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Value Analysis

VA is one of the new scientific tools to managerial decision-making. Comprises a group of techniques aimed at the systematic identification of unnecessary costs in a product or service & efficiently eliminating them without impairing (damaging) products quality & efficiency. It is a systematic analysis & evaluation of techniques & functions in various parts of org. with a view to improve performance so that value attached to a particular product or service may be improved.

Aims at increased use of alternatives, less expensive material, cheaper designs, less costly method of manufacturing etc. to provide same performance, quality & efficiency & a decrease in overall unit cost & consequently higher profits. It attempts to achieve the max. possible value for a given cost by a continuous process of planned action & aims at cost reduction from the point of view of value. VA involves creative approach for finding out and eliminating unnecessary costs. Costs are unproductive, when though incurred on a product or service, dont improve its quality, efficiency, appearance or life, & thus are unnecessary. By eliminating such costs, the total cost of the product or service can be reduced leaving higher profit margin to the producer.

Thus, VA is an effective tool for cost reduction. VA sometimes also called value engineering (VE). Strictly speaking VE mainly concerned with production while VA goes up to marketing stage by systematic identification of unnecessary costs & efficiently eliminating them. Definition

Organized & systematic study of every element of cost in a part, material or service to make certain that it fulfils its function at the lowest possible cost; it employs techniques which identify the functions the user wants from the product or service; it establishes by comparison the appropriate cost for each function; then it causes the required knowledge, creativity & initiative to be used to provide each function for the lowest cost.

Types of value Term value is used in a broader sense; usually difficult to specify value as it changes from person to person. For e.g. for the designer, value means quality of the product or efficiency of its performance; for a salesman, it is the price factor; for a teenager, it is the external appearance of the product. However, still one can broadly categorise value under the following types Use value There are certain characteristics of a product which make it useful for certain purposes. These characteristics measure the quality of performance of the product. Use value could be either primary or secondary use value.

Primary use value represents attributes in a product that are very essential for its basic performance. Secondary use value are attributes without which the product can perform; but with their existence, the performance of the product improves. Esteem value These are properties of a product that dont increase the product performance, but possessing them add to the status or prestige of the owner. For e.g. a wrist watch with a gold case. Cost value Value is measured in terms of cost involved. It is the sum of labour, materials, overheads & other costs required to produce that product.

Exchange value It is the value what the owner gets when the product is exchanged for something else. Value can be increased in any one or more of the following ways By reducing cost without compromising the performance By improving the functional performance of the product without incurring extra cost. By 1st & 2nd way together. When the increase in performance is more proportionate than increase in cost.

Value analysis originally developed as a cost reduction technique in USA in 1947 The credit for the birth of VA goes to Lawrence D Miles who was the President of SAVE (Society of America Value Engineers) In the context of VA, value may be defined as the ratio of function or utility of the product to its cost i.e. Value= Function/Cost

Procedure in VA Following points should be kept in mind while implementing VA. Identification & definition of the problem ascertaining what type of value customer needs from the product he purchases. Identifying the alternatives & exploring the best method of performing the work at minimum cost. The investment, if any, required for the alternatives. Estimation of % of return on new investment; this return should be at least equal to or more than the cost of capital. Costs resulting indirectly out of a decision to change to an alternative; like cost of items becoming obsolete, cost of training or cost of scrap etc.

The likely benefit from the alternatives; like reduction in cost or increased revenue. Recommendation of final proposal for implementation which will increase the product value after considering all the previous points. Techniques of VA (Lawrence D Miles) Lawrence D Miles known as father of VA; has developed certain techniques. The skillful application of these techniques is helpful in identifying unnecessary costs & exploring channels of performance improvements. Work in specifics very often people at the top believe this is the only way to perform a task; other ways are tried, but didnt succeed. The best way of changing the mind set of such people is to be very specific & not to make vague statement.

Mgt. may be influenced by specific proposal. Hence, avoid generalities as they make mgt. to prevent changes & protect the status quo. Obtain all available costs information about all available costs should be obtained. Possible that an alternative might increase cost in one dept. slightly, but reduce cost in other depts. substantially. VA mainly concerned with cost comparison. Final decision regarding choice of an alternative should be taken considering its impact on the whole org.

Authentic source of information information collected for comparison should be reliable & should be from genuine source. To get correct information questionnaire may be used Evaluate function by comparison How do other firms perform the same function? What is their cost of performing the function. Consulting with the specialists Taking advantage of their expertise knowledge. Org. can keep abreast of the latest technology. Without such consultation status quo will be continued & opportunity for improving value & reducing cost will be lost.

Use real creativity VA basically a creative approach for finding & eliminating unnecessary cost. Human mind is capable of developing new ideas which lead to cost reduction & performance improvement. Creative thinking can help in cost reduction & performance improvement. VA through supplier suppliers can be consulted for new ideas. As they deal with many others who deal in same line of business, suppliers ideas & suggestion will be of great help. Use of standard parts wherever possible Standard parts are interchangeable & also cheaper as they are produced in large quantity.

Specially made ( non-standard) parts should be used only when it is unavoidable to do so. Redefine ideas till only acceptable alternatives remain. Identify & overcome all road-blocks Represent the difficulties created by ones own colleagues & also others who resist change due to the feelings of insecurity. Such kinds of road-blocks should be identified at the earliest & serious efforts should be made to overcome such road-blocks. Try to get max. cooperation from members in other depts. with whom the value analyst has to deal for its successful implementation. Finally, the Value analyst should constantly think of alternatives that are less costly.

A number of questions as framed by Miles & others may be asked while implementing VA techniques Does a particular component used in the final product add value to the end product? Is its cost proportionate to its function? Can some of the components be combined or eliminated? Would there be a better product? Can a component be produced by less costly process? Can the product /component be procured at less cost from elsewhere?

Advantages of VA 1. Powerful tool of cost reduction as its basic objective is to identify unnecessary costs in a product or service & then eliminating them without impairing its quality or efficiency. 2. Scientific tool for increasing productivity of a concern Aims at exploring alternatives for efficient use of various resources 3 Helps to keep org. abreast of latest technology & other developments. 4 Aims at fullest possible use of resources because it aims at eliminating all unnecessary costs. 5 Promotes innovation & creativity involves a creative approach for finding & eliminating unnecessary cost

Creates proper atmosphere for increased efficiency as it aims at a continuous search for improvement in efficiency. Useful to the economy also as it can be used for developing import substitutes by way of exploring new methods & techniques of manufacturing indigenous goods. VA can be applied not only in production but also at the time of packaging & dispatch as unnecessary costs even in these stages can be avoided. Finally, customers needs are best served with VA as it aims at production of quality products at least possible cost.