Value Analysis

Developed by Mads Grøndal

Abstract

Value Analysis is a systematic tool which can be used to improve the value of a product or process by analyzing its constituent components and the associated costs . The overall objective is to find improvements to the components by reducing their cost and/or increasing the value of the functions.

This article will describe each step required to perform a Value Analysis as well as suggesting tools that can be used during each step. The Article can be used as a template when performing a Value Analysis.

History of Value Engineering

The origins of the Value Analysis goes back to World War II. During the war, there was a shortage of both labor and materials which resulted in companies had to search for substitutions to their existing products in order to still meet demand. This value-based approach led to General Electric (GE) noticing that substitutions often resulted in reduced cost, improvement of the product or both. GE took this Value Engineering approach out of necessity but it resulted in a systematic process which still has wide application to today. . The specific process originated in 1947 from Lawrence D. Miles and is known as Value Analysis .

Value Analysis as a tool

In order to understand the how Value Analysis can be used as a tool, it is necessary to define the word “Value”. Value has no clear definition but when used in Value Analysis it is defined as a Function’s performance relative to its cost .

Value=(Function Performance)/cost

, where the function is defined as the effect produced by a product or by one of its elements, in order to satisfy customer needs and the Cost is defined as the resources required to achieve the function.

As can be understood from the equation, the value is not only about minimizing the cost. As long as the increase of the function’s performance is relatively higher than the increase of cost, the value of the function will still increase. This differentiates a Value Analysis from typical cost reduction approaches .

The Value Analysis Process

A specific process has been developed when applying Value Analysis on an existing product or element. The process is broken down into a preparatory phase and five main phases. Each phase contains its own course of action and goal. The following section will describe each phase in more detail and suggest tools/techniques that can assist when performing a Value Analysis

The section can be used as a Framework for general application.

Value Analysis Framework

Preparatory phase

Objective: To define the project scope and forming the team that is going to perform the analysis.

When identifying what is to be analyzed Portfolio Management techniques, such as the BCG Matrix, can be used to ensure that the effort is put in the right place.

A question companies should ask themselves is:

Which product or process would benefit the company most if subject to an increase in value?

A value Analysis requires significant work and it should be avoided trying to increase value to a process/product unless it provides a significant increase in value for the company. A mean-variance analysis can be used when weighing the risk against expected return. As a Value Analysis has a high engineering cost the investment should be made on a solid foundation.

To successfully conclude a thorough Value Analysis, it is important that the right qualities are found within the team. Some of the important qualities include an understanding of material properties, creativity and large focus on details. It can be beneficial to use tools such as Competency mapping and considering the Five Stages of Team Development when forming the team. Focus groups can be used to help to understand the general market perception towards changes in an existing product.

A successful Value Analysis is largely dependent on every person within the team has a common understanding of the project scope. Therefore it is also of great importance that the right project manager is chosen. It could be beneficial to consult with existing standards such as PMBOK, ISO 21500 or IMPA.

Phase 1: Information

 Objective: Identify and prioritize customers and collect information available about the identified product/process. 

In this phase, it is necessary to identify and prioritize stakeholders. A stakeholder is in the ISO 21500 standard defined as "a person, group or organization that has interests in, or can affect, be affected by, or perceive itself to be affected by, any aspect of the project" .

In a Value Analysis stakeholders from all classifications have great importance .

• Outward Stakeholders: Functions should satisfy customer need. A product has no value if there are no customers and this stakeholder should always be prioritized highly in a Value Analysis.
• Downward Stakeholders: Knowledge comes from within the project group. The competencies within the group should comply with the task at hand.
• Upward: The upward stakeholders hold the resources to finance the Value Analysis and implementation of changes to the product/process.

Mention something about general stakeholder management?

Besides stakeholder management, it is also critical to collect all facts about the identified subject. Collect cost breakdowns, drawings, specifications, manufacturing data etc. Focus on what the customers want and need? What characteristics of the scope can be modified to increase value and/or reduce costs? This subject should be discussed in detail with stakeholders, to get a true appreciation of the relevant functions.

Phase 2: Analysis

Objective: Perform a functional analysis to identify all functions within the scope. 

A Functional Analysis is performed to identify the relevant functions. All functions have an importance as well as a cost. Costs are quantified and functions are sorted by their importance. The relationship of Importance and Cost can be compared to a cost-benefit analysis. Having the lowest possible cost will always be the optimal scenario but Functional Analysis focuses on the lowest cost to provide a given function. Minimizing the cost at the expenditure of an important function is not desirable and finding the balance between function importance and cost is critical. This phase is considered as the key step of the whole methodology as it represents the translation of customer needs into functions.

The functions can be divided into two categories:

Basic: The function for which the user or buyer purchases the product and constitutes the real value to the customer. 
This function is not subject to modification during the Value Analysis. 

Secondary: Secondary functions are the assisting functions that make it possible to realize the basic function. 
 A significant cost is related to the secondary functions and these will be the target when performing 
value engineering work such as Value Analysis.

In this phase, FAST (Function Analysis System Technique) should be applied. The Technique used to create a graphical representation illustrating the logical relationships between the functions based on the questions “How” and “Why”. How, is answered by the function on the right, and is the method to perform that function Why, is answer by the function to its left, which expresses the goal of that function A good rule to remember in constructing a FAST Model is to build in the How direction and test the logic in the Why direction.

A simplified illustration of the FAST Technique is presented in Figure 1

Figure 1: The FAST Technique

Another tool that should be applied in this phase is a Value Analysis Matrix. The method is derived from the Quality Function Deployment (QFD) methodology. It associates functions back to customer needs or requirements and carries an importance rating. Functions are then related to mechanisms, Mechanisms are related to functions as either strongly, moderately or weakly supporting the given function. The functions presented in the Value Analysis Matrix comes from the FAST diagram. The Mechanism weight is used as the basis to allocate the overall item or product cost. A Value Analysis Matrix template is presented in Figure 2.

Figure 2: Value Analysis Matrix

Based on the analysis you should define the problems that exist. Normally these can be categorized in three categories ref name="Bog" />.

• Type 1 Problem: Seemingly very difficult, with large benefits if solved.
• Type 2 Problem: Require penetrating thought and creativity, with substantial benefits if solved.
• Type 3 Problem: Small need for new search and/or creativity and small but probably worthwhile benefits to profits.

Phase 3: Innovation/Creativity

Objective: Generate alternate means of performing the functions.

The goal is to generate as many ideas as possible in a short period of time. Starting from the analysis of functions and costs, a search for means that allow elimination, change or improvement of components and functions should be made. The goal is to embrace a creative mindset while meeting a real-life problem. Being creative is not something that comes naturally to all people. As Steve Jobs explained based on his experiences:

"Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn't really do it, they just saw something. It seemed obvious to them after a while." - Steve Jobs .

It is important to provide the right nourishment that will help the team generate creative ideas that can solve the listed problems. To assist the process different tools should be applied. One tool that could be considered in this phase is Brainstorming. It is important to include all team members in the brainstorming as well as relevant stakeholders. The focus should be put on creating a positive atmosphere which welcomes the introduction of new ideas and to focus on functions which have the greatest opportunity to improve value. To ensure efficient brainstorming sessions it could be beneficial to use an external facilitator with experience in creative brainstorming activities.

Phase 4: Evaluation

Objective: Examine the feasibility and cost of the identified alternatives and their associated value. 

In the decision-making process, the alternatives should be analyzed against the what has been learned in the earlier phases. Based on the relative importance of all considered aspects, the best alternatives are chosen and analyzed in more depth and refined if necessary.

The decision makers can experience difficulties in evaluating the alternatives in terms of their strengths and weaknesses. This can be a time-consuming process and a risk is that decisions are made before they are fully evaluated.

A tool that can be used to assist in the process is the Analytical hierarchy process (AHP). This is an unbiased decision-making tool which uses data to make the best decision .

Phase 5: Implementation and Monitoring

Objective: Develop action plans and a way to monitor the implementation. 

In this phase, the team should prepare a report that summarizes the work done and describe the action plans required for implementation as well as a plan on how to continuously monitor the implementation.

A tool that could be used is Strategic Roadmapping. The strategic roadmap is a time-based plan that defines where a business is, where it wants to go, and how to get it there. It is a visual representation that organizes and presents important information related to the future . A Gantt Chart can also be used to illustrate the project schedule.

Strength and challenges

Strenghts

The points below presents some of the major strengths of a Value Analysis

• Customer focused development
• Cost Reduction
• Generation of New Ideas
• Measurable and Systematic Process
• Feasible Decision Making

Challenges

The challenges when using Value Analysis is the required precision throughout each step. General superficial definitions cannot be used which requires an enormous focus on information and data collection. The large focus on stakeholder management can also become an obstacle if there is a lack of cooperation between all stakeholders as well as different interests. Furthermore, it can be difficult to precisely define all cost associated with a function.

Further Readings

A guide to the Project Management Body of Knowledge (PMBOK guide)

Competency Mapping

Focus groups: issues of analysis and interpretation

Stakeholder Management, Article on Apppm Wiki

FAST Technique and Value Analysis Matrix

Techniques of Value Analysis and Engineering by Lawrence D. Miles

Brainstorm Rules

AHP as a Decision-Making Tool in Projects, Programs and Portfolios, Article on Apppm Wiki

An Introduction to Strategic Roadmapping

Gantt Chart, Article on Apppm Wiki