Management Notes

Reference Notes for Management

Value analysis is a systematic appraisal of the design, quality, and performance of a product to:

Value analysis is a systematic appraisal of the design, quality, and performance of a product to:

A) maintain quality assurance.
B) offer the lowest possible price.
C) to reduce purchasing costs.

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The Correct Answer forthe given question is Option C. to reduce purchasing costs.


Concept of Value Analysis

Value analysis  is the cost reduction technique that is used without diminishing the effectiveness of the product and fulfilling the customer’s satisfaction. It is carried out to eliminate unnecessary features and functions of a product or component of manufacturing. It also deals with products and their quality.It is a systematic and function-based approach to improve the value of the product. It uses a combination of creative and analytical techniques to identify an alternative way to achieve the set goals. Value analysis considers minimizing cost without diminishing quality, reliability, performance, and appearance. It is a creative approach to reduce unnecessary costs which adds neither quality nor appearance to the product.

Value analysis is a systematic process aimed at identifying unnecessary costs connected to a product, material, component, system, or service through an analysis of its function and then removing them efficiently without compromising the reliability of the product or service’s functionality. It is an unbiased, standardized process that uses the expertise of a multi-skilled team to identify the lowest cost way and ensure the highest value of a process, product, or service. The principle of value analysis is to relate the various elements of product worth to their corresponding costs in order to enhance the product’s value. Therefore, value analysis allows the required functions to be performed at the lowest cost.

Businesses benefit from the technique since it reduces costs and improves quality. Moreover, it enables a company to increase its efficiency and effectiveness of all business processes. To ensure future value, operational processes are broken down into smaller components and improved or removed. Having the ability to break down a product or service into smaller components allows companies to assess each component, its importance, and its performance. Therefore, the business has a clear picture of the components that are unnecessary, and can eliminate them and save money.

Main Steps of Value Analysis

  1. Gather information.
  2. Determine and analyze the function of a project.
  3. Generate new ideas for improvement.
  4. Evaluate these ideas and develop them.
  5. Present improvements.

1) Gather information.

In this step, the team seeks to understand the purpose of the project. Project members collect data and concepts, and try to understand the scope of the project. Visit sites, study various project documents, and analyze budgets, risks, and costs.

2) Determine and analyze the function of a project.

It is first identified what the primary and secondary purposes of the project are. As a next step, team members should identify value-mismatched functions to improve them.

3) Generate new ideas for improvement.

Members of the team will develop and create improvement ideas in this step. Alternatives should be found so that the project can perform the same function.

4) Evaluate these ideas and develop them.

Each idea is discussed in detail and the costs are determined. Potential risks are analyzed and the best ideas are chosen. When ideas that make sense are identified, it’s time to work with them. The value engineering team develops options and passes them on to the project team. In order for project owners and stakeholders to understand these ideas, they must be thoroughly explained.

5) Present improvements.

Stakeholders are presented with the ideas at this stage. The best salesperson is responsible for presenting the ideas.

Benefits/Importance of Value Analysis

Value analysis is a very valuable technique for reducing costs and improving quality. It has the following special merits:

  1. Improvement in Product Design.
  2. High Quality is maintained.
  3. Elimination of Wastage.
  4. Savings in Costs.
  5. Generation of New Ideas and Products.
  6. Encourages Team-Spirit and Morale.
  7. Neglected Areas are brought under Focus.
  8. Qualification of Intangibles.
  9. Wide Spectrum of Applications.
  10. Building and Improving Company Image.

1) Improvement in Product Design

Product design improves as a result of this process, resulting in more useful products. With ballpoints, we no longer experience clogging, there is an even flow of ink, and the rubber pad reduces fatigue among the figures.

2) High Quality is maintained

Value is higher if the quality is high. So, dry cells used to leak; now they are leak proof; they are pen-sized and the same power. The latest innovation is that they are rechargeable.

3) Elimination of Wastage

By eliminating various types of waste, value analysis increases the overall efficiency. There was a problem with correcting the errors. The paper had to be pasted over the errors. Pencils are now available, and a liquid paper that dries fast and can be reused has also been developed.

4) Savings in Costs

In value analysis, the goal is to cut costs by retaining all features of performance or even improving it. Research and development have been carried out extensively on this topic. It is now possible to pack milk, oils, purees, pulps in tetra paks considering their qualities and that the tetra pak is biodegradable as opposed to plastics.

5) Generation of New Ideas and Products

Over the decades, teeth brushing has become easier, cosier and more fun as it glides and massages gums as opposed to the hard, flat brushes of the 1930s.

6) Encourages Team-Spirit and Morale

An organization is a team of people with specific responsibilities, so value analysis is a tool which cannot be handled by one individual, but by groups or teams. Products are the result of teamwork, so they are products of the team. This creates a sense of teamwork and encourages worker morale as they work together for greater success.

7) Neglected Areas are brought under Focus

Those areas of an organization that need attention and improvement are brought to the fore, and even the weakest is given a chance to grow and become more useful.

8) Qualification of Intangibles

The goal of value analysis is to convert intangibles into tangibles for decision-making purposes. When you are dealing with things that are not quantifiable, it is extremely difficult to make decisions.

Value analysis accomplishes this, however. Data is provided to the decision makers so that they can make decisions based on it. These decisions are certain to be sound.

9) Wide Spectrum of Applications

It is possible to apply the principles and techniques of value analysis to a wide range of issues, such as purchasing, hardware, products, systems, procedures, and so on.

10) Building and Improving Company Image

In many cases, the company’s reputation, image, or personality is improved greatly. With quality improvement and cost reduction, companies can provide competitive products that have a good name in the market; in the labour market it enjoys a good reputation and in the capital market, investors are not hesitant to invest because it is a quality company.

Limitations of Value Analysis

Value analysis has its own limitations, just like any other cost reduction technique. These plans of value analysis are commonly blocked by man-made excuses.The most common excuses given are:

  • Lack of motivation
  • Resistive to change
  • Inertia
  • Lack of knowledge and patience
  • Attitude of ‘It will not work in India
  • We are very small or very big
  • This has been tried earlier and failed
  • The change is too big
  • Let competitors try before we try’
  • Difficulty of teams meeting or team meetings for getting consensus.

Limitations like these are man-made and can be over-come if the company divides up the work. However, they should be educated about both the pluses and minuses and the main beneficiaries are the ones who are told and who are taken into confidence.


I hope after going through this post you might have clearly understood the Question: Value analysis is a systematic appraisal of the design, quality, and performance of a product to to reduce purchasing costs.

Value Engineering – Product and Service Design | Operations Management


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