What is Value analysis? and value engineering
Value analysis
Concept of value
The term 'value' is very important in relation to value analysis and is used in a wide sense. In order to understand clearly the principle and procedure of value analysis, it is necessary to know the various types of value. It is used in different sense for different person and at different times and places. For a designer, value. Means the quality of the produced designed, for the salesman, it means the price which it can fetch the market, and for management, 'value' would be the return on capital employment. An industrial product may have four types of value.
a. Use value: use 'value' refers to the characteristics and features which make a product useful so that it can provide useful service for which it is intended. A watch, for example, is meant to indicate time, if it gives correct time, it gives its full value. Thus, use value is the measure of the quality of performance of a product, use value may be classified as,
• Primary use value: the attributes of a product which are necessary for its performance may be treated as having primary use value. For instance, in motor cycle, the engine and the handle may be considered to be primary use value because in their absence, the motor cycle cannot be made to run.
• Secondary use value: the mud-guards are also necessary for the protection of the engine and other parts but the motor cycle can be run even without these. Thus items carry secondary use value.
• Auxiliary use value: items such as speed meter, miles meter, fuel meter, etc. which make the control and operation of motor better but are not very essential, are treated as having auxiliary use value.
b. Esteem or aesthetic value: there may be certain features or properties of a product which do not contribute to its utility or performance but make it more attractive or estimable so as to induce the customers to by it. This may also be referred to as the prestige value. Certain product or articles have value simple because of their attractiveness or esteemed features. A watch made of gold has an esteem value for its owners, though its utility is not more than that of an ordinary watch. For some people purchase of a gold watch may be a waste. However, it commends value for the person who wishes of a upon others and thus have a personal satisfaction.
c. Cost or money value: cost value refers to the value measured in terms of cost. It is the total cost required to produce an item. If an items is manufactured in own factory, cost value is denoted by its cost of productions but in case it is purchased form outside, it is denoted by its purchase price.
d. Exchange value: It refers to sales value which a product would fetch. It is importance for the sales department since the profit is excess of the selling price (i.e. exchange value) over the cost of the product. Hence, the sales department must ascertain what value the product has for the customers as compared to competitive products available in the market. It will help in advising the management in fixing the selling price of the product.
All theses value plays an important part in our personal lives. But in value analysis, we are mainly concerned with use value and some extent to the esteem value. All other value should be concerned with use value should be subordinated to use value in varying degrees. Value of a product manufactured for sales is other least amount spent in manufacturing it to create appropriate use an esteem value. Thus value analysis seeks to provide the different value required in a product or services at the least cost without impairing its quality, efficiency and attractiveness.
Concept of value analysis (value engineering)
Cost reduction in an organization can be achieved through the following channels:
• By economizing expenditures or increasing productive , or
• By improving the use and esteem value of products.
Value analysis is a scientific approach to cost reduction by increasing the use value in a product value analysis (or, value engineering as it is sometimes called) is a systematic analysis and evaluation of the techniques and functions in the various spheres of an organization with a view to explore channel of performance improvement so that the value in the particular product or service can be bettered. It enables the maximum possible value to be achieved for a given cost. Thus, value analysis is a technique which is used to analysis all aspects of an existing product or service to weigh cost against value.
The terms ' value analysis' and 'value engineering' are often used inter-changeably since both have many identical steps in their working procedure. Yet there fundamental difference between the two on account of the areas of their application. While value analysis can be applied to any type of cost. Value engineering is applicable mainly to direct cost, i.e. direct material, direct labor, etc. value engineering is generally applied before is born and is in the design and development stage and value analysis is applied to existing products due to dropping sales. In other words the main objectives of value analysis are to decide:
1. Whether the estimated benefits or value of the product can be achieved with further reduction of costs, and
2. Whether the benefits or value can be further increased without in the costs.
Advantages of value analysis
The main advantages of the techniques of value analysis are as follows:
a. Increase in profit: value analysis is the most effective tools of cost reduction which ultimately leads to improvement in profitability.
b. Incase in productivity: value analysis ensure improved productivity through the continuous process or search for improvement in all fields.
c. Maximum utilization of resources: it helps in obtaining maximum production form limited resources of capital, time, space, etc.
d. Increase in consumer satisfaction: as value analysis makes a close study of a product in order in determine the feature which would give the highest scarification to customers, the manufacturing of most satiable products is insured.
e. Improvement in quality: It helps in maintain the desired quality of products that lead to consumer's satisfaction.
f. Improve work environment: value analysis creates the proper atmosphere for increased efficiency by a continuing search for improvement.
g. Motivation to employees: it is a specialized job involving the utilization of the talents of a team of persons drawn from the various sectors of the business. This has the effects of interrogating the various management functions and infusing a spirit of co-operation and razing the morale.
Procedures of values analysis
Work relating to value analysis is a specialized job and is to be carried on by experts in various disciplines. Systematic operation of value analysis involves the following procedure:
a. Identification of problem: at the first stage, t has to be ascertained whether the customers is being given the full use and esteem value for the product he purchases and in not, what is required to be done. In case of raw materials and components performance, satisfaction in subsequent production or process is to be seen.
b. Collecting information: under this step, all the necessary information about a product is first gathered, such as physical characteristics, materials specification, product cost like materials, labour and overhead, market, competitive products, production methods, etc.
c. Assessment of various alternatives: at the third stage, a careful study of the various alternatives which are available for cost reduction and giving best value of the product to the customers should be made.
d. Evaluation and selection of alternatives: The best alternative proposed by the experts is reviewed by the top management and necessary authority for its development granted.
e. Implementation: after the final proposal is accepted for implementation, production drawings and models are prepared and production is started on the proposed lines.
f. Follow up action: it involves the ascertainment as to whether the proposals implemented have achieved the reduction in costs that were planned.
Concept of value ratio
Value of an item is closely related to its functions or purpose i.e. quality, elegance, prestige etc. value is the ratio of worth or function to the or cost of an item. The relationship between value, function and cost may be expressed as:
value= function/ cost
Where,
Value= utility, or level of satisfaction from a product.
Function= price of the function, or the expected price for that particular function which the customers are ready to pay.
Cost= cost of the function, or the expected expenses to be made by the company to achieve that function.
There are three ways in which the value of an item can be improved or enhanced:
a. By reducing cost, function remaining constant or,
b. By improving function, cost remaining constant, or
c. By improving function and reducing cost.
Techniques of value analysis
Lawrence D. Miles of the General Electric Company who is known as the father of value analysis has developed and use a number of value analysis techniques in 1947 A.D. these techniques are as follows:
Work in specifies
Very often people at the top in an organization are likely to say, "This is the only method to make this item. We have tried other methods but failed." The best way tacking such as situation is be very specific and not be making a vague statement. People at the top will be influenced by the specific proposal and it is possible that the right manufacturing process may be developed after careful examination. Hence, avoid generalities because they serve only to prevent changes and protect the status qua.
Obtain all available costs
Information about all available costs should be obtained. It is possible that specific method may slightly increase cost in one department but may lead to substantial reduction in costs in other department, resulting in an overall reduction of cost. Value analysis is mainly concerned with comparing costs. Therefore relent costs for each function as may be require for the analysis should be obtained, and if costs are not ready available, theses should be developed as accurately as possible.
Seek information from the most authentic source
Information on any aspect of cost, method of manufacture, finishing, packing etc. should be obtained from the most reliable source. To get the correct information a questionnaire should be developed. While collecting information, the particular questions that the value analysis is to ask are:
• What is the precise function of the product? How important is the function?
• What is the cost of product? Is the cost propitiate with its utility?
• Does the design of the product contribute to value? Is it not possible to eliminate a part or a component without reducing its use value or esteem value? Will a change in the design of the product lead to lower cost?
• Are all the features of the product essential?
• Is any better substitute available?
• Are all the labor operations necessary?
• Is any better substitute available?
• Is it possible to reduce cost of material?
• Are all labor operation necessary?
• Is standardization and simplification of products possible?
• Is it possible that a number of product use common standard parts?
• Can a standard item be substituted for a non-standard item?
Evaluate function by comparison
After identifying the function of an item, the natural questions to ask are "how do other concerns perform the same function? What is their cost? Will the value of the function be reduced by eliminating unnecessary costs?" this probe will lead to a number of alternatives which can be examined to see if any of them is likely to result in a cheaper but reliable alternative.
Discuses with specialist and take advantage of their expertise knowledge
Nowadays, technology is advancing so rapidly that it is almost not possible for engineers and others working in an organization to keep abreast of the latest developments. It, therefore, pays to be in touch with a specialist suitable for the specific problem and get his specialized knowledge. Without such expertise knowledge status qua will be continued and importunity of improving value and reducing cost will be lost.
Use real creativity
Value analysis involves a creative approach for finding out unnecessary costs. The human mind is capable of developing new ideas, which lead to cost reduction and performance improvement. Creative thinking can be helpful in cost reduction by simplifying the existing part or item to do the same function.
Consult your suppliers' f or new ideas
As your suppliers are dealing with many others who ae in the same line of business, their ideas and suggestion will be of great help to you.
Use standard parts whenever possible
Standard parts are interchangeable and cheaper than specially made parts because standard part are generally made by mass production method to new methods and techniques is principle from ignorance and it can be overcome with patience, tact and carefully explaining the proposed method or technique to the individual concerned who is oppressed to change.Identify and overhead all road-blocks
Roads blocks are difficulties created by one's colleagues and other who resist change and feel secure in existing ways. The resistance to change to new methods and techniques is principally from ignorance and it can be overcome with patience, tact and carefully explaining the proposed method or technique to the individual concerned who is opposed to change.
Asking a question
The value analyst should ask him this question, "would he spend his money in this way?" such an approach will be helpful in thinking of alternative that are less costly.
Questionnaires in value analysis
Te value analysis team consists of design, production control, and purchasing and distribution staff besides cost or management accountant. While collecting information, the particular questions that the value analysis is to ask him-self are:
• Does its use contribute to value?
• Is the price proportionate to performance, utility and value?
• Does it need all its features and characteristics?
• In any better substitute available?
• How much would that cost?
• Can a standard part be used instead of specially made on?
• Is it designed to proper tooling considerations?
• Can it be made cheaper?
• Are they any scope of reducing labor operations?
• Can the manufacturing operations be standardized and sampled?
The above queries are only illustrative and are, by no means, comprehensive. There may be so many other questions, which may be raised by the analyst relevant for his analysis.
Areas of value analysis (value Engineering)
Value analysis can be applied in different areas of an organization. Those areas are summarized below.
• Improvements in product designs
• Changes in material specifications
• Modification in process methods
• Decision to make or by a component.
4. What do you mean by value analysis? Write any three advantages of it.
Value analysis is a scientific approach to cost reduction by increasing the use value in a product. Value analysis (or, value engineering as it is sometimes called) is a systematic analysis and evaluation of the techniques and function in the various spheres of an organization with a view to explore channels of performance improvement so that value in the particular product or service can be bettered. It enables the maximum possible value to be can be bettered. It enables the maximum possible value to be achieved for a given cost. Thus, value analysis is a technique which is used to analyses all aspects of an existing product or service to determine the minimum cost necessary for specific functional requirements. The basic idea under this technique is to weigh cost against value.
The main advantages of the technique of value analysis are as follows:
a. Increase if profit: value analysis is the most effective tools of cost reduction which ultimately leads to improvement in profitability.
b. Increase in productivity: value analysis ensure improved productivity through the continuous process of search for improvement in all fuels.
c. Maximum utilization of resources: it helps in obtaining maximum production from limited resources of capital, time, space, etc.
5. List out the scopes of cost reduction techniques and briefly explain the purchase control.
Cost reduction is the process of reducing costs by the means of some innovations in working procedures. A company may reduce its manufacturing cost by adopting some innovative techniques. Under cost reduction process, a company innovative techniques. Under cost reduction process, a company applies some sophisticated and scientific techniques of operation.
Cost reduction techniques can be applied in difference areas such as:
• Product designing
• Planning and controlling
• Administrating
• Financing
• Marketing
• Purchasing control
• Construction organizational structure
• Research and development etc
Purchasing is one of the most important functions of an organization. It has direct effect on production of goods and services. If there is an irregular purchase of raw materials and other essentials, the production functions may be adversely other essentials, the production functions may be adversely affected and the organization will not be in a position of marking the regular delivery of goods and services to the customers. Therefore, there must be economical teams of purchase, which can reduce both carrying as well as ordering cost.
6. Write short note on use value and aesthetic value
Use value: this is the value that is determined in a general term. It is utility that any consumer can get from the consumption of certain goods and services. This value refers to the general usefulness of a particular product. For example, a television set is used for entertainment, which is its use value.
Aesthetic value: this is also known as esteem value. Esteem value refers to the value fulfills a person's psychological need. Furthermore, it refers to the fulfillment of a person's esteem and self-actualization needs, which is something different from its general value. For example, the use value of a TV is providing information/ entertainment. But if a person wants a "Sony flat" then it is aesthetic value.
7. Write briefly about the application of cost reduction technique in product designing.
Cost reduction is the processes of reducing costs buy using different tools and techniques. Cost reduction techniques can be applied in different function areas such product designing, marketing, selling etc.
Cost reduction techniques and be applied from the very beginning stage of product designing. Since reduction involves a wide range of functional areas. It should be started from the very deigning stage. Then only the objective techniques, we should consider the following two aspects.
a. Use value: the use value of the product should remain as per the standard.
b. Aesthetic value: for a product, usefulness is not a factor to be liked by customers. It should be backed by some aesthetic/esteem need of the customer.
If we regard these aspects as key factors then only the desired results can be obtained.
7. Write briefly about the application of cost reduction technique in product designing.
Cost reduction is the processes of reducing costs buy using different tools and techniques. Cost reduction techniques can be applied in different function areas such product designing, marketing, selling etc.
Cost reduction techniques and be applied from the very beginning stage of product designing. Since reduction involves a wide range of functional areas. It should be started from the very deigning stage. Then only the objective techniques, we should consider the following two aspects.
a. Use value: the use value of the product should remain as per the standard.
b. Aesthetic value: for a product, usefulness is not a factor to be liked by customers. It should be backed by some aesthetic/esteem need of the customer.
If we regard these aspects as key factors then only the desired results can be obtained.
Procedures of values analysis
Work relating to value analysis is a specialized job and is to be carried on by experts in various disciplines. Systematic operation of value analysis involves the following procedure:
a. Identification of problem: at the first stage, t has to be ascertained whether the customers is being given the full use and esteem value for the product he purchases and in not, what is required to be done. In case of raw materials and components performance, satisfaction in subsequent production or process is to be seen.
b. Collecting information: under this step, all the necessary information about a product is first gathered, such as physical characteristics, materials specification, product cost like materials, labour and overhead, market, competitive products, production methods, etc.
c. Assessment of various alternatives: at the third stage, a careful study of the various alternatives which are available for cost reduction and giving best value of the product to the customers should be made.
d. Evaluation and selection of alternatives: The best alternative proposed by the experts is reviewed by the top management and necessary authority for its development granted.
e. Implementation: after the final proposal is accepted for implementation, production drawings and models are prepared and production is started on the proposed lines.
f. Follow up action: it involves the ascertainment as to whether the proposals implemented have achieved the reduction in costs that were planned.
Concept of value ratio
Value of an item is closely related to its functions or purpose i.e. quality, elegance, prestige etc. value is the ratio of worth or function to the or cost of an item. The relationship between value, function and cost may be expressed as:
value= function/ cost
Where,
Value= utility, or level of satisfaction from a product.
Function= price of the function, or the expected price for that particular function which the customers are ready to pay.
Cost= cost of the function, or the expected expenses to be made by the company to achieve that function.
There are three ways in which the value of an item can be improved or enhanced:
a. By reducing cost, function remaining constant or,
b. By improving function, cost remaining constant, or
c. By improving function and reducing cost.
Techniques of value analysis
Lawrence D. Miles of the General Electric Company who is known as the father of value analysis has developed and use a number of value analysis techniques in 1947 A.D. these techniques are as follows:
Work in specifies
Very often people at the top in an organization are likely to say, "This is the only method to make this item. We have tried other methods but failed." The best way tacking such as situation is be very specific and not be making a vague statement. People at the top will be influenced by the specific proposal and it is possible that the right manufacturing process may be developed after careful examination. Hence, avoid generalities because they serve only to prevent changes and protect the status qua.
Obtain all available costs
Information about all available costs should be obtained. It is possible that specific method may slightly increase cost in one department but may lead to substantial reduction in costs in other department, resulting in an overall reduction of cost. Value analysis is mainly concerned with comparing costs. Therefore relent costs for each function as may be require for the analysis should be obtained, and if costs are not ready available, theses should be developed as accurately as possible.
Seek information from the most authentic source
Information on any aspect of cost, method of manufacture, finishing, packing etc. should be obtained from the most reliable source. To get the correct information a questionnaire should be developed. While collecting information, the particular questions that the value analysis is to ask are:
• What is the precise function of the product? How important is the function?
• What is the cost of product? Is the cost propitiate with its utility?
• Does the design of the product contribute to value? Is it not possible to eliminate a part or a component without reducing its use value or esteem value? Will a change in the design of the product lead to lower cost?
• Are all the features of the product essential?
• Is any better substitute available?
• Are all the labor operations necessary?
• Is any better substitute available?
• Is it possible to reduce cost of material?
• Are all labor operation necessary?
• Is standardization and simplification of products possible?
• Is it possible that a number of product use common standard parts?
• Can a standard item be substituted for a non-standard item?
Evaluate function by comparison
After identifying the function of an item, the natural questions to ask are "how do other concerns perform the same function? What is their cost? Will the value of the function be reduced by eliminating unnecessary costs?" this probe will lead to a number of alternatives which can be examined to see if any of them is likely to result in a cheaper but reliable alternative.
Discuses with specialist and take advantage of their expertise knowledge
Nowadays, technology is advancing so rapidly that it is almost not possible for engineers and others working in an organization to keep abreast of the latest developments. It, therefore, pays to be in touch with a specialist suitable for the specific problem and get his specialized knowledge. Without such expertise knowledge status qua will be continued and importunity of improving value and reducing cost will be lost.
Use real creativity
Value analysis involves a creative approach for finding out unnecessary costs. The human mind is capable of developing new ideas, which lead to cost reduction and performance improvement. Creative thinking can be helpful in cost reduction by simplifying the existing part or item to do the same function.
Consult your suppliers' f or new ideas
As your suppliers are dealing with many others who ae in the same line of business, their ideas and suggestion will be of great help to you.
Use standard parts whenever possible
Standard parts are interchangeable and cheaper than specially made parts because standard part are generally made by mass production method to new methods and techniques is principle from ignorance and it can be overcome with patience, tact and carefully explaining the proposed method or technique to the individual concerned who is oppressed to change.Identify and overhead all road-blocks
Roads blocks are difficulties created by one's colleagues and other who resist change and feel secure in existing ways. The resistance to change to new methods and techniques is principally from ignorance and it can be overcome with patience, tact and carefully explaining the proposed method or technique to the individual concerned who is opposed to change.
Asking a question
The value analyst should ask him this question, "would he spend his money in this way?" such an approach will be helpful in thinking of alternative that are less costly.
Questionnaires in value analysis
Te value analysis team consists of design, production control, and purchasing and distribution staff besides cost or management accountant. While collecting information, the particular questions that the value analysis is to ask him-self are:
• Does its use contribute to value?
• Is the price proportionate to performance, utility and value?
• Does it need all its features and characteristics?
• In any better substitute available?
• How much would that cost?
• Can a standard part be used instead of specially made on?
• Is it designed to proper tooling considerations?
• Can it be made cheaper?
• Are they any scope of reducing labor operations?
• Can the manufacturing operations be standardized and sampled?
The above queries are only illustrative and are, by no means, comprehensive. There may be so many other questions, which may be raised by the analyst relevant for his analysis.
Areas of value analysis (value Engineering)
Value analysis can be applied in different areas of an organization. Those areas are summarized below.
• Improvements in product designs
• Changes in material specifications
• Modification in process methods
• Decision to make or by a component.
4. What do you mean by value analysis? Write any three advantages of it.
Value analysis is a scientific approach to cost reduction by increasing the use value in a product. Value analysis (or, value engineering as it is sometimes called) is a systematic analysis and evaluation of the techniques and function in the various spheres of an organization with a view to explore channels of performance improvement so that value in the particular product or service can be bettered. It enables the maximum possible value to be can be bettered. It enables the maximum possible value to be achieved for a given cost. Thus, value analysis is a technique which is used to analyses all aspects of an existing product or service to determine the minimum cost necessary for specific functional requirements. The basic idea under this technique is to weigh cost against value.
The main advantages of the technique of value analysis are as follows:
a. Increase if profit: value analysis is the most effective tools of cost reduction which ultimately leads to improvement in profitability.
b. Increase in productivity: value analysis ensure improved productivity through the continuous process of search for improvement in all fuels.
c. Maximum utilization of resources: it helps in obtaining maximum production from limited resources of capital, time, space, etc.
5. List out the scopes of cost reduction techniques and briefly explain the purchase control.
Cost reduction is the process of reducing costs by the means of some innovations in working procedures. A company may reduce its manufacturing cost by adopting some innovative techniques. Under cost reduction process, a company innovative techniques. Under cost reduction process, a company applies some sophisticated and scientific techniques of operation.
Cost reduction techniques can be applied in difference areas such as:
• Product designing
• Planning and controlling
• Administrating
• Financing
• Marketing
• Purchasing control
• Construction organizational structure
• Research and development etc
Purchasing is one of the most important functions of an organization. It has direct effect on production of goods and services. If there is an irregular purchase of raw materials and other essentials, the production functions may be adversely other essentials, the production functions may be adversely affected and the organization will not be in a position of marking the regular delivery of goods and services to the customers. Therefore, there must be economical teams of purchase, which can reduce both carrying as well as ordering cost.
6. Write short note on use value and aesthetic value
Use value: this is the value that is determined in a general term. It is utility that any consumer can get from the consumption of certain goods and services. This value refers to the general usefulness of a particular product. For example, a television set is used for entertainment, which is its use value.
Aesthetic value: this is also known as esteem value. Esteem value refers to the value fulfills a person's psychological need. Furthermore, it refers to the fulfillment of a person's esteem and self-actualization needs, which is something different from its general value. For example, the use value of a TV is providing information/ entertainment. But if a person wants a "Sony flat" then it is aesthetic value.
7. Write briefly about the application of cost reduction technique in product designing.
Cost reduction is the processes of reducing costs buy using different tools and techniques. Cost reduction techniques can be applied in different function areas such product designing, marketing, selling etc.
Cost reduction techniques and be applied from the very beginning stage of product designing. Since reduction involves a wide range of functional areas. It should be started from the very deigning stage. Then only the objective techniques, we should consider the following two aspects.
a. Use value: the use value of the product should remain as per the standard.
b. Aesthetic value: for a product, usefulness is not a factor to be liked by customers. It should be backed by some aesthetic/esteem need of the customer.
If we regard these aspects as key factors then only the desired results can be obtained.
7. Write briefly about the application of cost reduction technique in product designing.
Cost reduction is the processes of reducing costs buy using different tools and techniques. Cost reduction techniques can be applied in different function areas such product designing, marketing, selling etc.
Cost reduction techniques and be applied from the very beginning stage of product designing. Since reduction involves a wide range of functional areas. It should be started from the very deigning stage. Then only the objective techniques, we should consider the following two aspects.
a. Use value: the use value of the product should remain as per the standard.
b. Aesthetic value: for a product, usefulness is not a factor to be liked by customers. It should be backed by some aesthetic/esteem need of the customer.
If we regard these aspects as key factors then only the desired results can be obtained.
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