Value Analysis

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(KILDE), 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. (KILDE BOG) 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 (KILDE).

A successful Value Analysis is largely dependent on every person within the team has a common understanding of the project scope.