CIMA P2 Syllabus A. Managing The Costs Of Creating Value - Value Analysis - Notes ^{4 / 7}

tries to reduce costs without reducing the value to the customer

VALUE ENGINEERING

is 'Redesign of an activity, product or service so that value to the customer is enhanced while costs are reduced

The distinction between value engineering and value analysis

Value engineering is cost avoidance or cost prevention before production, whereas value analysis is cost reduction during production.

The scope of value analysis

Any organisation should be continually seeking lower costs, better products and higher profits. 

These can be achieved in any of the following ways:

• Cost elimination or cost prevention

• Cost reduction

• Improving product quality and so selling greater quantities at the same price as before

• Improving product quality and so being able to increase the sales price

The steps in value analysis

1. Selecting a product or service for study

2. Obtaining and recording Information 

   The questions to be asked include: 
   What is the product supposed to do? 
   Does it succeed? 
   Are there alternative ways of making it? 
   What do these alternatives cost?

3. Analysing the information and evaluating the product 

   Each aspect of the product service should now be analysed. 

   Any cost reductions must be achieved without the loss of use.

   The types of questions asked in a value analysis include:

   a) Are all the parts necessary?
   b) Can the parts be obtained or made at a lower cost?

4. Considering alternatives

5. Selection of the least cost alternative 

   The costs of each alternative should be compared.

6. Recommendation 

   The preferred alternative should then be recommended to the decision markers for approval.

7. Implementation and follow-up

   Once a value analysis proposal is approved and accepted, its implementation must be properly planned and co-ordinated.

   The alternative should be reviewed afterwards.