Gold Plating vs. Value Engineering

By Anna Hartley, PMP, CFCM, ICCM-F level 2

You manage or are part of a project and decide to add additional features or functionality to the product or service you provide. You think it will please the customer and make the team look good. But what if it slows the project, adds costs or isn’t what’s needed?

There is a proper and an improper way to introduce new features in a project. It’s the difference between value engineering versus what’s known as gold plating. Let’s look at how the two can be confused and the impact that can have on project management.

Gold Plating – Changes without Consultation

According to the Project Management Institute (PMI), a scope management plan is “a component of a project or program management that describes how the scope will be defined, developed, monitored, controlled, and verified”. The plan ensures that the project contains all the work that needs to be done to accomplish the project objectives and nothing else. Any additional effort put into tasks outside the project scope is a waste of time and resources. Gold plating, when extra features or functionality are added outside of scope, is common in software projects but could also happen in other projects. It is usually done by team members with an intention to enhance the quality of the product or service, but it is actually not uncommon for customers to get frustrated upon the receipt of the “enhanced” product because they are receiving “extras” they did not ask for. Sometimes, the situation is worsened by the fact that the “extras” prevent completion of the essential features called for in the product scope.

The biggest danger of gold plating is that it might lead to scope creep. The consequences of the scope creep include, but are not limited to, a project falling behind schedule and/or going over budget, a poor quality product, and an overstressed project team.

The main reasons team members engage in gold plating are:

• Some team members might determine that it is just nice to have an extra feature on a product
• Some team members want to prove their professionalism to their supervisors and their customers
• A project team wants to divert attention from defects or incompleteness of the final product

Value Engineering – Changes with Approval

Value Engineering, on the other hand, is a systematic and structured approach used to improve products, services and processes. The Federal Acquisition Regulation (FAR) subpart 48.101(a) provides the following definition:

“Value engineering is the formal technique by which contractors may (1) voluntarily suggest methods for performing more economically and share in any resulting savings or (2) be required to establish a program to identify and submit to the Government methods for performing more economically. Value engineering attempts to eliminate, without impairing essential functions or characteristics, anything that increases acquisition, operation, or support costs.”

So, what is the difference between value engineering and gold plating?

The key difference is that value engineering is a structured, systematic and formal activity carefully planned for before the project begins. For example, federal contractors must develop and submit any value engineering change proposals (VECP’s) if they wish to bid on an opportunity which calls for or allows submittal for such proposals. On their end, requesting agencies should provide contractors a substantial financial incentive to develop and submit VECP’s. This is a very detailed process which requires a lot of planning and coordination by both the buyer (the federal government) and the seller (the vendor).

The main reasons for value engineering participation are:

• Contractors participate voluntarily and use their own resources to develop proposals. The contract provides for sharing of savings and for payment of the contractor’s allowable development and implementation costs only if a VECP is accepted (FAR 48.101(b)(1)).
• Contractors are part of a mandatory program in which the Government requires and pays for a specific value engineering program effort. The contractor must perform value engineering of the scope and level of effort required by the Government’s program plan. (FAR 48.101(b)(2)).
• This approach presents contractors with an opportunity to remove unnecessary costs and allows team members to better understand products, processes and continuous improvement.

Recognize the Difference

While gold plating and value engineering might seem similar to each other at first glance – after all, both are targeted at improving the final product or service and ultimately increasing the profit – they differ significantly.

The processes used during gold plating are usually unstructured, spontaneous, and unplanned for until the product is at one of its development stages. The team assesses, often without customer input, which features could be added to the product to make it more “attractive” to the customer. Even if the extras were welcomed by the customer, the project is out of scope because it produced a final product, service and result with features not initially included in the project management plan, or potentially within budget, cost thresholds or guidelines.

The processes used in value engineering are outlined and planned for before a project or production of a product begins. The team would know in advance at what stage of the project or product lifecycle to implement their proposed changes, which were accepted and approved by the customer. Although the changes might lead to a change in the final product, service or outcome, the project is still within scope because the value engineering clause in the contract specifically allows for such changes.

Gold plating offers possible financial benefits to the team members if the customer is happy with the result. However, the negative consequences outweigh the possible advantages. Value Engineering offers tangible, realistic, financial, people-based benefits which are also risk-free!

See Original Post on the Integrity Matters – Perspectives on Acquisition and Program Management blog.