfzing Operations

a. ABC Analysis (Parts Analysis Reports i n Maintenance)

b. Cost Function Worksheet c. Parts and Material Flow

IV. Creative Observation: Twenty Question Technique

V. Brainstorming: I f you lose one-half of your manpower, what would you need to get the job done?

22 Value World, April/May/June, 1986

FLOW CHART OF MANAGEMENT PROPOSALS

A APPOINT COST CENTER ACTION OFFICERS

(AO)

C

3 HOUR VE

TRAINING

Z L

APPLICATION TO CONDUCT VE STUDY

B VEPO SCHEDULES

COST CENTER VE

REVIEW

D AO

CONDUCTS REVIEWS

I

J L

PAVE STUDY TRAINING REPORTED

RECOMMENDS SUITABLE

VE STUDIES

H DIVISION CHIEF APPROVES

Z L I

STUDY CONDUCTED!

K STUDY

IMPLEMENTED

E ASSIST

IDEA SOURCES

W/SUGGESTIONS

I M

TEAM MEMBERS RECOGNIZED

~0

Oo

ISO

Figure 4

VE In Developing India

By Dr. N.H. Atthreya, PhD

Dr. N.H. Atthreya is Director of Modern Management Counsel, an omni-consulting firm in Bombay, India, since 1955, and Director of M.M.C. School of Management, a continuing education center. His firm is the Indian associate ofKRI International. A member of SAVE, he coordinates the professional visits of SAVE leaders like Harold Tufty, Rudy Kempter, Robert Rossman, and Donald Parker to India. He has presented papers at two SAVE Annual con­ferences.

In a recent project for developing U.S. missiles an aerospace company was scheduled to make a typical, negotiated profit of $29 million. This profit was declared as such in the negotiated contract. But, thanks to a technology encompassing Function, Quality, Cost, Creativity—sometimes called FZ2C, for short —the company made an additional profit of $44 million!

The contract of the company with the U.S. Federal Government included a Value Engineering Change Proposal (VECP) clause. According to this clause, any savings made on the project because of an accepted VECP study was to be shared. The total reported sav­ings generated by VECPs was $176 million. The Government's share was $132 million and the contrac­tors's $44 million!

In India last year, a soap-making unit in the Cottage Industry sector brought about an annual saving of 45,000 rupees — 4 1 % of cost — through a VE study.

An engineering company in the small business sector recently established a saving of 1.5 lakhs* of rupees! This saving was brought about by a team of eight peo­ple familiar wi th the company operations, in the course of a four-day VE workshop. The savings pivoted around just one item: a pump. With 66 percent savings on that piece alone, savings on the total cost of the project worked out to nine percent. The proposed improvement w i l l give the user the same quality, or even more.

The savings are, of course, important; as is the qual­ity of the product.

What is even more significant f rom a long-term point of view, however, is what the team members felt about working with the VE technology.

At the end of a four-day workshop, team members

* 100,000 rupees = 1 lakh Exchangewise 12 rupees make 1 dollar; buying powerwise 3 rupees make a dollar.

24 Value World, April/May/June, 1986

When I was placed on the team and told that the VE analysis system is only organized common sense, I smiled to myself in skepticism.

expressed some of their opinions in the following words:

"When I heard on the first day that 20 to 1 savings is possible, I did not believe it. Today I do—very much so."

"As a design engineer, I thought that others in the team would be wasting their time. They may be engineers, but not specialists in the pump field; they have not studied the literature the way I have. Yet in four days of intense, common sense observation and creative thinking, they found things I could not have found in four years.

"Thanks to this system, I am glad to admit i t . "

" I am a non-specialist. I have no expertise in the field. When I was placed on the team and told that the VE analysis system is only organized common sense, I smiled to myself in skepticism. I don't smile that way any more. I have watched the method work, and even contributed some new ways of analysis. Together we team members have done a commendable job, in record time."

"What I like about the VE method is that total strangers can become a well-knit team in a few days. The good-fellow feelings engendered by the workshop amaze me."

This is not the first time such an event has happened, or such observations have been made.

Such scenes are typical and have been happening for many years in many places — in India and throughout the world.

The technology of VA is slowly becoming recognized in many countries of the world. One of the leading na­tions is Japan, a country that quickly noted this valuable methodology as an opportunity for superior production. Japan has now more companies wi th f u l l -fledged V E / V M programmers than any other country, including the United States. The Hitachi electronics company alone has 240 full- t ime value engineers on its staff. Much of the spectacular success of Japanese com­panies is due to three basic commitments f rom the top management: 1) support and involvement, 2) company-wide education and training, and 3) a policy for continued support.

India has been slow to train Indian professionals in this technology. The M M C School of Management in -Bombay brought the first team of VE experts f rom the United Kingdom to India in 1970. Since then it has brought a few other teams f rom the United States. To­day, organizations like NITIE, IIMS and the Indo-American Society are offering facilities for training in this technology. The Indian Value Engineering Society (INVAVE), founded in 1978, conducts annual con­ferences and brings out a quarterly journal , "INVEST." Several organizations in the industrial, governmental and defense sectors—for example, MICO, L&T, Mahendra & Mahendra Tractor Division and the Government of India Army—have undestood and incorporated this technology in many ways, mak­ing sizeable savings every year.

V E / V M is a very promising technology. It has brought many benefits to units large and small. Although it may not look glamorous at all, it brings the much needed technique of "plain common sense" into the operations of industry and government and private concerns. What is most significant is that the sequence, the system and the strategy of this technology works. It brings out the best in people by using a confidence-building and creative process that results in the genera­tion of valuable ideas for solving stubborn and often unidentified problems.

There may be other reasons why this productive technology has not yet caught the imagination of the world, especially the developing world which needs it badly. One reason could be the name value engineering. The name, it is said, makes a difference in market ap­peal. We have heard books being renamed, making a dormat publication an overnight best seller — Games People Play is an example. To us in the East, the word value does not get easily associated with technology. Not even the terms value assurance, value manage­ment and value technology bring out arrestingly the power behind value engineering.

Wi th the poet, some may say: "What's in a name?" With the philosopher, others may say: "A rose by any other name w i l l smell as sweet." Should we not, in to­day's market-oriented culture, ask: " I f another name w i l l sell the message better and faster, why don't I go for it?"

Unti l I get one that w i l l instantly draw people, I am opting for a functional term like FQCC or FQ2C (short

for function-quality-cost-creativity) technology. This is my subtitle for VE.

/ wish to thank Harold G. Tufty, CVS and Barbara Tuf­ty, science writer, for their editorial assistance. A

Pardon Us... Below is one of the three poems by William F. Lenzer,

PE, CVS, in the last issue of Value World. It was er­roneously printed with an error in the third stanza. Below is a corrected version. Our apologies to the author.

Function is Truth What is the function, Now tell me true, Say it simply, It may be new.

State the truth, Say it clear. What is the purpose? It must appear.

Two words are all That state the goal. What is efficient Equals the whole.

We remember Larry for: His Smile His Kindness His Understanding His Humanity His Guidance His Generosity His Personality His feeling for people

W.P. (Bill) Wood & Peter Megani

(Omitted from Memorial Issue/

Value World, April/May/June, 1986 25

Summary of DoD Ve Conference

By John S. Ware, BSME, PE, CVS

John S Ware P E., CVS is the Value Engineering Coordinator at Defense Con­tract Administration Services Management Area, Springfield, N.J. He received aBS in Mechanical Engineering (management option) from New Jersey In­stitute of Technology and completed graduate courses at Stevens Institute of Technology. Mr. Ware is an active member of the Metropolitan New York Chapter of SAVE where he has served on committees and on the board of direc­tors He presented papers before the SAVE International VE Conference.

Introduction The DoD VE Program had its beginning in the Arm­

ed Services Procurement Regulation (ASPR) of Apr i l , 1959. The insertion of the VE provisions into the ASPR permitted contractors to participate in this cost-saving program. Since that time, the ASPR has been changed many times; the name was changed to "Defense Acquisition Regulation" (DAR) and then to "Fedral Acquisition Regulation" (FAR).

The importance placed on VE has fluctuated over the years, and during the period just before 1984, it had been de-emphasized. The Defense Logistics Agency (DLA) VE goals have been eliminated, and some agencies have lost interest i n VE. There was a rash of excitement over purchases of $500 hammers and other items. Secretary of Defense Weinberger's memorandum No. 44293, i n August, 1983, was very explicit about spare parts procurement. Action was directed to a number of areas, including VE, that in­creasing cost of procurements might be brought under control.

The greater emphasis placed on VE by the office of the Secretary of Defense has stimulated considerable activity, addressing the reasons for the low level con­tractor interest i n the DoD VE Program. Cases in point are VE conferences conducted by USAF (May, 1984), ASD (September, 1984) and DoD (November, 1984)'. At these conferences, the reasons for contrac­tor disinterest i n the program were explored. The VE Program was analyzed to determine unfavorable features and methods of correcting them.

At the same time, the Department of Defense In­spector General (DoD IG) conducted a study into the DoD VE Program. This was to determine which changes might be made in the program. The findings f r o m these conferences and th DoD IG study are substantially the same. This article uses the November 1984 DoD VE Conference as a basis, and i t

reports on the points studied and recommendations made by the Workshop C, Section 2 Committee.

V E Program Potential The first point to be considered is, "What are the

potential VE savings which can be generated by a given VE program?" The f u l l potential of any VE Pro­gram depends on the scope of the plan, the ad­ministration of the program and the enthusiasm of the participants (in this case the Government and the contractor). I f either party believes they are being ex­ploited, the program w i l l break down. I f the Govern­ment has reason to believe they are being taken ad­vantage of, the program w i l l lose momentum and fa l l apart I f the contractors, as a whole, believe they are not being treated fair ly, they w i l l lose interest and not participate. Much thought and effort have gone into the establishment of the DoD VE Program, and the re­cent conferences and studies have been directed at taking the brakes off of the DoD VE Program and let­ting it develop to its f u l l potential.

As we know, the success of any VE program is judged by the dollar amount of VE savings generated. In industry, this would measure in terms of the percen­tage of net sales, which in Government corresponds to the "Total Obligated Authori ty" (TOA).

Many organizations pursue VE to a greater or lesser degree, and the total return ranges f r o m 0.1 percent to 20 percent of net sales (or as much as 35 percent for one product). As an example, Defense Contract Ad­ministration Services Management Area (DCASMA), Springfield, (with a TOA of $5.8 bil l ion as of September, 1985) and assuming the potential VE sav­ings rate of 0.1 percent TOA, the resulting yearly VE savings would be $5.8 mil l ion (a 20 percent rate would yield $1.2 bil l ion VE savings). The actual savings, however, reported for Fiscal Year 1985 (FY85) are not so impressive. As successful as The Program at

26 Value World, April/May/June, 1986

DCASMA Springfield is considered to be, goalwise, the total FY85 VE savings was approximately $250,000, which leaves much room for improvement.

I t w i l l take a number of years to reach the $5.8 mil l ion level of VE savings. If , for example, the FY85 savings were to be increased by a factor of 2.2 for FY86 and again for each successive year, 2.2 times the previous year, it would take less than five years to reach the goal of $5.8 mill ion.

The Present DoD V E Program The DoD VE Program is to enable the contractor to submit proposals for changes to the item (or to other re­quirements) which w i l l result i n an overall cost reduc­tion. At DCASMA Springfield less than 10 percent of the contractors who are eligible to participate in the VE Program in FY85 did so. To be eligible to submit a Value Engineering Change Proposal (VECP), the con­tractor must have an open contract for the item on which the VECP is being submitted.

Generally speaking, one way to increase the dollar amount of VE Savings is to increase the number of VECPs submitted. To accomplish this, either the number of active contractors or the number of VECPs submitted per contractor must be increased. Without criticizing the DoD VE Program, and to objectively review the overall operations of the program, several observations were made. These observations, made over many years of working wi th the Program, and ex­pressed at the VE Conferences previously mentioned, indicate certain areas where improvements can be made. Obviously, if the number of VECPs is increased (although there are many other factors influencing total dollar amount of the VE Savings), the total amount of VE Savings would be expected to increase. The number of VECPs submitted may be considered to be low, but, to view this as the reason for the low dollar amount of VE Savings is reminiscent of the foot­ball team that believed they didn't w i n the game because they didn't score enough touchdowns. The underlying factor is not the number of VECPs sumit-ted, but rather why a contractor is not inspired to submit more VECPs.

The problem does not rest solely upon the contrac­tors. Both the government and the contractor are in­strumental in the success of the program. To be suc­cessful a VE Progrm must be wel l administered, objec­tive and rewarding. Another necessary ingredient is an enthusiastic, knowledgeable group of contracts sup­portive of the Program. To stimulate the interest and cooperation of the contractor, the administration of the program must be objective and must include an incen­tive. A n analysis of the problems related to operation of the DoD VE Program discloses that two main factors are involved:

1. Reluctance of some contractors to submit VECPs because of a disappointing experience w i t h the Program.

2. A low number of VECP approvals f r o m the Procur­ing Activities.

These factors operate to reduce the number of VECPs submitted and implemented, thus minimiz­

ing VE savings. To increase the effectiveness of the DoD VE Program, the contractor must be stimu­lated and encouraged to submit more VECPs, and the Procuring Activity (Evaluator) must be inspired to evaluate the VECP objectively and realistically. Thus the yield f r o m the Program w i l l be maximized.

Contractor Complaints Some frequent contractor complaints about the DoD VE Program are:

• Contractor not eligible to submit a VECP — (No VE clause in contract or the document is a Purchase Order).

• Excessive time required to evaluate/process VECPs.

• Reasons given for disapproval of VECPs are sometimes considered to be unfounded by the con­tractor. They include:

a. Disapproval based on an ongoing Government "Product Improvement Program."

b. Disapproval based on lack of funds for testing.

c. Procuring Activity (Engineering Segment) ada­mant i n their refusal to consider VECP changes as proposed. (One engineer stated he had been directed to retain certain design features for changes which had been proposed.)

d. disapproval based on conjecture. (Engineer "doesn't T H I N K it w i l l be strong enough.")

• The contractor is required to include in his VECP a "Separate, detailed cost estimate for both the pres­ent and proposed methods," as specified in the FAR. (At this time the contractor usually does not have the data required to provide a "detailed" cost estimate of the proposed method.)

• The contract sometimes specifies D D Form 1692 in­stead of D D Form 1693 (short form) for the submit­tal of VECPs. Form 1693 is easier to complete and includes all pertinent data that are contained on Form 1692. A proposed revision of these forms ad­dresses the eight required points of information as specified in paragraph (c) of the FAR VE clause.

Contractor complaints usually address submittal,

evaluation and disapproval actions. There have been inquires or remarks regarding other areas such as operation of the Program, availability of VE training for contractor personnel, etc.

V E Conference Findings The f indings and recommendations of the

November, 1984 DoD VE Conference, Workshop C, Section 2 Committee are representative of those of other previously mentioned VE Conferences and of the DoD IG Study. The Workshop C, Section 2 Committee addressed two areas:

1. Administration of the Program.

2. Operation of the Program w i t h implication to the FAR.

Certain points wi th in the Program, which are con­sidered deficient by the Workshop C, Section 2 Com­mittee are: • Uninspired VE promotion and DCAS removal of the

VE goals.

Value World, April/May/June, 1986 27

• Lack of VE training for contractor personnel.

• Lack of up-front funding.

• VECPs submitted as "no cost" Engineering Change Proposals (ECPs).

• Discontinuance of Unsolicited Value Engineering Proposals (UVEPs).

• Evaluation time excessive.

• Inadequate reasons for disapprovals of VECPs.

Other points were identified by the Committee; however, the above 7 points were selected as most im­portant for presentation before the entire conference.

Proposed Changes Although no decision was made at the Conference

regarding specific solutions to problems, the Workshop C, Section 2 Committee recommended alternative changes in the DoD VE Program directed at resolving the problems. The problems are listed below with some recommended changes:

Uninspired VE Promotion and DCAS removal of VE goals. The Committee's recommendations to improve per­formance in this area are:

a. Establish dedicated fu l l time VE positions at the Primary Level Field Activity (PLFA) within DLA or DoD.

b. Establish VE goals for all DLP PLFAs to be deter­mined by DLA Headquarters.

c. Conduct periodic meetings or workshops for DLA personnel (VE Coordinators (VECs), VE Program Managers (VEPMs) etc.)

d. Reactive and formalize the contractor personnel.

Lack of VE training for contractor personnel.

Opinion: Training of contractor personnel would be conducive to the success of the DoD VE Program and is desirable.

Recommendations: Training for contractor person­nel should be provided or coordinated through one of the following activities: Lack of up-front fundings

The Committee's recommendations are:

a. To establish a pool for up-front funding by dedicating a percentage of Instant Contract VE sav­ings for this purpose.

b. To allow the use of Government testing facilities and other facilities for VE development, without cost to the VE effort.

VECPs submitted as "No Cost" ECPs.

When a "No-Cost" ECP is accepted and processed, the contract price is not reduced. Therefore, the government receives no share of any savings (i.e., the contractor keeps the entire amount of any savings.) If a "No Cost" ECP is accepted, the PCO should require that a Technical Analysis of Cost Proposal (TACP) of the change be performed to assure that there is no reduction in cost. The FAR provides that all cost reduc­tion w i l l revert to the Government. The proposals are:

a. Route all ECPs through the DCASMA VECs.

b. Establish contractor VECP goals.

Discontinuance of UVEPs and non-applicability of VE to Purchase Orders.

The Committe's proposal is to include both the UVEP and the application of the VE clause to Purchase Orders in the FAR. Evaluation time excessive.

This is one of the most frequent complaints and, as it affects the implementation of the VECP, it is an impor­tant factor in maximizing the Instant Contract savings. The cognizant Engineering Office evaluates the VECP. For most items the VECP pass a review by the Con­figuration Control Board (CCB). The Board recom­mends approval or disapproval to the PCO who notifies the contractor. The FAR specifies that PCO shall give the contractor a decision within 45 days of receipt of the VECP, or he must notify the contractor why he w i l l not receive a decision within 45 days and when he can expect a decision.

The Committee's proposals are:

a. Enforce a 45-day limit for CCB approval.

b. Establish a higher priority for VE at the DoD or DLA Headquarters level.

Inadequate reasons for disapproval of VECPs.

If the VECP has been disapproved or disapproval appears likely, it is the Committee's opinion that a more cooperative relationship would exist if one of the two alternative recommendations listed below was followed.

1. A meeting of the contractor, the Procuring Activity (Cognizant Engineer) and the DCASMA (VEC) to resolve the differences between the proposed changes and the reasons for disapproval.

2. Invite the contractor to attend the CCB meeting as a nonvoting participant.

Conclusion Proposed changes to the FAR/DoD VE Program con­

tained in this article are the consensus of members of Workshop C, Section 2 Committee at the November, 1984 DoD VE Conference. These recommendations and those of the other four Workshops at the Con­ference are being reviewed by the DoD Product Engineering Services Office and w i l l presumably be used as the basis for recommending changes in the DoD VE Program and the FAR.

There is no doubt that objective changes in the DoD VE Program and in the FAR, consistent w i th presenta­tions made at the Conference, w i l l increase the effec­tiveness of the Program. Changes that make it easier for the contractor to submit VECPs and a renewed sense of cooperation between the Government and the contractor w i l l be conducive to increasing the number of VECPs. Both of these factors w i l l act to increase the number of VECPs approved and VE savings. A

This paper reflects the view of the author and does not necessarily reflect the views of the Defense Logistics Agen­cy or the Department of Defense.

28 Value World, April/May/June, 1986

"Spelunker's Corner"

How VEI Shot Itself In The Foot

Back in the "good old days" of the 1960's, the VE in­centive clauses prohibited the inclusion of VE develop­ment costs in the calculation of VE savings. In the late '60's, ASPR 7-104.44 was rewritten to require the in­clusion of the contractor's allowable development costs in the instant contract savings calculation. That rewrite had support f rom two areas: 1) the naysayers were mollified wi th what they thought was a more cor­rectly stated net savings for the VECP, based on the assumption that the VE development expense was a government investment to be netted against savings, and 2) the contractor VE opportunists (and contractors are supposedly incentivized to be just that) saw the inclu­sion of development expense as a neat way to recover their VE investment out of the instant contract set­tlement—especially since, upon subsequent sharing, they only had to give back 50 percent of that reim­bursement in lost savings shares.

The revised ASPR looked like a classic W I N - W I N . There were a few contractors who perceived in this

VE investments by a contrac­tor are an "allowable" indirect expense in the con­tractor's overhead rate.

reimbursement a double dip into the customer's pocket and took steps to avoid what they felt was an unfair (to the government) practice. The concept of a subsequent offsetting overhead adjustment equivalent to this "recovery" was not anticipated.

B A N G ! !

In case you missed it, the gun just fired; contractual VE appeared to have "shot itself in the foot." We

didn't realize we had a problem until the 1980's when a zealous auditor doing what I 'm sure he felt was his job reviewed the handling of these VE development funds in relation to accounting standards, not VE Incentive policy, wi th the following conclusions:

• VE investments by a contractor are an "allowable" indirect expense in the contractor's overhead rate.

• Therefore, in accordance with FAR 52.248-1, these costs are to be included in the instant contract net savings calculation and thereby are effectively transferred into the contract as a direct expense for accepted VECPs.

• A direct cost on a contract cannot be treated as an in­direct cost because it understates the labor burden base and overstates the indirect expense pool.

• Therefore, the amount of VE development expense for an accepted VECP carried in the indirect ex­pense pool as an "allowable" expense now becomes a "disallowable" expense.

• The development expenses of this accepted VECP must be properly burdened as direct expenses in the contract.

• To accomplish the above, the VECP savings calcula­tion would be offset, not by the unburdened ex­pense but by a significantly larger expense at total cost.

Bang Again!!

We may have just shot the other foot. Following this accounting logic results in a much lower net savings by which to justify the change; or if the expense resulted in negative instant contract savings, a much larger equitable adjustment to the instant contract out of the purchasing office coffers. We now have the equivalent of a shell game in following the VE development dollar around f rom "allowable indirect" to "disallowed in­direct" to unburdened direct to burdened direct.

Not withstanding the inequities of disallowing overhead incurred over several years of development out of the current year overhead pool, and the ap-

Value World, April/May/June, 1986 29

parent reimbursement to the contractor of morei ex­pense than he incurred, the purchasing office w i l l be hit w i t h unplanned adjustments to both its near term cash f low and to its long term acquisition budget m ways that would incentivize it to turn down what, m the long run, could be a very attractive cost savings. Also, other contracts out of other purchasing offices which share a common overhead pool at the contractor would benefit f r o m the overhead disallowance without

My proposed solution... is to make a proper identification of this expense as a "sunk" cost...

having contributed to the VE incentivized program at the expense of the performing contract.

The fundamental perception which, i f corrected, would save the VE patient f r o m these crippling wounds is in properly identifying and treating the VE development expense as a contractor private expense only incidently funded by the customer as a normal cost of doing business and therefore not an allowable offset to the instant contract savings. We don't hesitate to identify these developments as areas of limited rights, accomplished at "private expense," totally voluntary on the part of the contractor. M y proposed solution to avoid the start of the above accounting shell game is to make a proper identification of this expense as a "sunk" cost of doing business under the category of a contractor "private expense."

It is my conviction (and I don't see a contradiction in FAR) that the only development costs which should be allowable in the contract savings calculation are those for which the Government provides direct funding; this would obviously exclude all effort completed at contractor's "private expense." A n example of an allowable development cost would be that for the com­pletion of a development through qualification where the contractor's internally-funded development ended at a stage which verified the concept reduction-to-practice (as in patent law) such as a pre-qualification test and/or Critical Design Review. The accounting logic set listed above seems to erroneously label "allowable development expense" as a definition tied to allowability in the indirect expense pool sense. That very definition is negated by the subsequent action of treating the previously "allowable" VE development cost as "disallowable" in that same expense pool. You can't have it both ways. Can anybody out there straighten me out?

Keith. R. Thorson, C V S

Share your comments and knowl­edge of VECPs in "Spelunker's Corner."

There Is More To Value Than Money By Owen Rye, Washington Chapter, SAVE

The easy way to practice VE is to consider it as mere­ly a cost reduction tool and to deal exclusively wi th dollar costs (such as cost alternatives, cost reductions, cost savings and audited costs). The easy way to try to justify VE is also by the numbers: proven savings, ratios of VECP's submitted to number approved, con­struction costs compared to conceptual estimates, ratio of VE generated savings versus VE study costs. But these are all negatives (costs). There*is no Value Equa­tion because there are no positives (benefits) con­sidered.

Ca r lo s F a l l o n uses even c l ea re r ter­minology—Goodies and Baddies. But whether we call the positives Goodies or Benefits, and the negatives Baddies or Costs, the Value Equation must include both categories.

A common problem wi th the use of the Value Equa­tion is the diff icul ty i n quantifying Benefits. Both sides of the equation should be stated in the same units of measurement if the equation is to be widely used and universally understood. Costs are habitually stated in terms of money, dollars to us in the U.S., and therefore it is generally conceded the benefits should be dollariz-ed in the Value Equation. Often, this is not easy and this diff icul ty is the reason given for failure to use the Value Equation.

What happens when we don't use the Value Equa­tion and talk only in negatives? Understandably, it makes for a diff icul t sale-people are slow to invest their time and money in another effort to reduce costs. After all, there are many forms of cost reduction which don't require a team, a study and a whole new vocabulary (such as the half dozen classifications of Function, Job Plans of f r o m 5 to 13 phases, etc.). You know the words that glaze the eyes of the uninitiated. I f you want to return the sparkle to those glazed eyes, try some positive phrases such as increased sales, market share, happy customers, leading the competi­tion, product identification, esteem—all those benefits that'simple cost reduction activities ignore.

The resistance to the use of the Value Equation is hard to understand because the Value discipline pro­vides the framework and the tools for properly con­sidering the Benefit variables as wel l as the Cost variables. Why then, do we so often consider the Value discipline merely as a cost reduction tool? After all, would you hire a bookkeeper (or employ a bookkeep­ing system) which kept meticulous records of debits (expenditures) but couldn't be bothered w i t h credits (revenues)? ^

30 Value World, April/May/June, 1986

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