ACCA MA Syllabus F. Performance Measurement - Value analysis - Notes ^{3 / 3}

Value analysis is a form of cost reduction.

Hence, it examines the factors affecting the cost of a product or service, in order to devise means of achieving the specified purpose most economically at the required standard of quality and reliability.

Are customers willing to pay for upholstery which is relatively expensive for the manufacturer to buy?

If customers would pay the same price for a car produced with cheaper upholstery, the company will modify the specification.

Important to distinguish between four types of value

• Cost value  - the cost of producing and selling an item.

• Exchange value – the market value of the product or service.

• Use value – the value an item has because of the uses to which it can be put, e.g. using a car to go from A to B.

• Esteem value - the value put on an item because of its beauty, craftsmanship etc, e.g. the colour, image or top speed of a car.

The value analysis method

Value analysis can be carried out in 5 key steps

1. Establish the precise requirements of the customer for a particular product or service.  

   Hence the manufacturer can establish whether each function incorporated into the product contributes some value to it

2. Establish and evaluate alternative ways of achieving the requirements of the customers. 

   The least cost alternative should be selected.

3. Authorise any proposals put forward as a result of step 2

4. Implementation of proposals and follow-up.

5. Evaluate feedback from new proposals to establish the benefits from the change

Value Analysis – Its Benefits

1. Increased sales as customers will be impressed by the interest shown in their requirements

2. Higher morale amongst staff resulting from the team approach

3. Economic and financial benefits arise from the elimination of unnecessary complexity and the better use of resources