What is VA/VE?

VA/VE in Automotive Manufacturing

VA/VE stands for Value Analysis/Value Engineering which is a process first developed by General Electric Co. during World War II. This process, used heavily in automotive manufacturing,  optimizes a system's outputs by crafting a mix of performance (function) and costs. During my 14 year career in the manufacturing industry, I initiated VA/VE programs to help save  costs through process efficiency, design improvements, and better use of resources. 

VA/VE in Personal Finance

If the Value Analysis/Value Engineering technique benefits thousands of manufacturers, why not implement this technique towards personal finances? My aim is to treat each client as a company looking to "optimize" their financial products and their financial process. Everyone has inefficiencies or "fat" they need to trim in their personal finances but you really have to look for it. The rewards can be significant, especially when any extra money freed up can be invested. The biggest area of "fat" for most Canadians is in the form of high fee active mutual funds which I have detailed in my post "Who's Stealing Your Retirement?". For this article however, let's look at a simpler example of optimizing value. 

Example: Maximizing Credit Card Rewards

I conducted a credit card rewards analysis to find what combination of credit cards works best for my family. I categorized my spending into 4 types of expenses based on what most credit card rewards are based on: 1) Gas/Groceries 2) Dining out 3) Re-occurring expenses 4) All other purchases. I used certain assumption for how much in dollars, certain points were worth and I also factored in annual fees. 

 

My analysis showed me that most 'no-fee cards' give approximately 1% back. Most premium cards give approximately 2% back. However, because some credit cards gave a higher amount for certain categories, I am able to craft a mix of credit cards to optimize my rewards. I ended up with these 3 cards:

I use the free Costco Capital One Mastercard when I dine out for 3% back in Costco Dollars

I use the free Costco Capital One Mastercard when I dine out for 3% back in Costco Dollars

I use Scotia Momentum Visa for Gas/Groceries for 4% Cashback. There is a $99/year fee for this card.

I use Scotia Momentum Visa for Gas/Groceries for 4% Cashback. There is a $99/year fee for this card.

I use MBNA Rewards World Elite for all other purchases for 2% cash back. There is an $89/year fee for this card

I use MBNA Rewards World Elite for all other purchases for 2% cash back. There is an $89/year fee for this card

It should be noted that my wife was slightly inconvenienced by the fact that we now have certain cards for certain types of purchases......okay she was VERY inconvenienced by this....so on 'paper' this is optimal for our family based on our purchasing patterns but you have to judge for yourself the benefits versus inconvenience of this approach. That being said, in terms of annual rewards to our family compared to say, a no fee card, our family generates an extra $400 a year from this approach! This is an example of optimizing one aspect of our financial life, essentially one VA/VE project that I conducted. 

As a bonus (and to make things more complicated), there is one other card that we use only when we travel out of Canada to avoid the 2.5% foreign exchange fee that most credit cards charge. See below:

If I am travelling out of Canada, I use the free Amazon Visa Card. It gets me 1% on all purchases but more importantly, they do not charge the 2.5% foreign exchange fee that most other credit cards charge. *This card no longer accepts new applications.

If I am travelling out of Canada, I use the free Amazon Visa Card. It gets me 1% on all purchases but more importantly, they do not charge the 2.5% foreign exchange fee that most other credit cards charge. *This card no longer accepts new applications.

I am gathering various VA/VE projects that I have conducted for personal finances and will begin blogging about them. It'll be a best practices for finances project. Although I am still compiling projects, do check out my latest VA/VE project where my 6-year old daughter helps build our family an HD antenna so we could cut cable tv!