INTRODUCTION TO VALUE

ENGINEERING/ VALUE
ANALYSIS

Mapa Institute of Technology

Kinds of Value
1. Use Value based on the properties and qualities
of a product or of materials which accomplish the
work or service
2. Cost Value- the sum of labor, material and various
other costs required to produce a good.
3. Esteem Value based on the properties and
qualities and features and attractiveness involved
in the pride and ownership of the product
4. Exchange Value - based on the properties or
qualities which make the product exchangeable for
something else.

Mapa Institute of Technology

Concepts of Value
Value is often confused with cost and price
Value from the point of view of a producer is
different from the point of view of the user.
A given item may have varying value to
customers, depending upon the time and place of
use.
The value of a glass of water to a thirsty man
varies with the mans distance from a source of
supply.
The value of a ships compass to its navigator is
vastly different from its value to a housewife
Mapa Institute of Technology

Concepts of Value
Value is often confused with cost and price
Value from the point of view of a producer is
different from the point of view of the user.
A given item may have varying value to
customers, depending upon the time and place of
use.
The value of a glass of water to a thirsty man
varies with the mans distance from a source of
supply.
The value of a ships compass to its navigator is
vastly different from its value to a housewife
Mapa Institute of Technology

Value vs Worth

The word value was derived from a Latin word which

had a market connotation while the worth had more
of a personal connotation and was used to express the
sentiment or esteem that people have for items they
possess.
We use the word value to describe an average of the
worth that a group of people ascribe to a product or
service.
Value = sum( worth1 + worth2 +worth3)
n
Mapa Institute of Technology

What is function?
The term function is defined as that which
makes a product work or sell.
A product like a pen has the following functions:

Make marks
Remove marks
Prevent Smudges
Looks Attractive

Mapa Institute of Technology

The value of an item is how well the item

does its function divided by the cost of the
item
Value =
performance of its
function
------------------------------------cost
Mapa Institute of Technology

What is cost?
Total cost is the sum of all efforts and
expenditures made in the development,
production and application of the product.
Total Cost as defined contains three basic areas
of cost which must be analyzed and related to
each other at all times.
The area of production cost can be broken into
three distinct areas of cost : material, labor and
overhead
Mapa Institute of Technology

Unnecessary Costs
Are those costs which do not meaningfully contribute
to the product to which they accrue.
Reasons for unnecessary costs are the following:
Lack of Information: Caused by the nonaccumulation of accurate and detailed facts
regarding costs and specification
- Lack of ideas: Caused by insufficient use and
application of background knowledge, industrial
knowledge, the skills of company and industrial
specialists, standards, creative thinking and time.
Mapa Institute of Technology

Unnecessary Costs
Wrong Honest Beliefs: These may result from the above
conditions as well as from the ready acceptance of
opinion, hearsay, half truths, speculation, and theories for
whole facts without justification or verification.
Temporary Circumstances: These cause the continued
application of solutions which are applicable to a
temporary condition or ser of conditions has disappeared.
Habits and attitudes : The individual past experiences,
beliefs and traditions cause him to establish a particular
habit pattern in what he does and thinks, and habits cause
him to solve similar problems in similar ways.
Mapa Institute of Technology

What Value Analysis/ Value

Engineering Is

Value Analysis is a systematic review , often

periodically of products and parts to see if costsaving design can be done.
Value Engineering, on the other hand, is usually
associated with the original design stage,
making it a systematic review of design before
production starts.
Value Engineering may then be considered to
apply before the fact, and value analysis after
the fact.

Mapa Institute of Technology

Value Analysis
A technique for eliminating all unnecessary costs
from a product through an integrated application
of creativity and technical skills without
penalizing the usage and esteem qualities of the
product and still achieving the basic function at
the least cost.
Value results from the orderly utilization of
alternative materials, new processes, and abilities
of specialized suppliers. It focuses engineering,
manufacturing, and purchasing attention on one
objective- equivalent performance for lower cost.
Mapa Institute of Technology

Value Analysis
Value Analysis therefore, is a functionallyoriented scientific method of accomplishing
the required function at the lowest possible
cost.

Mapa Institute of Technology

What Value Engineering/ Value

Analysis Is Not

Value Analysis is not the conventional costcutting method. In the minds of those
involved in the control of cost, cost-cutting
would mean attacking things as they are to
reduce the cost.
Value Engineering approach is exactly the
opposite. Products/ Services are not designed
or reviewed for the sake of merely cutting
cost.
Mapa Institute of Technology

What Value Engineering/ Value

Analysis Is Not
Value analysis is not a substitute for
conventional cost-reduction methods. Rather,
it is a completely different procedure for
accomplishing far greater results. It improves
the effectiveness of work that has been
subjected to traditional cost accounting
process.
Mapa Institute of Technology

When to use it
Use Value Analysis to analyze and understand
the detail of specific situations.
Use it to find a focus on key areas for
innovation.
Use it in reverse (called Value Engineering) to
identify specific solutions to detail problems.
It is particularly suited to physical and
mechanical problems, but can also be used in
other areas.
Mapa Institute of Technology

How to use it
Identify and prioritize functions
Identify the item to be analysed and the
customers for whom it is produced.
List the basic functions (the things for which
the customer is paying). Note that there are
usually very few basic functions.
Mapa Institute of Technology

How to use it
Identify the secondary functions by asking
How is this achieved? or What other
functions support the basic functions?.
Determine the relative importance of each
function, preferably by asking a representative
sample of customers (who will always surprise
you with what they prefer).
Mapa Institute of Technology

How to use it
Analyze contributing functions
Find the components of the item being
analyzed that are used to provide the key
functions. Again, the question How can come
in very useful here.
Measure the cost of each component as
accurately as possible, including all material
and production costs.
Mapa Institute of Technology

How to use it
Seek improvements
Eliminate or reduce the cost of components
that add little value, especially high-cost
components.
Enhance the value added by components that
contribute significantly to functions that are
particularly important to customers.
Mapa Institute of Technology

Example
In analyzing a pen, the following table is used to connect components with the
functions to which they contribute and hence identify areas of focus.

Mapa Institute of Technology

Value Engineering Objectives

VE is an organized effort to get more of your
money.
It applies recognized techniques and tests to
measure value and thus eliminate unnecessary
costs in design, development and manufacturing.
It differs from cost control because it is directed
toward analyzing value not costs.
In other words, VE is concerned with finding the
lowest cost to achieve a required function.
Mapa Institute of Technology

Consumer Value
Consumer Value = Performance / Price
1. In measuring consumer value, performance features
of the product selected should be identified.
Example: Ice tray
Cooling Capacity
Ease of Use
Quality and Reliability
Mapa Institute of Technology

Consumer Value
2. Through Value Measurement Techniques each
performance features shall be assigned with
corresponding weight (%).
Example:
Cooling Capacity (CC) 30%
Ease of Use (EU) 50%
Quality/ Reliability (QR)- 20%

Mapa Institute of Technology

Consumer Value
3. The consumer should rate the product based
on each performance feature or the ability of
the product to satisfy the need of the user.
4. The weightings (30%, 50%, 20%) are
multiplied to the rating.
5. Compute the Consumer Value
6. Calculate the relative normalized value of each
product.

Mapa Institute of Technology

Consumer Value
Given: Ice Tray
Function/Rating
Brand

A
B
C
D
E

Price

$5.95
$1.00
$1.45
$3.25
$1.7 9

CC

EU

QR

C.V.

Rel. Value(%)

5
3
4.5
1.5
2

1.5
3.5
4.5
5
3

3
4
5
3.5
3

0.48
3.45
3.17
1.12
1.51

4.9%
35.5%
32.6%
11.5%
15.5%

Mapa Institute of Technology

Retailers Value
The value of a product to a retailer may differ
significantly from the value of a product to consumer.
The retailer is primarily interested in the financial
return from his investments.
Retailers are interested in merchandise that they can
sell quickly at a good profit.
Retailers want maximum income from minimum
investment.

Mapa Institute of Technology

Retailers Value
In the same example, suppose the store might sell a total of
1000 units in time ( t) and that sales wil be apportioned by
the relative value of each item. Therefore the estimated
income for each brand would be:
Brand
A
B
C
D
E

Rel. C.V(%) Sales in time (t)

4.9
49
35.5
355
32.6
326
11.5
115
15.5
155

Price
$5.95
$1.00
$1.45
$3.25
$1.79

Income
$291.55
$355.50
$472.70
$ 373.75
$277.45

Mapa Institute of Technology

Retailers Value
The expenses during this period would be equal to the
fixed and variable costs for the quarter. Lets assume that
they are equal to the retail purchase price of an item times
an overhead burden rate.
In this case, the purchase price is half the sales price
Burden rate of 30% for seasonal products and 18% for
non-seasonal products.

Mapa Institute of Technology

Retailers Value
Brand
A
B
C
D
E

Purchased
Price
2.975
0.500
0.725
1.625
0.895

Burden
Rate(%)
36
36
36
18
36

Total
Expense
198.25
241.40
321.44
220.51
188.67

Profit
93.3
113.6
151.26
153.24
88.78

Rel. Val.
to Retailer(%)
15.5
18.9
25.2
25.5
14.9

Note:
Expense = (Purchased Price * Sales in time t) * 1.36

Mapa Institute of Technology