Concept of Value Analysis
Value analysis is an organized creative approach, which emphasizes efficient identification of unnecessary cost, i.e., cost that provides neither quality, nor use, nor appearance, nor customers’ satisfaction. It is a systematic inter-disciplinary examination of factor affecting the cost of a product or service in order to derive means of achieving the specified purpose most economically at the required standard of quality and reliability.
There are number of Definitions of a value analysis.
According to CIMA Official Terminology___” A systematic interdisciplinary examination of factors affecting the cost of a product or service in order to devise means of achieving the specified purpose most economically at the required standard of quality and reliability”.
According to L.D Miles___” Value analysis is an organized creative approach which has for its purpose the efficient identification of unnecessary cost i.e., cost which provides neither quality, nor use,nor life,nor appearance,nor customer features”.
It is defined as “value analysis is an organized procedure for efficient identification of unnecessary cost”.
It can also be defined as ” The study of relationship of design, function and cost of any product, material or service with the objective of reducing its cost through modification of design or material specification manufactured or incorporation in a related system”.
Aspects of Value Analysis
Following are the three important aspects of value analysis:
- Identify the function of a product or service.
- Establish a monetary value for that function.
- Provide a necessary function reliably at the lowest overall cost.
Objectives of Value Analysis
- Save money or increase profit.
- Time Consideration.
- Quality promotions.
- Standardization of material, process to produce quality products.
- To ensure greater returns from invested capital.
- Developing logical and analytical approach to solve problems.
- Promoting creativity, quality awareness, and positive attitude amongst the employees.
- Developing cost consciousness and a value culture in the organization.
Value Analysis Procedure/Phase
Step 1: Identify the Product: The first step is to identify the product for which value analysis is to be carried out. The product should be one which if redesigned can add to the sales income and would not become obsolete in near future. Value Analysis may be applied to the product as a whole or to only some of its component parts.
Step 2: Collect Relevant Information: The information relevant to the product may be as follows:
- Technical specifications with drawings.
- Manufacturing processes, machine layout and instruction sheets.
- Time study details and manufacturing capacity.
- Complete cost data and marketing details, and
- Latest developments in related products.
Step 3: Define Different Functions: Identify the primary, secondary, and tertiary functions of the product. Specify value content of each function and identify the high cost areas.
Step 4: Create different alternatives: Knowing the functions of each component part and its manufacturing details generate the ideas and create different alternatives so as to increase the value of the product. The value analysis team can hold brainstorming sessions. All suggestions feasible or non-feasible are recorded without any criticism; rather are encouraged to express their views freely.
Step 5: Critically evaluate the alternatives: The different ideas recorded under step-4 are compared, evaluated and critically assessed for their virtues, validity and feasibility as regards their financial and technical requirements, Ideas technically sound and involving lower costs are further developed.
Step 6: Develop the best alternative: Detailed development plans are made for those ideas which, during step-5, appear most suitable and promising. Development plans comprise of, drawing the sketches, building of models, and conducting discussions with the purchase section, finance section, marketing division, etc.
Step 7: Implement the Alternative: The best found idea under step-6 is converted into a prototype manufacturing which ultimately goes into operation and its results are recorded. The product cost and functional analysis is carried out to assess the next saving as the results are recorded. The product cost and functional analysis is carried out to assess the net saving as the result of value analysis.
Advantages of Value Analysis
- Powerful Tool: It is a powerful tool for cost reduction because its basic objective is the identification of unnecessary costs in a product or service and efficiently eliminating them without impairing its quality and efficiency.
- Scientific Tool: It is a scientific tool for increasing the productivity of a concern because it aims at exploring various alternatives for efficient use of all types of resources in employment and making availability goods and services of the kind and quality most wanted by customers, at lower and lower costs. In this way, the manufacturing of most suitable production is facilitated because value analysis aims at giving higest use value and esteem value to customers.
- Keep Management Update: It helps to keep management abreast of the latest technology and other developments because value analysis aims at examining new methods and techniques of doing things with a view to reducing the cost and increasing the value of the item.
- use of Resource: It ensures the fullest possible use of resources because it aims at eliminating all unnecessary costs.
- Creative Ability: It induces the creative ability of the staff because it involves a creative approach for finding out unnecessary costs. Creativity develops new ideas which, in turn, make available the least expensive alternative to do the same functions.
- Proper Atmosphere: It creates proper atmosphere for increased efficiency because it aims at a continuing search for improvement in efficiency.
- Important Substitution: It is helpful in any drive for import substitution because it explores new methods and techniques of manufacturing indigenous goods which may serve the same purpose which imported goods serve. Thus, it is helpful in saving precious foreign exchange.
- Applicable to All Stages: It can be applied to all stages from the initial design stage of an item right up to the final stage of its packing and dispatch because it aims at identifying unnecessary costs at all levels with a view to eliminating them systematically.
Disadvantage of Value Analysis
- Based on Specific Scientific Theory: VA is not based on any specific scientific theoretical development. It has been developed by different users in the assembly lines of the factories or the operations in a production process or other activities performed.
- Rigorous Technique: The technique demands very rigorous discipline in recording data, generation and selection of ideas. Many as times, the VA benefits cannot be achieved as the use of the methods are not done in proper manner.
- Need Experts Knowledge: VA needs the service and time of senior executives who are experts in their respective fields. They should have multi-disciplinary background, should be experienced and experts in their fields.
- Time Consuming and expensive: VA can only be applied in a selective manner. It can’t be used for all products and materials as it is very time consuming and expensive.