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Value Analysis

This document discusses concepts related to value analysis including target costing, value analysis, value engineering, and the benefits of value analysis. It defines target costing as establishing relationships between cost, price, and profit. Value analysis is a planned approach to cost reduction without compromising quality or value to the customer. Value engineering applies value analysis techniques to new products for cost avoidance or reduction before production. The benefits of value analysis include reduced costs, improved quality, and increased sales and profits.

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Lawal Abdul-Rasheed Ayinde
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© © All Rights Reserved
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72 views

Value Analysis

This document discusses concepts related to value analysis including target costing, value analysis, value engineering, and the benefits of value analysis. It defines target costing as establishing relationships between cost, price, and profit. Value analysis is a planned approach to cost reduction without compromising quality or value to the customer. Value engineering applies value analysis techniques to new products for cost avoidance or reduction before production. The benefits of value analysis include reduced costs, improved quality, and increased sales and profits.

Uploaded by

Lawal Abdul-Rasheed Ayinde
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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MPM817 – VALUE ANALYSIS

Course Outline (as in the Handbook)


1. Identification of Unnecessary Cost
2. A Systemitised Approach to Value Analysis
3. Life Cycle Costing in Construction
Course Outline (as to be taught)
4. Target Costing, Value Analysis and Value Engineering
5. Benefits of Value Analysis
6. Functional Analysis -
 Identification of Unnecessary Cost
 Cost Value, Exchange Value, Use Value and Esteem Value
4. A Systemitised Approach to Value Analysis
5. Life Cycle Costing in Construction
 Target Costing
 
Target costing is an activity aimed at reducing the life-
cycle costs of new products, while ensuring quality,
reliability, and other consumer requirements by examining
all possible ideas for cost reduction at the product
planning, research and development and prototyping
phases of production

o It  is  not  just  a  cost  reduction  technique;  it  is  part  of  a 
comprehensive strategic profit management system
 
o Target costing is a proactive cost control system.
 Target Costing (cont’d)

 Concept of Target Costing


a) Establish a predetermined selling price based on customer’s
views/perception
b) Establish the Target Profit
c) Target Cost = Predetermined Selling Price – Target Profit
d) Concept such as Functional Analysis, Value Analysis and
Value Engineering are used to change production methods
and/or reduce expected costs so the target cost is met

- In summary, Target Costing establishes the relationships


between cost, price and profit
 Value Analysis

 Is a planned and scientific approach to cost


reduction which reviews the material composition
of a product and production design so that
modifications and improvements can be made
which do not reduce the value of the product to the
customer or to the user. (i.e. quality for purpose
should not be compromised) CIMA
 Value Analysis (cont’d)
 Value analysis - is a function-oriented, structured,
multi-disciplinary team approach to solving
problems or identifying improvements.

 The goal of Value Analysis is to:

o Improve value by sustaining or improving


performance attributes (of the project, product,
and/or service being studied)

o Reduce overall cost (including life-cycle operations


and maintenance expenses)
 Value Engineering
 Is redesign of an activity, product or service so that
value to the customer is enhanced while costs are
reduced
- Value Engineering is the application of value analysis to new
products.

- Value engineering relates closely to target costing as it is cost


avoidance or cost reduction before production

- Value analysis is cost avoidance or cost reduction of a product


already in production

 Both adopt the same approach i.e. a complete audit of the product
 Value Engineering
 Is redesign of an activity, product or service so that
value to the customer is enhanced while costs are
reduced
- Value Engineering is the application of value analysis to new
products.

- Value engineering relates closely to target costing as it is cost


avoidance or cost reduction before production

- Value analysis is cost avoidance or cost reduction of a product


already in production

 Both adopt the same approach i.e. a complete audit of the product
 Benefits of Value Analysis

 Reduction in costs but not in quality

 Improving  product  quality  and  attracting  more 


customers

 Increased  sales  might  lead  to  economies  of  scale  and 


either increase profits or reduce selling prices

 The  organisation  may  decide  to  increase  selling  price 


if there is improvement in quality
 Benefits of Value Analysis (cont’d)

 Identify  and  develop  strategies  to  mitigate  or  avoid 


risks and the associated costs

 Identify  opportunities  which  promote  context-


sensitive-solutions

 Validate  project’s  scope,  purpose-and-need,  and 


baseline design
 Benefits of Value Analysis (cont’d)

 It  provides  an  opportunity  for  a  structured  and 


thorough review by functional experts

 It often reveals new information that fosters a project’s 
advancement in a timely manner

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