Value Engineering Definition
And Cash Flow Forecasting

The US Department of Energy (DOE) has a good value engineering definition. It's comprehensive, yet broad enough to suggest how value engineering (VE) concepts can be applied to business as well as technical situations and, consequently, lead management to informed, results-oriented decisions.

A sound value analysis can account for future projections in its calculations. And although it's a little known fact, one can apply VE to financial data to enable rigorous cash flow forecasting, even for the one-person business!

Simply thinking about VE principles when evaluating an option can make it easier to make the right decision. A good example is comparing the value of SiteSell's Site Build It! product to other market offerings. But first ...

Essence of Value Engineering

According to the DOE, value engineering is the systematic application of recognized techniques by a multi-disciplined team to:

• identify the function of a product or service,
• establish a worth for that function,
• generate alternatives through the use of creative thinking, and
• provide the needed functions to accomplish the original purpose of the project at the lowest life-cycle cost without sacrificing safety, necessary quality, and/or environmental attributes of the project.

Now, that's straighforward and comprehensive. So comprehensive in fact that it makes the application of VE seem like a big scary job you would want to avoid! Not so! The principles work in even the simplest of evaluations.

VE Is Comprehensive

The DOE's value engineering definition further states that VE studies do all of the following:

• use an independent technically diverse team,
• follow a systematic job plan,
• identify and evaluate function, cost and worth,
• develop new and unusual alternatives for required functions,
• determine the best and lowest life-cycle cost alternatives,
• develop fully supported recommendations, and
• report to management within one week.

This lengthy to-do list does NOT mean that applying VE needs to be a costly big government-like undertaking. It just means that we need to be rigorous and objective in our thinking, especially when it comes to cash flow.

VE Produces Results

Within the DOE's value engineering definition, projects that have already experienced cost, schedule, or scope problems benefit from VE analysis. But the greatest potential for improvement is in technically and organizationally complex or unusually constrained projects in preliminary design, at 20-35% completion.

VE at this point produces maximum benefit because recommendations can be implemented without delaying progress or causing significant rework of completed designs.

While the average cost improvement from VE is 6%, cost reduction is not always the most significant benefit. Schedule reductions, environmental requirement modification, and operational procedures can all be improved through the functional cost evaluation used in all VE studies.

Small Business Benefits

One of the best examples of applying VE in the small business world is in choosing how to increase cash flow using the Internet. Most small businesses don't have an effective Web site.

Most existing small business Web sites are nothing more than online brochures. Any time and effort spent on them is generally wasted because they don't produce results. Results are the true test.

For this reason, we like to show how recognized value engineering principles can be applied to using the Internet to increase business and improve cash flow. There is generally one inescapable conclusion ...

Site Build It! by SiteSell offers the best value in Web business building tools and services. Contact us right now and we'll gladly show you how to apply simple value engineering principles in your own enterprise.

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