Value Analysis

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Value Analysis provides great turnaround in the operations of the businesses.
Use Value Analysis to analyze and understand the detail of specific situations.
Use it to find a focus on key areas for innovation.
Use it in reverse (called Value Engineering) to identify specific solutions to detail problems.

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Value Analysis

  1. 1. A presentation by Ahmad Tariq BhattiFCMA, FPA, MA (Economics), BSc Dubai, United Arab Emirates
  2. 2. ValueAnalysis,How??? Let us explore, how it works??? Value Analysis 2
  3. 3. Value Analysis was developed after WW-II in USA at General Electric (GE) in 1947. Because of WW- II, there were shortages of skilled labor, raw materials, and component parts at GE. Lawrence D. Miles, Jerry Leftow, and Harry Erlicher at GE looked for acceptable substitutes. They noticed that these substitutions often reducedcosts, improved product, or both. This led them to the discovery of a systematic process for cost reduction without compromising on the desired quality of products. They named their process as “VALUE ANALYSIS”. Value Analysis 3
  4. 4. Techniques of Value Analysis and Engineering tells youwhy so much unnecessary cost exists in everything wedo. . . how to identify, clarify, and separate costs whichbear no relationship to customers needs or desires. . . how to place a dollars-and-cents value on different customer functions. . . how to divide a problem into "mind-sized" steps, each one of which is solvable and the sum of which solves the major problem. - Lawrence D. Miles [An excerpt from his book Value Analysis and Engineering 3/e, 1989] Value Analysis 4
  5. 5. Value: The ratio between a function for customer satisfaction and thecost of that function. It is the least cost that can achieve reliably afunction or a service.Value of a product = Performance of the function / CostNeed: Something that is necessary or desired by a customerFunction: The effect produced by a product or by one of its elements, inorder to satisfy customer needs.Value Analysis: A systematic process that is used to increase the valueof an object that is achieved by providing required functions of a productat lowest overall cost consistent with achieving the requiredquality, performance and market acceptance.VA team refers to a team/group/committee of cross-functionaltechnicians who follow a stated workplan to accomplish VA objectives.The object can be a product, a system, a process, a procedure, aplan, a machine, equipment, tool , a service or a method of working. Value Analysis 5
  6. 6. The aim of VE is to obtain target cost without compromising onthe quality of a product by: Identifying improved product designs that reduce product’s cost Eliminating unnecessary functions that increase the product’s costs VE requires the use of Functional Analysis (FA). FA is an analysis of the relationships between product functions, their perceived value to the customer and their cost of provision. The process involves decomposing the product into its many elements or attributes. For instance, in the case of automobiles, functions might be consist of style, comfort, operability, reliability, quality and attractiveness etc., etc. Value Analysis 6
  7. 7. What is it? (a pencil) What is it used for? (writing and making marks) What is the main function of this product? (making marks, writing) What is the method, material or procedure that was used to realize the main function? (a graphite stick & wood) What are the corresponding secondary functions? (transfer graphite to paper and facilitate holding the graphite) What does the item cost and how can we distribute the cost of realizing the main function into each secondary function? Comparing these costs to an item of a similar function, how much should each function cost and what must be the total cost? Important NoteFocus your VA on the main function, because, during the analysis, the secondary functions may change. The group/committee/team may choose different secondary functions to realize the main function. Value Analysis 7
  8. 8. For many of the world’s leading companies, including names like Hewlett Packard, Sony, Panasonic, Toyota, Nissan, and Ford, VA process of design review has provided major business returns. The key to realizing these returns is through using knowledge of: the customer requirements, the costs of the product, manufacturing process & the costs associated with failures due to poor or inadequate product design. All these inputs to VA process are vital if decisionsregarding product and process re-design are to yield lower costs and enhanced customer value. Value Analysis 8
  9. 9. A systematic analysis that identifies and selects the best value alternativesfor designs, materials, processes, and systems. It proceeds by repeatedly asking, "Can the cost of an object be reduced or eliminated, without diminishing the effectiveness, required quality, customer satisfaction or market acceptability?”VA is applied to the existing products whereas VE is applied to the products in the making at design stages. They are also alternatively used. Both techniques/processes give same results of adding value toproducts/services. Therefore, they are also referred as Value Management Techniques (VMTs).At the very heart of VA process review is a concern to identify and eliminate product and service features that add no true value to the customer or the product but incur cost to the process of manufacturing or provision of the service. Value Analysis 9
  10. 10. Organized cost reduction analysis by which accountants analyze costsin products or procedures, the ranking of their elements/parts in adescending order of their magnitude and in informed challenge toeach, starting with the most important.Development, as practiced in many companies, where it follows therealization of a design and combining through the specifications toremove costs by substituting standards and relaxing tolerances andfinishes.Purchasing analysis which systematically searches for cheaperbought-out components or services, probably by seeking alternativesor a fresh basis for price negotiation.Method study - The part of work that examines and analyses work ofany kind in a disciplined manner that leads to improvement inefficient, effective and economic methods. Value Analysis 10
  11. 11. Functions may be broken down into a hierarchy, starting with a basic or main function, for which the customer believes they are paying, and then followed by secondary functions, which support that basic function.For example, a coat may have a use function of making you warm (i.e. basic or main function) and an aesthetic function of ‘looking smart, attractive and charming’. Value Analysis 11
  12. 12. The product or process may be broken down into components, which can be associated with the functionsthey support. The value of the product or process then may be increased by improving or replacing individual components. This also applies to the whole item being analyzed, which may be completely replaced with a more cost efficient and effective solution. Although this is a simple-sounding process, it can be quitedifficult in practice, as it requires both an in-depth analysis of a product or a process to be improved and an innovative/creative approach to finding the best alternatives. Value Analysis 12
  13. 13. VA process is based on the application of a systematic workplan thatmay be divided into 7 steps as mentioned below: Selection & Orientation, Analysis, Recording Ideas, Innovation/Creativity, Evaluation, Recommendations, and Implementation and monitoring.The application of VA process needs to make use of basic techniques such asMatrices, Pareto chart, PERT technique and Gantt diagrams, etc., in most of the VAstages. Value Analysis 13
  14. 14. # Stage Description  To select those critical areas where a potential for cost SELECTION & reductions is expected.1. ORIENTATION  Use the common Pareto’s ABC analysis.  General scope, restrictions and aims of the study is defined.  Examine the data at a VA group/team meeting.  Record the minutes of each brainstorming session.2. ANALYSIS  Apply the Tests for Value.  Propose further action.  Write down the minutes of analyses meetings and circulate RECORDING3. them to group/team members for further queries. IDEAS  It includes the agenda for the next meeting.  Arrange team meetings in order to discuss the ideas INNOVATION/ analyzed and any new information obtained.4. CREATIVITY  Think upon practical measures for reducing costs and increasing value. Value Analysis 14
  15. 15. # Stage Description  Investigate suggestions for reducing costs and to make them practical and acceptable to client management.5. EVALUATION  Obtain definite prices and costs in order to estimate cost reductions accurately.  Recommend cost reductions to client management.  Present the recommendations in a comprehensive report.6. RECOMMENDATIONS  Recommend a member to act as an implementation consultant for VA recommendations.  Implement the recommendations accepted by the company management. Monitor the results as suggested IMPLEMENTATION in VA report.7. & MONITORING  Jot down the feedback of the management upon completion of VA assignment. Value Analysis 15
  16. 16. 1. A high customer orientation, focusing on those aspects of the product/service that better satisfy customer needs.2. Allows enormous cost reductions by eliminating functions that do not satisfy customer requirements/needs.3. VA improves profitability of products.4. New ideas that arise from the creativity/innovation phase, may add radical changes.5. VA provides a process to systematically improve the existing goods and services. It builds value into a product or service.6. VA process is used to offer a higher performing product or service to a customer at a minimal cost. Value Analysis 16
  17. 17. 8. VA process is, therefore, one of the key features of a business that understands and seeks to achieve TQM in all that it does to satisfy customers.9. VA process often allows to root out practices that have grown out of date and can be replaced with more modern approaches.10. VA can uncover design flaws that not only operate inefficiently but also create problems. In the case of a product, this could mean a high rate of malfunctioning items, creating customer complaints and warranty claims that put a strain on personnel and inventory departments. Value Analysis 17
  18. 18. Avoid making generalizations and superficial statements – it isimportant to be precise at every moment.Collect, determine and examine all costs involved – only when one iscost conscious, will it be possible to determine the value of the thingbeing assessed.Make use of information from the best possible sources.It is possible that two different VA consultants may give different setsof recommendations still both be correct. There can be challenges inthe selection of the best alternatives. Value Analysis 18
  19. 19. # Abbreviation Description1 FA Functional Analysis2 GE General Electric3 TQM Total Quality Management4 VA Value Analysis5 VE Value Engineering6 VMTs Value Management Techniques Value Analysis 19
  20. 20. 1. Value Analysis and Engineering 3/e by Lawrence D. Miles2. Management & Cost Accounting by Colin Drury 5/e (pg. 892)3. Cima Official Terminology4. Management Accounting Handbook by CIMA (2/e, edited by Colin Drury)5. Cima – Kaplan Publishing for Paper P2 (pg. 205)6. www.businessdictionary.com Value Analysis 20
  21. 21. Thank You!Ahmad Tariq Bhatti FCMA, FPA, MA (Economics), BSc Dubai, United Arab Emirates Contact details: At.bhatty@gmail.com The End. Value Analysis 21

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