Value Analysis (VA) is a tool (technique or method) that is used for improving the value of a product or a process of understanding its constituent components and their associated costs. It aims at finding improvements to the components by reducing their cost and increasing the value of the functions of a product or a service. A critical advantage to using a VA is its potential for reducing costs, which is a benefit that permeates all advantages of the system.  A VA breaks-down a product or service into components, it enables you to analyze each component on its own, evaluating its features and functions in detail efficiency and effectiveness.

1. Ahmad Tariq Bhatti
FCMA (Pak), ACMA (UK), CGMA, MA (Eco.), BSc
Finance Series
Second Edition 2021

2. (1/12)
Introduction
Value Analysis (VA) is a tool that improves
the value of a product or process by
understanding its components and related
costs. It aims to increase the efficiency of
components by reducing their cost and
increasing the quality of the functions.
The VA of a product, service, process or
design minimizes costs without
compromising the quality of a product,
service, process or design. It is a highly
useful tool for reviewing costs and
achieving cost savings to remain
competitive in the marketplace.
VA is a systematic analysis that identifies and selects the most cost-effective alternatives
for design, materials, processes and systems. The VA process keeps on asking the
question:
“Can the cost of a product be reduced or eliminated without reducing its effectiveness,
quality, customer satisfaction or market acceptability?”
According to the Society of American Value Engineers, “VA is the systematic application
of recognized techniques which identify the function of a product or services, establish a
monetary value for the function and provide the necessary functional reliability at the
lowest overall cost.”
At the heart of a VA, the process review aims to identify and eliminate features of products
and services that do not add value to them. It is a systematic application of techniques to
identify the functions of a product or its component and to provide the intended function
at the lowest total cost.
VA examines the function and cost of a product to determine whether the cost can be
reduced or eliminated while retaining all features, all functions and quality standards of a
product.

3. (2/12)
Origination of the Concept of VA
The VA was developed after WW II in the US at General Electric (GE) in 1947. Following
the destruction of World War II, GE faced shortages of skilled labor, raw materials and
machinery parts. Lawrence D. Miles, Jerry Leftow and Harry Erlicher of GE were looking
for suitable substitutes and alternatives for these inputs. They found that these substitutes
often reduce costs and improve the quality of a product or did both. This efficiency effect
made it possible to discover a systematic cost-cutting process without compromising the
desired quality of the products. They named their process “VA”.
Definition
Lawrence D. Miles, a production engineer who was working at GE, defined it as, “VA is
the study of the relationships of design, function and cost of any material or service with
the objective of reducing its cost through modification of the design or material
specifications, manufacture by the more efficient process and methods, changes in
sources of supply, elimination or incorporation into another product.”
CIMA Official Terminology has defined VA as “systematic interdisciplinary examination
of factors affecting the cost of a product or service, to devise means of achieving the
specified purpose most economically at the required standard of quality and reliability.”
The Technique of VA
Techniques of VA and Value Engineering (VE) tell 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 product 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]
Underlying Concepts
 Value: The ratio between a function for customer satisfaction and the cost of that
function. It is the least cost that can achieve a function or a service.
The value of a product = Performance of the function/Cost
 Need: Something that is necessary or desired by a customer.

4. (3/12)
 Function: The effect produced by a product or by one of its elements to satisfy
customer needs.
 VA is a systematic process that is used to increase the value of a product that is
achieved by providing required functions of a product at the lowest overall cost that
is consistent to achieve the required quality, performance and market acceptance.
 The VE is an organized effort to analyze the product features, systems, equipment
and process designed to achieve the essential functions at the design stages
under the required performance, quality, reliability and safety standards.
 CIMA's official definition of value engineering is that it is the "redesign of an activity,
product or service so that value to the customer is enhanced while costs are
reduced (or at least increased by less than the resulting price increase)".
 VA team refers to a team/group/committee of cross-functional technicians who
follow a well-structured work plan to accomplish VA objectives.
 The object can be a product, a system, a process, a project, a procedure, a plan,
a machine, equipment, a tool, a service or a method of working.
Objectives of a VA
VA aims to obtain target cost without compromising
on the quality of a product by:
 Identifying improved product designs that
reduce the product’s cost.
 Eliminating unnecessary functions that
increase the product’s cost.
 VA requires the use of Functional Analysis
(FA). FA is an analysis of the relationship
between the product functions, their
perceived value for the customer and the
cost of providing them. The process consists
of breaking down the product into its
numerous components and attributes.
For instance, in the case of automobiles, functions might be consisting of style, comfort,
operability, reliability, quality and attractiveness, etc.

5. (4/12)
Illustration
 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 and wood)
 What are the corresponding secondary functions? (Facilitates 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 the VA on the main or core function of a product, service or process because,
during the VA, the secondary functions can be modified. The group or committee or team
may choose different secondary functions to obtain the main function. The secondary
functions are subordinated; the main function is the real output.
Difference between VA and VE
The VA applies to existing products and the VE applies to in-process products at the
design stage. Both terms are used alternately as well. The two techniques generate the
same results by adding value to products and services. Therefore, they are also called
Value Management Techniques (VMTs). VA and VE are so close together that many
people use them interchangeably. The difference resides in the time and stage of
application of each technique.
VA is the application of a set of remedies to an existing product to improve its value. Thus,
it is also a remedial process. The VE is the application of the same set of techniques to a
new product at the design stage of a project or product or a preliminary design when no
hardware exists to ensure that bad features are not added.
The VA calls into question design specifications, design requirements and the design
itself.

6. (5/12)
Application of the VA
For many major global companies, including names like Hewlett-Packard, Sony,
Panasonic, Toyota, Nissan and Ford, VA, design review process has provided
outstanding business returns and turn around in operations. This analysis is widely used
around the world and is a highly useful tool for cost reduction.
The key to realizing business returns was through using knowledge of:
 The customer requirements,
 The costs of the product,
 The manufacturing process and
 The costs associated with failures due to poor or inadequate product design.
All of these inputs into a VA process are critical to the making, a product or a process
design reduces costs and improves customer value.
The VA streamlines products, services and processes to increase the efficiency of
business operations, resolve issues, encourage innovation and improve communication
within an organization. The VA allows people to contribute to the value addition process
by focusing on product design and services.
Applicability
VA applies to all products (goods and services), processes, or designs of products. A
few examples are given in the diagram below:
Capital goods - plant, machinery, equipment, tools, etc.
Processes, subprocesses and activities
All services and related activities
All products, a project, a procedure, a system
1
2
3
4

7. (6/12)
Scope of a VA Assignment
 Organized cost reduction analysis by which accountants and other technicians
analyze costs in products or procedures, the ranking of their elements/parts in
descending order of their magnitude and informed challenge to each one, starting with
the most important cost component.
 Developing a cost-effective product, as practised in many companies, it follows the
realization of a design and combining through the specifications to remove costs by
substituting standards and underlying processes.
 Purchasing analysis, which systematically searches for cheaper bought-out
components or services, probably by seeking alternatives or setting up a fresh basis
for price negotiations.
 Method of study, the work includes examining and analyzing works of all kinds in a
disciplined manner that leads to improvement in efficient, effective, and economic
methods.
Differentiation from Other Cost Reduction Techniques, Tools and
Methods
All other cost reduction techniques, tools
and methods focus on one aspect, for
example, variable cost reduction,
whereas, a VA focuses on the design of
a product (good or service) that covers all
parts and aspects of the cost.
In other techniques, tools and methods,
the excessive focus is placed on cost
reduction without the focus on the desired
quality of a product, whereas, in VA, the
focus is placed on maintaining the same
quality or improving it.

8. (7/12)
The Principles Underlying a VA
The principles under a VA are that it is a functionally oriented method for improving
product value by relating the various elements of a product to their corresponding
elements of cost. Thus, a VA allows the required functions to be performed at the lowest
cost.
1. Does it contribute to the value? Ask this
question for every function related to a
product? And if there is a function that is not
contributing to the value, remove that function.
2. Is there any way by which the same function
may be done at a lower cost? Is the cost
incurred proportionate to the benefit expected
from a function?
3. List down all deliverables of a VA job as per
the terms of reference.
4. Consider all economic, social and
environmental outcomes.
5. Express all outcomes in monetary terms.
6. Evaluate the performance of an investment in terms of returns.
7. Account for all risks related to the cost minimization process.
8. Assess the impact of a VA on the efficiency and effectiveness of a product.
9. Communicate the results to all relevant people.
10. Involve stakeholders and subject specialists in the job.
11. Use sustainability measures according to the client requirements.
12. Perform benefits and cost analysis.
13. Conduct transparency analysis.
The Methodology for a VA
Functions may be broken down into a hierarchy,
starting with a basic or main or primary 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 useful function of making you warm
(i.e., the basic or main function) and an aesthetic
function of ‘looking smart, attractive and
charming.’

9. (8/12)
A product or a process may be broken down into components or sub-processes, which
can be associated with the functions they support. The value of a product or a 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 and a process to be improved and an
innovative and creative approach to finding the best alternatives.
The Step by Step Process of a VA
A VA process is based on the application of a systematic work plan that may be divided
into 7 steps as mentioned below:
1. Selection and orientation of ideas,
2. Analysis of ideas,
3. Recording ideas,
4. Innovation and creativity,
5. Evaluation,
6. Recommendations, and
7. Implementation and monitoring.
The application of the VA process needs to make use of basic techniques such as
Matrices, Pareto chart, PERT and Gantt diagrams, etc., in most of the VA stages.
Advantages of Implementing VA
1. A high customer orientation, focusing on those
aspects of a product/service that better satisfy
customer needs.
2. It allows enormous cost reductions by eliminating
functions that do not satisfy customer
requirements/needs.
3. VA improves the profitability of products.

10. (9/12)
4. New ideas that arise from the creativity/innovation
process may add high business returns.
5. The VA provides a process to systematically improve the existing goods and services.
It builds value into a product or a service.
6. The VA process is employed to offer a higher-performing product or service to a
customer at a minimal cost.
7. VA process is, therefore, the key requirement of a business that seeks to achieve
TQM in all that it does to satisfy customers.
8. The VA process frequently allows rooting out practices that have grown out-of-date
and can be replaced with more effective and efficient approaches.
9. VA can uncover design flaws that were creating inefficiencies in operations. In the
case of a product, this could suggest a high rate of malfunctioning items, creating
customer complaints and warranty claims that put a strain on personnel and inventory
departments.
10.It can be applied at all stages from the initial design stage of a product to right up to
the finishing stage of its packing and dispatching because it aims at identifying
unnecessary costs at all levels to eliminate them systematically.
11.VA improves the overall cost of products by eliminating the wastages of resources
during the manufacturing process.
12.VA aims to cut and remove the unwanted costs by preserving all the features and
functions of performance and improving the quality of performance of a product. A
good deal of research and development work has to be carried out to achieve this
end.
13.The organizational areas which need attention and improvement are brought under
the spotlight, and remedial actions are initiated instantly to stop wastage and leakage
of resources.
14.VA helps management to adopt the latest technology and developments as VA aims
at examining new methods and techniques of completing activities to reduce the cost
and increase the value of products and services.
15. VA enhances the creative ability of the staff as it involves a creative approach to
finding out unnecessary costs. Creativity helps in generating new ideas which, in turn,
makes available the least expensive alternatives to do the same function.

11. (10/12)
16. VA is helpful for all drives made for import substitution as it explores innovative
methods and techniques of manufacturing products that may serve the same purpose
which imported products do. As a result, it may be beneficial in saving precious foreign
exchange.
Description of a VA Process
# Stage Description of Activities
1.
Selection and
Orientation of ideas
 To select those critical areas where a potential for cost
reductions is foreseen.
 Use the common Pareto’s ABC analysis.
 General scope, restrictions and aims of the VA study are
defined.
2. Analysis of ideas
 Examine the data at a VA group or team meeting.
 Record the minutes of each brainstorming session.
 Apply the value tests.
 Propose further action.
3. Recording ideas
 Write down the minutes of analyses meetings and circulate
them to group/team members for further queries.
 It includes the agenda for the next meeting.
4.
Innovation and
creativity
 Arrange team meetings to discuss the ideas analyzed, and
any new information obtained.
 Think upon practical measures for reducing costs and
increasing value.
5. Evaluation of ideas
 Investigate suggestions for reducing costs and making them
practical and acceptable to client management.
 Obtain definite prices and costs to estimate cost reductions
accurately.
 Develop a plan, including the best alternatives for reducing
costs and adding value.
6. Recommendations
 Present the various alternatives to the decision-makers.
 Recommend cost reductions to client management.
 Present the recommendations in a comprehensive report.
 Recommend a member to act as an implementation
consultant for VA recommendations.
7.
Implementation
and Monitoring
 Implement the recommendations accepted by the company
management. Monitor the results as suggested in the VA
report.
 Jot down the feedback of the management upon the
completion of the VA assignment.

12. (11/12)
Precautions to be Exercised during the Execution of a VA Assignment
1. Avoid making over-generalizations and superficial statements – it is critical to be
precise at every moment during the execution of a VA assignment.
2. Collect, determine and examine all costs involved – costing professionals and
experts will be helpful to determine the value of the product.
3. Make use of information from the best possible sources. Use best benchmarks for
cost of product/service/process, etc.
4. Two different VA consultants can give a different set of recommendations, yet both
may be correct. Sometimes, it may be difficult to select the best option.
5. Reducing costs should not come at the cost of quality. If cost reduction
compromises the quality of a product and process, the VA is not conducted for the
desired use. Therefore, a VA must be done while keeping an eye on reducing costs
and the other on maintaining or improving quality.
6. Collect, determine and examine all costs involved – costing professionals and
experts will be helpful to determine the value of a product.
7. Make use of information from the best possible sources.
8. Use best benchmarks for cost of product/service/process, etc.
9. Two different VA consultants can give a different set of recommendations yet both
may be correct. Sometimes, it may be tough to select the best solution.

13. (12/12)
Key to Abbreviations Used:
# Abbreviation Description
1 CIMA Chartered Institute of Management Accountants, UK
2 FA Functional Analysis
3 GE General Electric
4 PERT Program Evaluation and Review Technique
5 SAVE Society of American Value Engineers
6 TQM Total Quality Management
7 VA Value Analysis
8 VE Value Engineering
9 VMTs Value Management Techniques