DoD Value Eng’g05/30/2012 |

Distribution Statement A – Cleared for public release by OSR on 4/19/2012, SR Case # 12-S-1809 applies.

Value Engineering (VE) in the DoD:An Overview

Nicholas TorelliDirector, Mission Assurance

Systems Engineering

SAVE ConferenceJune 2012

DoD Value Eng’g05/30/2012 |

Distribution Statement A – Cleared for public release by OSR on 4/19/2012, SR Case # 12-S-1809 applies. 2

History of Value Engineering in the Department of Defense

• The Value Engineering (VE) concept is a by-product of the wartime need during WWII to address material shortages– Approaches were developed to explore alternative solutions

that could deliver equivalent or better capability at lower total life-cycle cost.

• DoD established a formal VE Program in 1963.

• VE has proven to be a successful DoD cost reduction and product improvement tool for over 40 years.

DoD Value Eng’g05/30/2012 |

Distribution Statement A – Cleared for public release by OSR on 4/19/2012, SR Case # 12-S-1809 applies. 3

Value Engineering in the DoD

• 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• Application Areas:

Improve/streamline operations Improve quality Increase the use of environmentally-sound and energy-efficient

practices and materials Simplify logistics Reduce maintenance Increase availability Improve durability Design/Redesign to eliminate cost drivers

VE Application at Enterprise-wide/Program Level AchievesCost Savings during Acquisition/Operations/Sustainment

DoD Value Eng’g05/30/2012 |

Distribution Statement A – Cleared for public release by OSR on 4/19/2012, SR Case # 12-S-1809 applies. 4

Definition of DoD Value Engineering Terms

• Value – Ratio of function to cost, where:– function is a non-prescriptive representation of the intended purpose

of a component in a given systems operational context– cost are assessed in a life-cycle context, which includes intrinsic and

extrinsic development, acquisition, operations, training, support and disposal costs

– Systems operational context addresses a community and continuum of use – develop, equip, train and employ

• Value Engineering is a formal analytical process that examines alternatives and attempts to maintain or improve function while minimizing cost, yielding greater value to the customer community

• Value Engineering Change Proposal (VECP) - A proposal submitted by a vendor to the customer that proposes changes in design, manufacture, service, maintenance or disposal that delivers increased value

• Value Engineering Proposal (VEP) - A customer generated analysis that directly proposes changes to a product or service to increase value

DoD Value Eng’g05/30/2012 |

Distribution Statement A – Cleared for public release by OSR on 4/19/2012, SR Case # 12-S-1809 applies. 5

Value Engineering Is Required by Law

• 41 USC 1711, Title 41, Subtitle I, Chapter 17 Public Contracts, Federal Procurement Policy, Agency Responsibilities and Procedures, Value Engineering

Each executive agency shall establish and maintain cost-effective procedures and processes for analyzing the functions of a program, project, system, product, item of equipment, building, facility, service, or supply of the agency.

The analysis shall be –

(1) performed by qualified agency or contractor personnel; and

(2) directed at improving performance, reliability, quality, safety, and life cycle costs.

• Law requires all Agencies to:– Establish and maintain a VE Program, supporting VEP and VECPs– Develop annual VE plans– Identify and report VE results

DoD Value Eng’g05/30/2012 |

Distribution Statement A – Cleared for public release by OSR on 4/19/2012, SR Case # 12-S-1809 applies. 6

VE and Obtaining Greater Efficiency/Productivity in Defense Spending

• Increased usage of VE is a vehicle to enable greater success

• VE complements other Department efforts to support Warfighters

• Need greater application of both in-house VE and VECPs

– VECPs need greater focus

• Expand VE activities and VE program targets

– Identifies a VE senior manager for each organization

• Track progress toward these targets on a quarterly basis.

DoD Value Eng’g05/30/2012 |

Distribution Statement A – Cleared for public release by OSR on 4/19/2012, SR Case # 12-S-1809 applies. 7

VE Supports DoD’s Better Buying Power Initiatives

There is direct VE application to all five Efficiency Initiatives.

Better Buying Power Efficiency Initiative Potential VE Contribution

1. Mandate affordability as a requirement

Critically examine the value of every requirement and specifications derived from it by comparing cost

2. Drive Productivity growth through “will cost / should cost “management

Improve what the product or service does in relation to the money spent on it as a systematic and creative approach for attaining ROI, VE

3. Eliminate redundancy within warfighter portfolios

Aids in decisions through function analysis by achieving only the necessary functions at a minimum overall cost

4. Promote Real Competition: Remove obstacles to competition

In re-procurement, Government can provide technical data describing required functions of sole source components, enabling multiple companies to bid

5. Incentivize Productivity and Innovation in Industry: Reward contractors for successful supply chain and indirect expense management

VECPs provide businesses with an incentive to reduce DoD’s costs; contractor receives a share in the savings accrued if implemented.

DoD Value Eng’g05/30/2012 |

Distribution Statement A – Cleared for public release by OSR on 4/19/2012, SR Case # 12-S-1809 applies. 8

DoD VE Savings and Cost Avoidance

80

83

85

87

89

91

93

95

97

99

00

02

04

06

08

10

11

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500TOTAL(VEP)(VECP)

Fiscal Year

$M

(F

Y12

Co

nst

ant

$)

FY 11 Savings and Cost Avoidance $4.7B

DoD Value Eng’g05/30/2012 |

Distribution Statement A – Cleared for public release by OSR on 4/19/2012, SR Case # 12-S-1809 applies. 9

Systems Engineering:It’s Role for Program Success

Innovation, Speed, and Agilityhttp://www.acq.osd.mil/se

DoD Value Eng’g05/30/2012 |

Distribution Statement A – Cleared for public release by OSR on 4/19/2012, SR Case # 12-S-1809 applies. 10

The Problem: The ESSM is an advanced radar-guided missile

with a high explosive warhead used for surface-to-air anti-missile defense. A now-obsolete mechanical safe and arming fuze prevents an unintended missile launch and, once launched, arms the warhead when the proper stimuli are received. Suppliers for this obsolete component were limited and costs were high since highly skilled personnel were needed for the complex manufacturing process and a new fuze design was cost prohibitive.

The Solution: The function of the fuze was analyzed by the contractor and compared with alternative electronic fuzes being manufactured on other programs. An existing fuze was identified from the sidewinder missile that could be adapted to the ESSM. A VECP was submitted to adapt the Sidewinder electronic fuze to the ESSM application.

The Result:• Up front investment to achieve life cycle

savings: Development and implementation costs were $1,873,911; Payback met in 2 years

• Total recurring cost savings equaled $6,832,000, which, when spread over the 1,600 units, resulted in a net savings per unit of $4,270

• Aligned incentives: Savings shared equally between the Navy and the contractor

Evolved Sea Sparrow Missile (ESSM)

DoD Value Eng’g05/30/2012 |

Distribution Statement A – Cleared for public release by OSR on 4/19/2012, SR Case # 12-S-1809 applies. 11

The Problem: Currently deployed Legacy Ship-based Air

Search and Target Acquisition Radars

• Stand-alone / stovepipe development, maintenance, and support architectures

• Unique engineering, sparing, and training requirements

• Significant engineering redesign in order to address obsolescence issues and sustain readiness

The Solution: Navy analysis identified an opportunity to create a Common Digital Sensor Architecture that could be retrofitted into multiple radars to:

• Eliminate required sensor unique reengineering efforts through planned modernization

• Eliminate redundant support infrastructure• Stabilize funding requirements in out years• Consolidate redundant contracts and engineering overhead costs

The Result: • Value-centric analysis identified opportunities for

commonality across multiple systems; justified development and installation of common digital architecture

• Over 20 year lifespan, total estimated life-cycle cost avoidance of $950M

Before After

Common Digital Sensor Architecture

DoD Value Eng’g05/30/2012 |

Distribution Statement A – Cleared for public release by OSR on 4/19/2012, SR Case # 12-S-1809 applies. 12

Summary

• Value Engineering has been utilized successfully within the DoD for almost 50 years – $69B* direct savings and cost avoidance identified

• Successful VE programs require engineering staff to reexamine products in a larger systems context– To identify essential function independent of implementation and– To identify factors of cost in context of a holistic life-cycle

* FY12 Constant Dollars