What is Value Analysis?

Value Analysis

Value Analysis is a systematic approach to improving the efficiency and effectiveness of a product, process, or service. The objective is to achieve the desired function, quality, and performance at the lowest total cost. Originally developed during World War II as a cost reduction method, value analysis has evolved into a broader management practice that emphasizes optimizing overall value.

Value analysis involves critically evaluating all aspects of a product or service, from design to production to delivery, to identify unnecessary costs that can be eliminated without affecting quality, reliability, and performance. This technique is often used in product development, manufacturing, service delivery, and other business operations.

Key Principles of Value Analysis:

• Function Analysis: Understanding the primary and secondary functions of a component or service is fundamental to value analysis. A “function” describes what something is supposed to do.
• Cost Identification: A detailed cost breakdown is conducted to understand the cost associated with each component or process step.
• Alternative Solutions: For each function or component, alternatives that achieve the same objective at a lower cost are identified.
• Evaluation: The alternatives are evaluated based on how well they fulfill the required function, their reliability, and other relevant parameters.
• Implementation: Chosen alternatives are implemented, and changes are made to the design, materials, manufacturing methods, or service delivery processes.
• Review: Post-implementation, results are reviewed to ensure that the expected savings and performance levels are achieved.

Steps in a Value Analysis Process:

1. Information Gathering: Collect data about the product or process.
2. Functional Analysis: Break down the product or process into its basic functions.
3. Cost Analysis: Allocate costs to each function or component.
4. Idea Generation: Brainstorm alternative ways to perform each function or reduce costs.
5. Evaluation: Evaluate the feasibility, effectiveness, and implications of each alternative.
6. Implementation: Adopt the best alternatives.
7. Follow-up: Verify that the changes result in the intended benefits.

Overall, Value Analysis is a structured methodology aimed at delivering the best functional outcome at the lowest cost. It involves scrutinizing every element of a product or service to ensure that each contributes positively to the desired function and overall value proposition.

Example of Value Analysis

Let’s look at a fictional example involving a company that manufactures office chairs. The management wants to maintain or improve the quality while reducing the production cost. Here’s how they might go about conducting a value analysis.

Step 1: Information Gathering

• The team collects information about each component of the chair, including materials, assembly process, and supplier details.

Step 2: Functional Analysis

• The chair is broken down into its essential functions: support, adjustability, mobility, and comfort.

Step 3: Cost Analysis

• Costs are allocated to each function and component. The team finds that the cushioning material contributes significantly to both cost and customer satisfaction related to comfort.

Step 4: Idea Generation

• The team brainstorm alternatives for the expensive cushioning material. Options include changing the supplier, using a different but equally comfortable material, or modifying the design to require less material.

Step 5: Evaluation

• After testing several alternatives, the team identifies a new foam material that offers similar comfort but at a lower cost. They also find that they can adjust the design to use less foam without compromising comfort.

Step 6: Implementation

• The team switches to the new foam material and implements the design change.

Step 7: Follow-Up

• After the changes, the cost of producing each chair is reduced by 10%. Customer reviews indicate that the comfort level is as high as before.

Financial Implications:

• If each chair initially cost $100 to produce and the company produced 10,000 chairs per year, the total production cost was $1,000,000.
• With a 10% cost reduction, each chair now costs $90 to produce, reducing the total annual production cost to $900,000.
• This results in a saving of $100,000, which can be used for other business initiatives or passed on to customers as a price reduction, thereby increasing competitiveness.

In this example, value analysis helped the company maintain the quality and functions that are most important to customers (comfort) while reducing costs. This type of focused, systematic analysis can often reveal opportunities for significant improvements in efficiency, cost structure, and overall value delivered to the customer.