Value Analysis

Imagine you’re a product design engineer stuck on how to reduce the cost of your company’s existing product: reusable coffee cups. As a daily coffee drinker, you’re well aware of all the typical frustrations of travel mugs, especially when you go to take a sip… only to end up staining your shirt instead. You want to revamp the design to ensure smooth sipping—but you also don’t want to cost the company a fortune either. In this scenario, a value analysis may be your best friend in achieving this perfect balance.

A value analysis (VA) is a useful technique to introduce a reasonable price for manufacturing an existing commercial product or service.¹ As a systematic approach, a value analysis examines designs within an organization and its industry to evaluate the effectiveness of their function. It also considers the lowest cost—both in terms of production and customer willingness to pay—while ensuring performance satisfaction. This concept can be a bit confusing, especially for those of us who aren’t engineers, so let’s break it down into its key parts.¹

Separating “Value” from “Analysis”

Before diving into VA, it is important to consider what value is in general. Consumers may define value differently depending on whether they’re interested in how well a product works, how aesthetic it is, or how applicable it may be to a given situation. But as a general rule of thumb, we can consider value as equal to the function of a product relative to its cost.¹

In a typical value analysis, value is systematically calculated in team settings, usually amongst management. Critically, the analysis part of this approach comes into play when determining the function of a product or service in meeting the customer’s needs. This is usually achieved through a review process that tests the “fit” between a product and its value—and most importantly, whether this feels justifiable to the target consumer or not. In particular, this process may include determining what a fair price is for the average customer, as well as distinguishing between the product’s use value (practical utility) and esteem value (personal desirability).¹

Value Analysis, Simplified 

A lot of VA can feel abstract. Here is a brief summary of what a value analysis looks like in its simplest form (using our travel mug example from above):

1. Determine the function of a product or service. Taking coffee on the go when you (unfortunately) don’t have time to sit and chat. 
2. Set a value for the given function of a product or service. For a to-go cup that really works by keeping coffee hot and avoiding spills, you decide the fair value is $25.00.
3. Provide the necessary function of a product or service relative to the overall cost. You consider how the mug’s assigned cost and its functions are relative to the manufacturing cost, design cost, or any other overheads. 

Value Analysis, Expanded

We can further break down VA to understand each phase involved in how a product, process, or service may be improved relative to cost. This comprehensive breakdown is also known as a value analysis job plan, which is usually brainstormed in workshop settings and includes alternative plans to ensure a product’s function is maintained. The six phases are as follows:³

Value Engineering and Value Management

While a VA approach analyzes existingproducts or services, value engineering (VE) evaluates a newproduct or service from a design perspective, while value management (VM) optimizes the overall project from a bird's eye view.⁴ The principles across the board are essentially the same, but we can further distinguish VA, VE, and VM by asking the following questions: