1. A presentation by
Ahmad Tariq Bhatti
FCMA, FPA, MA (Economics), BSc
Dubai, United Arab Emirates

2. Value
Analysis,
How???
Let us explore, how it works???
Value Analysis 2

3. Value Analysis was developed after WW-II in USA at
General Electric (GE) in 1947. Because of WW-
II, there were shortages of skilled labor, raw
materials, and component parts at GE.
Lawrence D. Miles, Jerry Leftow, and Harry Erlicher
at GE looked for acceptable substitutes. They
noticed that these substitutions often reduced
costs, improved product, or both. This led them to the
discovery of a systematic process for cost reduction
without compromising on the desired quality of
products. They named their process as “VALUE
ANALYSIS”.
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4. Techniques of Value Analysis and Engineering tells you
why so much unnecessary cost exists in everything we
do. . . how to identify, clarify, and separate costs which
bear no relationship to customers' needs or desires. . .
how to place a dollars-and-cents value on different
customer functions. . . how to divide a problem into
"mind-sized" steps, each one of which is solvable and
the sum of which solves the major problem.
- Lawrence D. Miles
[An excerpt from his book
Value Analysis and Engineering 3/e, 1989]
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5. Value: The ratio between a function for customer satisfaction and the
cost of that function. It is the least cost that can achieve reliably a
function or a service.
Value of a product = Performance of the function / Cost
Need: Something that is necessary or desired by a customer
Function: The effect produced by a product or by one of its elements, in
order to satisfy customer needs.
Value Analysis: A systematic process that is used to increase the value
of an object that is achieved by providing required functions of a product
at lowest overall cost consistent with achieving the required
quality, performance and market acceptance.
VA team refers to a team/group/committee of cross-functional
technicians who follow a stated workplan to accomplish VA objectives.
The object can be a product, a system, a process, a procedure, a
plan, a machine, equipment, tool , a service or a method of working.
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6. The aim of VE is to obtain target cost without compromising on
the quality of a product by:
Identifying improved product designs that reduce product’s
cost
Eliminating unnecessary functions that increase the product’s
costs
VE requires the use of Functional Analysis (FA). FA is an
analysis of the relationships between product functions, their
perceived value to the customer and their cost of provision.
The process involves decomposing the product into its many
elements or attributes.
For instance, in the case of automobiles, functions might be
consist of style, comfort, operability, reliability, quality and
attractiveness etc., etc.
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7. What is it? (a pencil)
What is it used for? (writing and making marks)
What is the main function of this product? (making marks, writing)
What is the method, material or procedure that was used to realize
the main function? (a graphite stick & wood)
What are the corresponding secondary functions? (transfer graphite
to paper and facilitate holding the graphite)
What does the item cost and how can we distribute the cost of
realizing the main function into each secondary function?
Comparing these costs to an item of a similar function, how much
should each function cost and what must be the total cost?
Important Note
Focus your VA on the main function, because, during the analysis, the
secondary functions may change. The group/committee/team may
choose different secondary functions to realize the main function.
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8. For many of the world’s leading companies, including
names like Hewlett
Packard, Sony, Panasonic, Toyota, Nissan, and Ford, VA
process of design review has provided major business
returns.
The key to realizing these returns is through using
knowledge of:
the customer requirements,
the costs of the product,
manufacturing process &
the costs associated with failures due to poor or
inadequate product design.
All these inputs to VA process are vital if decisions
regarding product and process re-design are to yield lower
costs and enhanced customer value.
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9. A systematic analysis that identifies and selects the best value alternatives
for designs, materials, processes, and systems. It proceeds by repeatedly
asking, "Can the cost of an object be reduced
or eliminated, without diminishing
the effectiveness, required quality, customer satisfaction or market
acceptability?”
VA is applied to the existing products whereas VE is applied to the products
in the making at design stages. They are also alternatively used. Both
techniques/processes give same results of adding value to
products/services. Therefore, they are also referred as Value Management
Techniques (VMTs).
At the very heart of VA process review is a concern to identify and eliminate
product and service features that add no true value to the customer or the
product but incur cost to the process of manufacturing or provision of the
service.
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10. Organized cost reduction analysis by which accountants analyze costs
in products or procedures, the ranking of their elements/parts in a
descending order of their magnitude and in informed challenge to
each, starting with the most important.
Development, as practiced in many companies, where it follows the
realization of a design and combining through the specifications to
remove costs by substituting standards and relaxing tolerances and
finishes.
Purchasing analysis which systematically searches for cheaper
bought-out components or services, probably by seeking alternatives
or a fresh basis for price negotiation.
Method study - The part of work that examines and analyses work of
any kind in a disciplined manner that leads to improvement in
efficient, effective and economic methods.
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11. Functions may be broken down into a
hierarchy, starting with a basic or main
function, for which the customer believes they
are paying, and then followed by secondary
functions, which support that basic function.
For example, a coat may have a use function of
making you warm (i.e. basic or main function)
and an aesthetic function of ‘looking
smart, attractive and charming’.
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12. The product or process may be broken down into
components, which can be associated with the functions
they support. The value of the product or process then may
be increased by improving or replacing individual
components. This also applies to the whole item being
analyzed, which may be completely replaced with a more
cost efficient and effective solution.
Although this is a simple-sounding process, it can be quite
difficult in practice, as it requires both an in-depth analysis
of a product or a process to be improved and an
innovative/creative approach to finding the best
alternatives.
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13. VA process is based on the application of a systematic workplan that
may be divided into 7 steps as mentioned below:
Selection & Orientation,
Analysis,
Recording Ideas,
Innovation/Creativity,
Evaluation,
Recommendations, and
Implementation and monitoring.
The application of VA process needs to make use of basic techniques such as
Matrices, Pareto chart, PERT technique and Gantt diagrams, etc., in most of the VA
stages.
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14. # Stage Description
 To select those critical areas where a potential for cost
SELECTION & reductions is expected.
1.
ORIENTATION  Use the common Pareto’s ABC analysis.
 General scope, restrictions and aims of the study is defined.
 Examine the data at a VA group/team meeting.
 Record the minutes of each brainstorming session.
2. ANALYSIS
 Apply the Tests for Value.
 Propose further action.
 Write down the minutes of analyses meetings and circulate
RECORDING
3. them to group/team members for further queries.
IDEAS
 It includes the agenda for the next meeting.
 Arrange team meetings in order to discuss the ideas
INNOVATION/ analyzed and any new information obtained.
4.
CREATIVITY  Think upon practical measures for reducing costs and
increasing value.
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15. # Stage Description
 Investigate suggestions for reducing costs and to make
them practical and acceptable to client management.
5. EVALUATION  Obtain definite prices and costs in order to estimate cost
reductions accurately.
 Recommend cost reductions to client management.
 Present the recommendations in a comprehensive report.
6. RECOMMENDATIONS
 Recommend a member to act as an implementation
consultant for VA recommendations.
 Implement the recommendations accepted by the
company management. Monitor the results as suggested
IMPLEMENTATION in VA report.
7. & MONITORING  Jot down the feedback of the management upon
completion of VA assignment.
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16. 1. A high customer orientation, focusing on those aspects of the
product/service that better satisfy customer needs.
2. Allows enormous cost reductions by eliminating functions that do not
satisfy customer requirements/needs.
3. VA improves profitability of products.
4. New ideas that arise from the creativity/innovation phase, may add
radical changes.
5. VA provides a process to systematically improve the existing goods and
services. It builds value into a product or service.
6. VA process is used to offer a higher performing product or service to a
customer at a minimal cost.
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17. 8. VA process is, therefore, one of the key features of a business that
understands and seeks to achieve TQM in all that it does to satisfy
customers.
9. VA process often allows to root out practices that have grown out of
date and can be replaced with more modern approaches.
10. VA can uncover design flaws that not only operate inefficiently but
also create problems. In the case of a product, this could mean a high
rate of malfunctioning items, creating customer complaints and
warranty claims that put a strain on personnel and inventory
departments.
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18. Avoid making generalizations and superficial statements – it is
important to be precise at every moment.
Collect, determine and examine all costs involved – only when one is
cost conscious, will it be possible to determine the value of the thing
being assessed.
Make use of information from the best possible sources.
It is possible that two different VA consultants may give different sets
of recommendations still both be correct. There can be challenges in
the selection of the best alternatives.
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19. # Abbreviation Description
1 FA Functional Analysis
2 GE General Electric
3 TQM Total Quality Management
4 VA Value Analysis
5 VE Value Engineering
6 VMTs Value Management Techniques
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20. 1. Value Analysis and Engineering 3/e by Lawrence D. Miles
2. Management & Cost Accounting by Colin Drury 5/e (pg. 892)
3. Cima Official Terminology
4. Management Accounting Handbook by CIMA
(2/e, edited by Colin Drury)
5. Cima – Kaplan Publishing for Paper P2 (pg. 205)
6. www.businessdictionary.com
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21. Thank You!
Ahmad Tariq Bhatti
FCMA, FPA, MA (Economics), BSc
Dubai, United Arab Emirates
Contact details:
At.bhatty@gmail.com
The
End.
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