1997-02-24

The Value Engineering Equation and the Auto Industry - A Definition of ‘Cost’ 970767

The Value Engineering (VE) process. and therefore. the equation “Value = Function/Cost” is being used in the auto industry quite extensively. However. there are significant differences in the use of “tost” between the automobile industry and the more traditional users of the V.E. process: e.g.. defense. and construction. The tendency in the automobile industry has been to use a per unit variable cost. This approach, while giving adequate results for comparative purposes, is not technically correct. since the cost should include the total life cycle cost. Under some circumstances. this simplified approach could give erroneous results, for example, when incremental investment is a significant consideration in the decision-making process. This paper will suggest a method for establishing a total life cycle cost for use in the Value Engineering equation in Value Engineering an automotive component system.

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