Value analysis: Reduce costs, improve products and drive innovation

Reducing costs and at the same time offering products with maximum customer value and satisfaction have always been fundamental goals of companies, or should have been. However, in times of global competition with framework conditions that are changing with increasing speed, aspects such as cost optimization, customer centricity and innovative strength are more relevant than ever before. Although the management method of value analysis originated as early as 1947, its relevance is still unbroken.

This article explains how you benefit from the use of the value analysis. It provides you an overview of which targets can be realized, which elements the method consists of and the sequence it follows.

What is value analysis?

Value analysis is a commercial business method for cost reduction and problem solving. The overall objective is to identify all functions of a product, service or process that do not contribute to the value. At the same time, the functionality of the item be value analysis should be maintained or, ideally, even be improved. The application of the method involves a systematic analysis and planning, using specific working techniques. Often a team of technicians and economists is put together for this purpose in order to be able to take both business and technical aspects into account. As a result, improvements and savings can be achieved along the entire value chain.

Unlike many business management methods, value analysis is a holistic approach that takes into account both internal company parameters and factors that influence and affect the company’s environment and behaviour. It not only serves to reduce costs and improve results, but also enables problems to be identified in detail and then been corrected. Consistent attention to individual functions of products, services or processes often leads to the emergence of novel solutions and innovations. At the same time, components that are of no benefit to the customer are eliminated. Using this method in practice is also advantageous. Goal orientation and a fixed work plan provide structure, security and discipline. In addition, value analysis allows the use of a wide variety of working techniques and tools, making it flexible and adaptable towards your individual tasks and situations.

What kind of statements does the value analysis provide?

The production costs of products are determined to a large extent already during the conception and development phase. In industrial companies, for example, it is clear at a very early stage which components will be used, which raw materials are purchased and which equipment is to be used. The product variants are also largely defined at this point. Subsequent adjustments and optimisations are therefore naturally difficult. Nevertheless, it is the task of the value analysis to start at this point. Alternatively, the method can be used already in the product development phase. In this case, one refers to so-called value design. If, on the other hand, we are dealing with existing products, we speak of value improvement.

The following questions can be answered with the use of a value analysis:

  • Where can costs be reduced?
  • Where can costs be avoided right from the start?
  • How can a product or service be offered in a market-oriented way (more favourably)?
  • What problems exist with the value analysed item?
  • What alternatives and opportunities for optimisation are in the production process?
  • How can the development time be accelerated?
  • How can customer satisfaction be increased?
  • How can quality improvements be realised?
  • How can the general orientation of the company be optimised?

Where and when are the value analysis techniques to be used?

How a value analysis has to proceed is precisely standardised and defined with the so-called value analysis work plan. The current procedure is described in VDI Guideline 2800, but the tools and methods that are utilised in the individual steps of the work plan are not regulated. Accordingly, numerous methods are applied in this context of value analysis that are also used in other technical or business management tasks. These also include areas of target planning and strategy, design and product development, cost management, project management, profitability assessment and controlling, as well as creativity techniques.

Which method should be used and when depends very much on the project phase. Often a combination of methods can be useful. Let’s take a closer look at the main procedures in the following.

Target planning and strategy

At first, it has to be made visible to what extent there is a need for a value analysis at all. This need can become known on the basis of several indicators. Often, for example, market analyses, benchmarks with competitors, indications from sales or customer analyses provide decisive indications. In addition, the company can proactively implement strategic projects to improve the value of its services and products. This can be achieved through technological innovations, expanded services or new business models. Value analysis can be used to support the adjustment of products, services and processes.

Design and product development

Value analysis is also concerned with the technical characteristics of products. Depending on the object, disciplines such as electronics, mechanics, software, materials engineering or process engineering can all play a vital role here. Each of these disciplines has their own methods that can be relevant in value analysis. Accordingly, it is important to involve experts from these fields in the process of value analysis.

Cost management

Thinking in terms of “values” is the central element of value analysis. Value in turn results from two components:

  • Benefit and function for the customer
  • Cost and price

Value is therefore also expressed in the price-performance ratio

At the beginning the costs of an object or its functional costs are analysed in detail. Followed by cost targets to be defined, which are then to be realised in the process of finding a solution. Notable methods are design to cost, target costing and activity-based costing.

Project management

The value analysis follows the established rules of project management. Therefore, there are: a project manager, a project team, a breakdown structure, a work packages, tasks, responsibilities and also a schedule. Depending on the value analysis object, agile methods such as Scrum may also be applied.

Economic efficiency analysis and controlling

Solutions from value analysis projects have to be evaluated using business methods. Among other things, this answers the question of what are the economical solutions and what target contributions they make.

Creativity techniques

Creative freedom plays an important role in value analysis. Accordingly, creativity techniques are used and boundaries are often deliberately crossed. The goal is to generate as many new ideas for solutions as possible without being restricted by economic or technical concerns.

How are the functions determined as part of the value analysis?

The basic step in any value analysis is to look at the functions and determine their value. The functions of an object can be divided into several classes:

  • Basic functions: They serve the immediate fulfilment of a purpose
  • Main functions: The function of the object that has a particularly strong effect in terms of use
  • Secondary functions: Significantly less important than the main functions in the sense of use
  • Unnecessary functions: Do not or only insufficiently serve the purpose of the object

The determination of function is usually addressed in two words: a noun and a verb. This approach forces value analysts to determine the function of an object as accurately as possible. Let’s look at an example to illustrate the approach: The value analysis object is a “detergent”. The determination of the functions could look as follows:

  • Main function = Clean laundry
  • Secondary function = Improve odour

The product is also broken down into its individual parts so that even the raw materials can be evaluated according to this scheme.

Which work techniques does value analysis employ?

Value analysis is a complex problem-solving method in which numerous working techniques are used. Some are always obligatory, while others are applied sporadically and situationally. Also, the choice of working technique depends on the current position (time) of the work plan.

Rules of thumb when conducting a value analysis include:

  • Do not generalise
  • Identify and review all costs
  • Only utilise information from high quality sources
  • Disassemble the object, refine it and add something new to it
  • Be creative
  • Make hurdles visible and overcome them
  • Involve experts or consultants
  • Accurately calculate costs for manufacturing tolerances
  • Include related products from suppliers
  • Utilise supplier experience
  • Include special production processes in your considerations
  • Apply norms
  • Ask question: Would I spend my own money in this way?

How is a value analysis work plan structured?

The steps of the value analysis and their sequence are precisely specified thanks to the value analysis work plan. The basic rule is that no step may be omitted, otherwise the achievement of the objective is in danger. The current standards (DIN EN 12973:2002-02 and VDI 2800 Part 1:2010-08 and Part 2) list the following procedure:

  • Step 0: Preparation of the project
  • Step 1: Project definition
  • Step 2: Planning
  • Step 3: Collect comprehensive data
  • Step 4: Functional and cost analysis, set detailed targets
  • Step 5: Collect and find possible solutions
  • Step 6: Evaluation of the solution ideas
  • Step 7: Develop holistic proposals
  • Step 8: Presentation of proposals
  • Step 9: Realisation

In steps 0 and 1, the management and the initiator are particularly in demand. They have to initiate the project and set up the project team. The team then performs steps 2 to 8 to finally present the results to the management. Afterwards, the results can be passed on to the responsible departments. Realisation teams then take care of the implementation.

Successful costing with 4cost

Value analysis with 4cost

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