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OM TERM PAPER

VALUE ANALYSISINTRODUCTION TO VALUE ANALYSIS

Lawrence Miles conceived of Value Analysis (VA) in the 1945 based on the application of function analysis to the component parts of a product. Component cost reduction was an effective and popular way to improve "value" when direct labor and material cost determined the success of a product. The value analysis technique supported cost reduction activities by relating the cost of components to their function contributions.

Value analysis defines a "basic function" as anything that makes the product work or sell. A function that is defined as "basic" cannot change. Secondary functions, also called "supporting functions", described the manner in which the basic function(s) were implemented. Secondary functions could be modified or eliminated to reduce product cost.

As VA progressed to larger and more complex products and systems, emphasis shifted to "upstream" product development activities where VA can be more effectively applied to a product before it reaches the production phase. However, as products have become more complex and sophisticated, the technique needed to be adapted to the "systems" approach that is involved in many products today. As a result, value analysis evolved into the "Function Analysis System Technique" (FAST) which is discussed later.

It is also known as Value engineering and Value management.

OBJECTIVES OF Value Analysis

The VA / VE objectives is to find and improve on value mismatches in products, processes and capital projects.

Find important functions – define necessary versus un - necessary functions

Find and improve on low performing functions. Define and segregate the necessary functions from the unnecessary

functions and thereby creatively develop alternative means of accomplishing the necessary functions at lower total (life cycle) cost.

How is Value Analysis different from Value Engineering ?

Traditionally Value Analysis (VA) is used to describe the application of the 'techniques to an existing product or services or after the fact.

Value Engineering (VE) has been used to refer to the design stage or before the fact. Value Engineering (VE) approach is used for new products, and applies the same principles and techniques to pre-manufacturing stages such as concept development, design and prototyping.

Value Analysis and Value Engineering (VE) is a powerful Change Management and Problem Solving' tool with over a century of worldwide application track record.

VE is used to create functional breakthroughs by targeting value mismatches during product, process, and project design.

VA is also a vital tool to deal with post product release problems and process improvement innovation.

Value Analysis (VA) is considered to be a process, as opposed to a simple technique, because it is both an organized approach to improving the profitability of product applications and it utilizes many different techniques in order to achieve this objective.

The techniques that support VA activities include 'common' techniques used for all VA exercises and some that are appropriate for the product under consideration.

A few other names for VA / VE are - Value Management, Value Planning, etc.

VA is also a vital tool to deal with post product release problems and process improvement innovation.

Value Analysis (VA) is considered to be a process, as opposed to a simple technique, because it is both an organized approach to improving the profitability of product applications and it utilizes many different techniques in order to achieve this objective.

WHAT IS VALUE ANALYSIS AND VALUE ENGINEERING?

VA / VE is an orderly and creative method to increase the value of an item. This "item" can be a product, a system, a process, a procedure, a plan, a machine, equipment, tool, a service or a method of working.

Value Analysis / Value Engineering is defined as 'the professionally applied, team based, function - oriented, systematic application of recognized techniques (function analysis) which

1. Identify the "function of a product, process, project, facility design, system or service,

2. Establish a monetary value for that function,3. Provide the necessary function (defined by the customer to meet his / her

requirements),

4. Consistent with the specified performance and reliability needed at the lowest Iife cycle cost (cost over the expected life).

5. And thus Increases customer satisfaction and adds value to the investment.

6. Value analysis involves identifying product function (s) relating to cost and price analyzing the design and construction with an eye for eliminating elements not contributing to function.

7. Some designers think VA undermines good design. If the design was sound the start VA is redundant. Yet designs and technology change.

8. Sound, innovative designs age and become uncompetitive - rivals catch up.

9. Remember car windscreens are today glued into place by robots (adhesive technology).

THE VALUE EQUATION

Value analysis is evaluates a product utility, esteem and market values, each of which are defined below :

Utility value – how useful /functional the product is seen to be. Esteem value – the value that customer / user gives to product

attributes, not directly contributing to utility but more relating to aesthetic and subjective value. Esteem issues and functionality should not be overlooked or compromised.

Market value – what market is prepared to pay for the product. Market value = Utility value + Esteem value

THE CONCEPT OF VALUE

The value of a product will be interpreted in different ways by different customers. Its common characteristic is a high level of performance, capability, emotional appeal, style, etc. relative to its cost. This can also be expressed as maximizing the function of a product relative to its cost:

Value = (Performance + Capability)/Cost = Function/Cost

Value is not a matter of minimizing cost. In some cases the value of a product can be increased by increasing its function (performance or capability) and cost as long as the added function increases more than its added cost. The concept of functional worth can be important. Functional worth is the lowest cost to provide a given function. However, there are less tangible "selling" functions involved in a product to make it of value to a customer.

THE VALUE ANALYSIS METHOD

In all problem solving techniques, we are trying to change a condition by means of a solution that is unique and relevant. If we describe in detail what we are trying to accomplish, we tend to describe a solution and miss the opportunity to engage in divergent thinking about other alternatives. When trying to describe problems that affect us, we become locked in to a course of action without realizing it, because of our own bias. Conversely, the more abstractly we can define the function of what we are trying to accomplish, the more opportunities we will have for divergent thinking.

This high level of abstraction can be achieved by describing what is to be accomplished with a verb and a noun. In this discipline, the verb answers the question, "What is to be done?" or, "What is it to do?" The verb defines the required action. The noun answers the question, "What is it being done to?" The noun tells what is acted upon. Identifying the function by a verb-noun is not as simple a matter as it appears.

That functions designated as "basic" represent the operative function of the item or product and must be maintained and protected. Determining the basic function of single components can be relatively simple. By definition then, functions designated as "basic" will not change, but the way those functions are implemented is open to innovative speculation..

VALUE ANALYSIS PROCESS

The key component of VANE process is its use of a carefully crafted and thoroughly tested job plan.

Adherence to the job plan focuses efforts on its specific decision process: that contains the right kind of emphasis, timing and elements to secure a high quality product.

The job plan and its sub-elements do this by highlighting and focusing everyone on the involved issues, essential needs, criteria, problems, objectives and concerns.

The eight-step job plan are displayed below.

THE VALUE ANALYSIS TERMINOLOGY

Need : These are users expectations, may be expressed explicitly, or may be latent.

Value : Value is an imprecise word, its meaning depends both on the user and on the context.

For example a typewriter ribbon or a word – processing package may have good value while the typewriter or computer may not have.

In an engineering context the distinction can be important, as any cosmetic changes brought about by Value Analysis or by means of any other technique are waste of time if the total product is unacceptable to the market.

Value is a quantity, which enhances customer satisfaction or slashes the expense attributable to the product

In value method terms:

Value = Worth / Cost

OR

Value of an item = Performance of its function / Cost

OR

Value = Σ (+) / Σ (-) =Σ (Benefits) / Σ (Costs)

1. Value greater than 1.0, the item is perceived to be fair or having good value.

2. Value is less than 1.0, the item is perceived to be having poor value.

3. When an item has a perceived worth that far exceeds the life – cycle cost, we usually consider purchasing the item.

4. An item that does its function better than another, has more value. Between two items that perform their function equally well, the one that costs less is more valuable.

Different customers will interpret the value of a product in different ways.

The “performance of its functions” could include that it is beautiful (where needed) or it lends an image to the user / possessor (where desired )

Its common characteristic is a high level performance, capabilities, emotional appeal, style, etc. relative to its cost.

This can also be expressed as maximizing the function of product relative to its cost :

Value = (performance + capability / cost)

= Function / cost

Function:

The use of functions and a function - logic process to describe needs, purposes and consequences is at the heart of Value Engineering.

The use of function - logic helps people realize and overcome many of the preconceived biases.

Function allows definition of each task in a process or one of its activities in terms of end goals and not solutions.

A function is described by a verb (action) and an object / noun (preferably measurable).

Placing those functions in a decision - logic diagram helps reach a common understanding.

Example: 1

PRODUCT WASHING MACHINE

FUNCTIONS Verb Noun Function type

Remove Dirt Primary / essential

Rinse Content Supportive

Extract Water Supportive

VALUE ENGINEERING

What is Value Engineering?

Value Engineering is a fuction oriented, systematic team approach and study to provide value in a product, system or service. Often, this improvement is focused on cost reduction; however other important areas such as customer perceived quality and performance are also of paramount importance in the value equation.

Value Engineering techniques can be applied to any product process procedure system or service in any kind of business or economic activity including health care, governance, construction, industry and in the service sector.

Value Engineering focuses on those value characteristics which are deemed most important from the customer point of view.

Value Engineering is a powerful methodolgy for solving problems and/or reducing costs while maintaining or improving performance and quality requirements.

Value Engineering can achieve impressive savings, much greater than what is possible through conventional cost reduction exercise even when cost reduction is the objective of the task.

 

What are the benefits of Value Engineering ?

Value Engineering helps your organization in :

Lowering O & M costs Improving quality management Improving resource efficiecy Simplifying procedures Minimizing paperwork Lowering staff costs Increasing procedural efficiency Optimizing construction expenditures Developing value attitudes in staff

Competing more sucessfully in marketplace  

Value Engineering helps you to learn how to :

Improve your career skills Separate "Symptoms" from "problems" Solve "root cause" problems and capture opportunities Become more competitive by improving "benchmarking" process Take command of a powerful problem solving methodology to use in any

situation

 

How is Value Engineering Applied ?

The technique of Value Engineering is governed by a structured decision making process to assess the value of procedures or services. Whenever unsatisfactory value is found, a Value Management Job plan can be followed. This procedure involves the following 8 phases :

1. Orientation  2. Information  3. Function  4. Creativity  5. Evaluation  6. Recommendation  7. Implementation  8. Audit

 

BUSINESS PROCESS REENGINEERING

Business Process Reengineering involves changes in structures and in processes within the business environment. The entire technological, human, and organizational dimensions may be changed in BPR.

Information Technology plays a major role in BPR as it provides office automation, it allows the business to be conducted in different locations,

provides flexibility in manufacturing, permits quicker delivery to customers and supports rapid and paperless transactions.

In general it allows an efficient and effective change in the manner in which work is performed.

LPG has created instability and intensive competition in the business environment.

Competition is continuously increasing with respect to

• Price

• Quality and selection

• Service

• Promptness of delivery.

This competition has intensified because of:

Removal of barriers

International cooperation

Technological innovations

All these changes impose the need for organizational

transformation, where the entire processes, organization climate and organization structure are changed.

Reengineering is the vital rethinking and radical (major/thorough) redesign of business processes to achieve dramatic improvements in critical modern measures of performance such as cost, quality, service and speed.

Process is a structured, measured set of activities designed to produce a specified output for a particular customer or market. It implies a strong emphasis on how work is done within an organization. “

Business processes are characterized by three elements:

the inputs, (data such customer inquiries or materials),

the processing of the data or materials (which usually go through several stages and may necessary stops that turns out to be time and money consuming) and

the outcome (the delivery of the expected result).

The problematic part of the process is processing. BPR mainly intervenes in the processing part, which is reengineered in order to become less time and money consuming.

An example of a business process:

Credit card approval in a bank.

An applicant submits an application. The application is reviewed first to make sure that the form has been completed properly. If not, it is returned for completion. The complete form goes through a verification of information.

This is done by ordering a report from a credit company and calling references. Once the information is verified, an evaluation is done. Then, a decision (yes or no) is made. If the decision is negative, an appropriate rejection letter is composed. If the decision is positive, an account is opened, and a card is issued and mailed to the customer.

The process, which may take a few weeks due to workload and waiting time for the verifications, is usually done by several individuals.