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HomeProcurement/Supply Chain ManagementValue Analysis, Phases and Benefits

Value Analysis, Phases and Benefits

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Value analysis is a technique to reduce the cost or any product while maintaining or improving its functionality. It is focused on unnecessary costs which are not adding to quality, appearance, efficiency or functionality of the product. The value analysis is done by researching, identifying the problem area and applying the suggestive measures to reduce cost, while maintaining or improving the quality and functionality of the product.

Before moving further, let us understand what the value is? Value is the quality of a product which makes it desirable or valuable. If the customer finds something valuable or desirable, he or she is willing to pay price for that. There are four types of values namely, cost value, exchange value, use value and esteem value.

“Cost Value” is the sum of all costs incurred in producing the product. It is made of raw material cost, labor cost, transportation cost, cost of technology and all other overhead costs incurred during the manufacturing or production or the product.

“Exchange Value” is the measure of all properties of the product such as qualities, features, functionality which make the product able to be exchanged with some other product or money. In simple terms, the exchange value is the property of any product for which the customer is willing to pay the money. The price of the product is proportional to the satisfaction; the customer derives from the product.

“Use Value” is the measure of the properties which makes it usable. In other words, it is the cost incurred by the manufacturer to ensure that the product performs its intended function, for which it is made.

‘Esteem Value” is the measure of properties, features and functions of a product which make the product attractive and desirable. We can also say that the esteem value is the measure of properties of a product, for which the customer feel pride to own that product.

Value Analysis & Value Engineering

Value analysis and value engineering are so closely related that sometimes, they are used interchangeably. Although, the basic aim of both the processes is cutting unnecessary costs while maintaining the properties of the product, there is slight difference between them.

“Value Analysis” is the application of techniques to an existing product to cut the unnecessary costs and to improve its value. “Value Engineering” is the application of same techniques for the same purpose to a new product at the design stage or concept development stage. So, we can say that “value analysis” is a remedial measure while the “value engineering” is a preventive measure.

Phases of Value Analysis

The various phases of value analysis are discusses as follows:

Gathering Information

The first step is to gather information about the product for which the value analysis is to be done. The features of product or service, components of the product, etc. are studied in detail. The details about the profit attained or loss incurred in last quarter are also gathered. The cost incurred in production of the product or service is also studied in this stage.

Identification of Problem Area

The next step is the identification of problem areas. Each product or service has some primary and secondary functions. In this stage the list of all the functions of the product is made and cost incurred in each function is determined. A cost benefit analysis is carried out to evaluate each function. If the cost overweighs the benefits, necessary action is taken to cut the cost, while maintaining the functionality of the product or service.

Innovation

After identification of the problem area, the value analysis team finds new and innovative ways to cut the cost of the product or service. The care is taken to maintain the properties of the product or service while reducing the cost. It can be done in many ways. Either the design of the product may be changed or new technology or better material is used to cut the cost. Sometimes, the team may suggest adding new features or improving existing features in the product or service. Due to this, there may be some cost enhancement in the product but if the benefit is more, the customer will be willing to accept this change and the profitability of the company may increase due to this.

Evaluation and Selection

Each idea suggested by the value analysis team is evaluated and the best idea is selected for implementation. Different techniques like cash flow analysis or break-even point are used to evaluate the ideas. The idea which reduces maximum cost while maintaining the same properties of the product or service is selected. Quantitative as well as the qualitative analysis are done to evaluate the ideas and the most feasible idea is selected.

Implementation and monitoring

After selecting the best idea for cost reduction, it’s time to implement it. The performance of the alternative implemented is monitored over the time and well documented.

Advantages of Value Analysis

There are numerous benefits of value analysis, some of which are described below:

Saving in Cost

The main aim of value analysis is cost cutting by eliminating the wasteful or unnecessary processes. The value analysis results in cost savings while maintaining the same quality of the product or service.

Improvement in the Product

Analysis of each and every component of the product results in improvement in the product. Sometimes it is possible within the same cost and other times even if there is an increase in the cost, it may be accepted by the customers seeing its benefits.

Generation of Innovative Ideas

Value analysis results in generation of new and innovative ideas for improving the product and reducing the cost. Each idea is evaluated and the best alternative is selected for implementation.

Elimination of Wastage

In the process of value analysis, the waste process which are not contributing anything to the product manufacturing are identified and eliminated, so that the cost of the product or service may be reduced.

Improvement in Brand Image and Enhancement in Profitability

If the customer gets the value with reasonable price, then obviously the brand image of the company is improved which subsequently results in more profitability for the company. This is possible with the value analysis.

Conclusion

Value analysis is an important tool for reducing cost and improving the properties of a product or service. The organizations should understand the importance of value analysis and should carry out this for their existing products and services. The benefits of value analysis have already been discussed above. In addition to those, value analysis improves team coordination and motivates the team members for innovating new ideas of cost reduction and product improvement.

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Rajesh Pant
Rajesh Panthttps://managemententhusiast.com
My name is Rajesh Pant. I am M. Tech. (Civil Engineering) and M. B. A. (Infrastructure Management). I have gained knowledge of contract management, procurement & project management while I handled various infrastructure projects as Executive Engineer/ Procurement & Contract Management Expert in Govt. Sector. I also have exposure of handling projects financed by multi-lateral organizations like the World Bank Projects. During my MBA studies I developed interest in management concepts.
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