essential in peace, indispensable in war slide # 1 of 26 william mcaninch u.s. navy & nannette...
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ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 1 of 26
William McAninchU.S. Navy
&Nannette RamseyU.S. Army AMSAA
William McAninchU.S. Navy
&Nannette RamseyU.S. Army AMSAA
DOD Value Engineering
PEO SYSCOM20 November 2002
DOD Value Engineering
PEO SYSCOM20 November 2002
ESSENTIAL IN PEACE, INDISPENSABLE IN WAR ESSENTIAL IN PEACE, INDISPENSABLE IN WAR
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 2 of 26
Outline• Purpose
• DoD VE Program Objectives Army Navy Air Force Missile Defense Organization Defense Logistics Agency
• VECPs
• VE - An accepted commercial practice
• VE Methodology/Workshops Examples
• Summary
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 3 of 26
Purpose
To Provide the PEO SYSCOM participants with an overview of the DoD Value Engineering Program
Value Engineering - An organized effort directed at analyzing the functions of systems, equipment, facilities, services, and supplies for the purpose of achieving the essential functions at the lowest life-cycle cost consistent with required performance, reliability, quality, and safety. OMB Circular A-131
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 4 of 26
Value Engineering Today in DoD• (PL 104-106) – Each executive agency shall
establish & maintain cost-effective VE procedures & processes
• In-house and Contractors• In-house - Value Engineering Proposals (VEPs)
• Contractors - Value Engineering Change Proposals (VECPs)
• The toolkit: teaming, job plan, FAST
• Teaming with the Industry/government partnership produces best results
Goal: Lower the government’s costs for goods and services & provide cost effective solutions to problems in design, development, fielding, support, & disposal
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 5 of 26
DoD VE Savings & Cost Avoidance FY83-01
0
500
1,000
1,500
2,000
2,500
3,000
3,500
83 86 89 92 95 98 '01Fiscal Year
$M
TOTAL VE
(VEPs)
(VECPs)
Over $25B
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 6 of 26
0100200300400500600
90 92 94 96 98 '00
DLADLA$ $
MillionMillion
Fiscal YearFiscal Year
DoD VE Savings By Service/Agency
0
100
200
300
400
500
600
90 92 94 96 98 '00
VECPs
In-house
ArmyArmy$ $ MillionMillion
0
100
200
300
400
500
600
90 92 94 96 98 2000
AFAF0
100
200
300
400
500
600
94 96 98 0
Fiscal Year
MDAMDA
$ $ MillionMillion
$ $ MillionMillion
Fiscal YearFiscal Year
Fiscal YearFiscal Year
0
100
200
300
400
500
600
90 93 96 99
Fiscal Year
$ $ MillionMillionNavy Navy
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 7 of 26
DOD VECPs Received & SettledDOD VECPs Received & Settled
0
50
100
150
200
250
300
92 93 94 95 96 97 98 99 '00 '01
VECPsREC
VECPsSET
A Value Engineering Change ProposalA Value Engineering Change Proposalis a contractor cost reduction proposalis a contractor cost reduction proposalSubmitted under the VE clause in the contract Submitted under the VE clause in the contract and it must do the following:and it must do the following:1) SAVE money1) SAVE money2) Change the contract2) Change the contract
A Value Engineering Change ProposalA Value Engineering Change Proposalis a contractor cost reduction proposalis a contractor cost reduction proposalSubmitted under the VE clause in the contract Submitted under the VE clause in the contract and it must do the following:and it must do the following:1) SAVE money1) SAVE money2) Change the contract2) Change the contract
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 8 of 26
Why VE Clauses were developed?
• Increase use of VE Techniques
• Incentives to reduce government cost
Value Engineering
Study
• People doing the work have the best insight/ideas• Majority of our work is done by contractors• We need their input and ideas to improve value and reduce cost• Why would a Contractor offer up an idea that reduces the contract value?
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 9 of 26
Where do I find the VE clauses ?
• FAR Part 48 - Policies and Procedures for use of clauses
• FAR Part 52.248 - the VE clausesFed
eral
Acq
uisit
ion
Reg
ulat
ion
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 10 of 26
2 Major VE Incentive Approaches
• Voluntary
Contractor can pursue studies using their own funds
Contractor receives a large share of savings
52.248-1
Greater Contractor Risk
Greater Contractor Return
• Mandatory
Government funds study effort
Contractor receives small share of savings
52.248-1 Alternate 1
Greater Government Risk
Greater Government Return
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 11 of 26
Voluntary ClauseFAR 52.248-1
Contractor
Government
Invest their own funds, on a voluntary basis, to develop cost saving ideas
Submit Idea
to the Government
(VECP)
Savings
Approved idea
Incorporated in contract
Development &Implementation
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 12 of 26
VECP Process Flow: Service Perspective
Contractor/VE advocatepresents VE idea
to customer changeControl Board IPTTo gain “buy in”
On approach (30 days)
Contractor initiates idea for VECP developed from
any source
Government Customer receivesFormal VECP; Change Control Board
(CCB) IPT processes change, consistent with Established customer procedures. Agency
VE advocate should participate as consultant and resource to IPT
Providing guidance & issue clarificationAs appropriate. Following CCB
Approval & funding, where required,Contracting officer prepares bi-lateral mod
To implement change.(150-180 days)
Contractor accepts change for implementation.
Government VE advocate assistsIPT in VECP review through Cost
Benefit Analysis & any VECPIssue clarification. Customer concursWith contractor approach; requests
Contractor submit formal VECP (60 days)
Contractor prepares formal VECP With detailed technical, cost and schedule data for customer Change Board processing (60 days)
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 13 of 26
FAR Changes• Recent FAR Changes Allow CO To Set…
Share Period From 3 To 5 YearsShare Rate From 25% to 75%Collateral Share Rate From 20% to 100% Of Average Year
• Determining Sharing period and ratesFAR 48.102 (g)Extent of change, complexity of change, production period remaining, development
risk, development cost, performance/reliability impact, # of units affected• To Provide Incentive
Even With Lower Production QuantitiesNew Technology Insertion (Risk)
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 14 of 26
Show an interest in VECPs
• Contractor’s respond to their customers
Brief the VE clause at start of work conferences or quarterly reviews
Send letters to contractors about the VE clause
• Make it profitable for contractors
• Timely technical evaluations and financial settlement (contract mod)
• Fair technical evaluations - Government must weigh risk versus benefits
• Fair negotiation of settlements - Contracting officers must remember this is an incentive clause
• Encourage up-front communication (assign champion)
“Reduce contractor risk”
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 15 of 26
More About VE -The Methodology-
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 16 of 26
VE – An accepted commercial practice
• Society of American Value Engineers (SAVE), International – Membership from 35 countries
• Used by leading industry companies
• Commercial and Government training is available
• VE Program provides skilled practitioners in government
• Multiple commercial sources for skilled practitioners
VE is an accepted commercial practice identified in theNational Institute of Accountants Statement
of Management Accounting
VE is an accepted commercial practice identified in theNational Institute of Accountants Statement
of Management Accounting
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 17 of 26
VE – An Industry Example
1998 Toyota Corolla-VE Project• Problems: Increased material costs, production
time issues
• Objective: Correct problems using VE / VALighter (by 10%) 25% Fewer engine parts Faster productionBetter fuel economyDecreased emissions15% Horsepower increaseCosts less to make ( $1,000 less than in
1997)
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 18 of 26
VE – A Systematic Approach
1. Select problem area2. Derive Hypothesis3. Review the literature4. Develop methodology
The Scientific Method5. Data collection 6. Data analysis7. Interpretation of results
The Value Improvement Process
Provides planned systematic approach that is likely to be more productive than one that is undisciplined or opportunistic
1. Information-frame problem2. Function Analysis3. Speculation-generate
ideas based on function4. Evaluation of ideas
5. Development of ideas6. Verification7. Reporting-present
business case8. Implementation- Use
Champions & follow-up
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 19 of 26
Why VA Workshop/Methodology Are Successful
Proven systematic approach
Focuses on function
Skilled Facilitator Positive forward thinking focus
Creativity tools
Relevant professional participation
Peer synergism
Management emphasis, support, & visibility
Time set aside to focus on improvement
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 20 of 26
Reasons Why Optimization May Not Be Achieved
• Habits and attitudes
• Shortage of time
• Requirements are technically beyond capability
• Lack of insight into costs
• Change in technology (hardware & processes)
• Lack of knowledge of actual requirements
• Fixation with previous designs
• Presence of bad information/failure to fully communicate
• Temporary circumstances
• Honest but wrong beliefs
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 21 of 26
Setting Up A VE Workshop• Contact a VE Facilitator
• Hold a target of opportunity panel to ID projects
• Hold the pre-event – 3-6 weeks prior to workshop Identify the right people for participation (PM engineers,
user, contractor/engineer/mfg rep, soldier/requirements generator, field support, contracting officers, etc..)
Identify information necessary to have at the workshop
• Room is scheduled and agenda developed Mgmt sends message to workforce to identify importance,
dates and location for event
Arrangements are made to work remotely with subject matter experts as needed (last resort)
Arrange to have management brief study team(s) on first morning and at out-brief
• Workshop event is held, management attends out-brief, makes decisions, tells team how they did
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 22 of 26
VE Savings ProposalsVE Savings ProposalsIn-house (VEP) ExampleIn-house (VEP) Example
Value Engineering Proposals(VEP) –
In house proposals generate the majority of savings &
cost avoidances
Value Engineering Proposals(VEP) –
In house proposals generate the majority of savings &
cost avoidances
Rocket Pod Damage
WHAT IS THE FUNCTION OF THE BRACES
SimplicitySimplicityMillions avoided inMillions avoided inredesign costs and redesign costs and
repairrepair
Millions avoided inMillions avoided inredesign costs and redesign costs and
repairrepair
Identify Functions
VE Methodol
ogy
Brainstorm Alternatives
Evaluate
Alternatives
Recommend
Solution(s)
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 23 of 26
VE Change Proposal VE Change Proposal • Value Engineering Change Proposals (VECP) - A contractor submitted
cost reduction proposal under the VE clause (FAR Part 52.248) on a current contract Requires a change to the contract to implement & results in
reducing projected cost to the agencyContractor receives D&I & share of savings
• Raytheon submitted VECP to: Reduce 12 circuit card assemblies to 8 Eliminate 4 interconnections inside the RT Incorporate the latest hardware packaging Significantly improve system performance and reduce cost.
(Affected approx 5900 Enhance Position Location Reporting System Radio Transmitters)
Government savings in FY01 were $1.745 M.
Not soNot sosimplesimple
savi
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ay w
ith
PM
savi
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ith
PM
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ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 24 of 26
Optimizes potential for positive change Optimizes potential for positive change
Summary
• VECPs are good for the Government & the Contractor so encourage communication and fair & timely VECP evaluation & settlement
• Workshops are a catalyst for focusing on cost reduction/problem areas with Contractor/ Requirements Organization/PM/Field Support Folks
• Develop the mindset: Extending the benefits of VE requires focus on improvement to the status quo and management of risk. • Cooperate: Partner – get the right people together.
• Innovate: focus on cost reduction SYSTEMATICALLY!
• Implement: Ideas are meaningless until put into action. Follow through!
Value Engineering - What can we do?Value Engineering - What can we do?
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 25 of 26
Value, Function, and CostThe VE Methodology Works
COST VISIBILITY/AWARENESS
• Being innovative is understanding there is always a better way
It takes dedication and effort to find itResults come from doing the right things, not from doing the things right
ESSENTIAL IN PEACE, INDISPENSABLE IN WARESSENTIAL IN PEACE, INDISPENSABLE IN WAR Slide # 26 of 26Thanks for your time !
Any questions?Air ForceAir ForceLt Col Erica Robertson, Lt Col Erica Robertson, Comm Phone 703 588-7819 Comm Phone 703 588-7819 Erica.Robertson@pentagon.af.mil
Missile Defense AgencyMissile Defense AgencyGregory StottlemyerGregory StottlemyerComm Phone 703 697-6688Comm Phone 703 697-6688Gregory.Stottlemyer@bmdo.osd.mil
ArmyArmyNannette Ramsey Nannette Ramsey Comm Phone 309 782-5632 Comm Phone 309 782-5632 ramseyn@ria.army.mil
DLADLAMary HartMary HartComm Phone 703 767-1637Comm Phone 703 767-1637Mary_Hart@hq.dla.mil
U.S. NavyU.S. NavyWilliam McAninch William McAninch Comm Phone 703 602-2390 Comm Phone 703 602-2390 McAninch.William@HQ.Navy.mil
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