tempting to do. We do not refine the problem in our hasty search for alternatives.

The first solution we can find is the one we tend to grasp. Often these solutions involve higher costs because such costs seem to be acceptable under stress conditions and are not challenged as seriously as they would be otherwise.

The CHAIRMAN. Did we run into that in World War II in synthetic rubber?

Mr. WOODWARD. To some extent this was the situation, but there I think we were faced with another problem: the state of the art. The state of the art is, at least, a momentary limitation. We find in many cases that, if we are not careful, we use the state of the art as the rationale for continuing a pretried pattern though it may have some undesirable tradeoffs, particularly in the area of high cost.

So, what we need in many cases is for someone to determine, first, whether we really need to do this particular task or to perform this function, and if so what is most critical in order to eliminate nonessential features and their related costs.

This provides simpler solutions as well as solutions that, by and large, save money as well as increasing reliability, particularly of some of the more complex types of equipment.

In terms of the state of the art, we must live with this situation, but value engineering really challenges people to redefine the problem before they look for solutions.

Senator BAKER. I am sorry, Mr. Chairman, but I will have to leave

now.

The CHAIRMAN. Thank you, Senator Baker, I know you're busy this morning and appreciate your being here.

Please continue, Mr. Woodward.

Mr. WOODWARD. Although the use of value engineering has become widespread during the past 10 years, many of the basic elements are not really new. Within their own areas of responsibility, a few inventive, ingenious persons have produced similar results over the years. An example of this is found in "Weapons," a book by Edwin Tunis, which was published in 1954 by the World Publishing Co.

In the mid 1800's, the French made a great improvement in rifle accuracy and range with the Minie ball. (See fig. 1.) Its efficiency was a result of the deep, tapered hollow cast in the base. When the bullet was loaded, a little iron thimble was put into the mouth of the hollow. The pressure generated by the burning powder momentarily forced the thimble forward before the bullet moved, thus bottoming the thimble in the hollow and forcing the lead base of the bullet outward into the rifling grooves.

A secondary effect was the expansion of the base into the rifle bore and the prevention of gas leakage, which thereby increased the force available for range and bullet velocity. One difficulty was that occasionally the iron thimble would be driven entirely through the bullet, leaving a nasty lead ring tightly jammed in the barrel and rendering the rifle temporarily useless.

In 1855, an imaginative American mechanic solved this jamming by simply eliminating the thimble entirely, but retained the desirable expansion features by having the gasses expand directly on the hollow lead base. (See fig. 2.)

In those days, progress was slower and the problems less complexthey could await the development of such random improvements. How ever, the rate of technological chance since World War II does not allow us the luxury of this relatively haphazard process. The development of value engineering now provides the ability to teach a systematic approach, so that what were random results before can now be planned accomplishments measured against desired and practical objectives. Value engineering is defined as an organized approach that clearly and simply defines the need for, and the requirements of, equipment, structures, and services; establishes minimum cost targets for these needs and requirements; and provides a systematic and rational procedure for the application of the creativity and initiative necessary to reach these cost and performance targets.

Value engineering uses a very basic, simple, and direct approach that is focused on answering six questions:

(a) What is currently being done or specified?

(b) What does, or will, it cost?

(c) What is the basic need or requirement to be met?
(d) What is the minimum possible cost?

(e) What are the potential alternative approaches?
(f) What will each alternative cost?

These are simple questions. The answers often lead to a critical reevaluation of ourselves as well as of the environment in which we work. Value engineering presents a challenge to a company or agency as well as to individuals, because it asks the key questions of how we can make changes, rather than accepting all the tradition-ridden arguments of why we cannot change. It becomes a state of mind, an atmosphere in which creative and constructive change can germinate and grow to its full potential.

But is not value engineering just another name for cost reduction? The answer is definitely no. There are three major differences that contribute to the beneficial results of value engineering.

First, value engineering is an organized approach by which specific techniques are applied in a predetermined manner, rather than the application of random techniques on the basis of personal preference or intuition. In addition, value engineering concentrates on how to meet a specific need at lower cost, rather than on how can an item be made cheaper. Finally, it provides the stimulation for expanded creativity to develop new alternatives without the instant prejudging, and usual rejection, of every new idea.

In L. D. Miles' book, entitled "Techniques of Value Analysis and Engineering," an example is given of the effectiveness of the VE versus the cost reduction approach. Construction drawings called for a concrete wall 7 feet thick and 14 feet high in the shape of a horseshoe to contain the radiation from a large industrial X-ray machine. The lowest bid was $50,000.

When approval of the construction contract was requested, the landlord said he would agree on the basis that, when the X-ray machine was moved or disposed of, the wall would be removed at the expense of the company. This would have significantly increased the total cost of the wall.

At this point, a construction engineer was asked to review the design. He was astonished at the requirement for such a large amount

of concrete when there were no load-bearing requirements. He asked the basic question of what materials will absorb radiation. The answers were concrete, lead, and dirt.

Concrete was already selected as the solution; lead was much more expensive; but dirt had the advantages of availability and low cost. It was found that a dirt mound 14 feet high and 14 feet thick was adequate, and could be built, including sodding, for $5,000.

The search for alternative ways to meet the basic need for radiation shielding, rather than for lower cost methods for erecting or removing a concrete wall, resulted in a more attractive design for one-tenth the cost, with adequate performance and easy, low-cost removability.

A very logical question is why is there such a large amount of unnecessary costs in products and programs? The major causes for these unnecessary costs are:

(a) Lack of adequate information regarding the basic requirements or alternatives prior to decisionmaking. This may be the result of an insufficient search effort or the unavailability of sufficient data.

(b) Lack of consideration of new or different ideas. This may result from inadequate research and development efforts, too narrow definition of the problem, or fear of new ideas. "The old ideas work, why change.'

(c) Actions taken on the basis of the temporary constraints of time, material, availability, et cetera. Temporary decisions that work often develop into permanent and "proven" solutions for all similar, future problems.

(d) Honest "wrong beliefs" on the part of individuals and organizations that are based on outdated experiences, usually negative in nature. "I tried that material 5 years ago and it didn't work."

(e) Habits and attitudes developed as the safe and accepted way to make decisions automatically. "Our agency has always done it this way."

(f) Policies, procedures, and traditions that discourage change and becomes an "umbrella" for using only the "tried and true" approaches.

These causes of unnecessary costs relate to individuals and organizations because they are the result of an established working climate. Value engineering has been developed as a means to challenge and minimize the impact of these impediments to achieving lower cost without compromising essential needs.

Therefore, because of the very scope of the approach, value engineering must be applied as a technique for the support of top management. It is only top management who can provide the challenge and the opportunity for training necessary to change the habits and attitudes of individuals as well as providing a working climate that stimulates and rewards creativity.

For value engineering to be effective, a formal program must be established to train those in decisionmaking positions and to develop a few specialists with expertise in value engineering as well as to provide the continuing management involvement required for support, direction, and motivation.

In summary, it should be noted that the use of value engineering as a top management technique has proven effective in lowering and

controlling costs in such companies as Lockheed-Georgia Co. and Joy Manufacturing Co., while returning savings of at least 10 times the cost of the value engineering effort. Properly established in an organization, VE becomes a state of mind that continuously challenges the status quo to provide better programs for less cost.

Thank you.

The CHAIRMAN. Thank you, Mr. Woodward.

Mr. Woodward, do you feel the private sectors and business generally have taken advantage of what you are advocating today?

Mr. WOODWARD. In many areas, although not across the board. In industry it is taking effect somewhat slowly in some companies; however, some of the large companies, particularly those that are defenseoriented and some that are in highly competitive industries, are implementing value engineering at an increasingly rapid rate.

The CHAIRMAN. That leads to the second question. Now, what has been done or what is being done to have these principles of which you speak applied by Federal agencies?

Mr. WOODWARD. Well, Federal agencies have applied these techniques in two ways. One, where agencies are in a specifying or a controlling position and do not actually produce designs or hardware, they have included value engineering clauses in their contracts.

This is a specific incentive for the contractors to include value engineering as an integral part of the design and production of the equipment they are supplying to the military.

The second area of Government VE activity involves agencies that do some design work, testing, and related tasks. These agencies are applying value engineering through the use of internal specialists who are making their own particular value engineering studies of various types of defense equipment, often increasing its reliability as well as lowering its cost.

The CHAIRMAN. Has the Department of Defense utilized private consulting engineering firms who specialize in value engineering?

Mr. WOODWARD. It has on some occasions. In many cases, it depends on the monitoring of a particular task or contract. Some of this private consulting is related to manpower availability; in other cases, it involves an objective evaluation by an outside organization.

The CHAIRMAN. Senator Young?

Senator YOUNG. I have no questions.

The CHAIRMAN. Thank you, Senator Young.

Senator Jordan?

Senator JORDAN of Idaho. Thank you, Mr. Chairman.

I appreciated listening to your statement, Mr. Woodward.

I have one question. How do you reward creativity? How do you go about offering an incentive for people with responsibilities to seek a better value engineering method, to employ value engineering to get the job done cheaper and better?

Mr. WOODWARD. There are two types of incentives: those for organizations and those for individuals.

Incentives for organizations, if they are commercial, of course, include an improved competitive position, profits, and so forth. Also, in many cases, it may involve being able to draw to their organization more of the creative types of employees, people who tend to move the company forward.

For an individual, the reward for creativity usually is recognition for creativity; that is, something desired has been achieved and is rewarded. Their ideas are given very serious consideration, instead of being apparently postponed indefinitely. Another reward is the feeling that they are a definite contributor to the success of both their management and the organization to which they belong; a sort of a togetherness situation exists rather than the channeling of personnel into narrow areas of specialization where each man seems to be going off solving his own small problem, without the proper interfaces, and, therefore, unaware of his impact on the broader scope.

So, it is making people feel effective and that their creativity is providing new challenges rather than a repetition of the same old problems. It is asking them to solve problems in a new manner and then recognizing this ability as important in terms of their total output.

Senator JORDAN of Idaho. Let me give you a problem. Suppose a contractor has a valid contract, say, with the Federal Government under the supervision of the Corps of Engineers, to build a dam. Some bright young engineer in the contractor's staff believes that certain changes can be made in doing a certain operation at a great saving both to the Government and to the contractor; yet, this would be in violation of the specifications as written.

Now, what is the procedure there? Obviously, it requires a change order, and if a change order is agreed to, who should share in the money that is saved?

Mr. WOODWARD. Well, in regard to an idea that is developed as you mentioned by a young engineer who is close to the problem-first, we feel that a change order should be very carefully prepared so that both the contractor and the Government are made aware of the advantages and disadvantages, or the risks, of the change.

On the basis that it is still felt to be a beneficial change, my feeling is that both the contractor and the Government should share in the resulting savings because both of them must make decisions and take risks in allowing the change to be incorporated; first, the contractor in initiating, checking out, and requesting the Government to issue a change order, and secondly, the Government in evaluating and approving the change order. There should be a division of the savings so that there is incentive for both parties to follow through on such a suggestion.

Senator JORDAN of Idaho. Is this procedure followed to any great extent?

Mr. WOODWARD. This is included as the basis of the value engineering clauses that are included, and have been for some time, in the procurement regulations of the armed services.

At the award of the contract, an established percentage is set up for contractor and Government sharing, depending on the type of contract, the risk that is involved, and the possible difficulty of evaluating changes. This may vary from a low of 10 to a high of 75 percent sharing with the contractor.

The Government has also developed a clause for follow-on contracts in cases in which it is difficult to make a change in the current contract. Where extensive testing is necessary, you may not get a change in the first contract but it may be in the second contract. Or, in the case