What is Value Analysis?

Value analysis is a step-by-step way to get more value from a product, service or process. You list what each part does (its function), find out what each part costs, and then look for cheaper or better ways to deliver the same functions. In this method, value is the ratio of function to cost.

Where does value analysis come from?

The method started at General Electric during the Second World War. Shortages of materials and parts pushed Lawrence Miles and colleagues to look for substitutes. They found that many substitutes cost less and worked as well or better. GE called the approach "value analysis". The same method used during design later became known as value engineering. The Society of American Value Engineers, now SAVE International, was founded in 1959, and US law requires federal executive agencies to keep value engineering procedures in place.

How does value analysis work?

A few concepts carry the whole method:

• Function: what a product or part does for the customer, ideally written as a verb and a noun, such as "protect contents".
• Basic function: the reason the customer buys it. This must be kept.
• Secondary functions: everything that supports the basic function or adds appeal, such as looks or convenience.
• Value: how well the functions are delivered relative to their cost.

What are the steps of a value analysis?

The Chartered Institute of Procurement and Supply (CIPS) describes five steps:

1. Gather information on requirements, costs and technical limits.
2. Analyse functions. Identify the key components and whether each one serves a primary or secondary function.
3. Be creative. Generate alternative ways to deliver each function, with ideas from across the organisation.
4. Evaluate the ideas and choose the best options.
5. Develop the chosen options in detail, with confirmed costs.

Larger programmes, such as the US Federal Highway Administration's value engineering job plan, add a presentation to decision makers, implementation and an audit of the savings.

Why does value analysis matter in B2B sales and marketing?

It works on both sides of a deal.

Buyers use it. Procurement teams use value analysis to judge what each component or service is worth and where costs can come down. If you sell to them, expect questions such as "Is there a standard part that does this?" or "Can this feature be removed?" Show which functions your product delivers and what they cost over time, not only the list price.

Marketers can use it. A marketing team can run the same review on its own stack. List each tool, the functions it performs and its yearly cost. The review often shows two tools doing the same job, or an expensive plan paying for features nobody uses.

Benefits and limits

Benefits

• Lower cost without dropping what customers pay for.
• A clear, shared view of why each part exists.
• A push to question old processes and try newer options.

Limits

• It takes time and needs people who know the product well.
• Deciding what counts as "value" can be hard.
• Used badly, it becomes plain cost cutting that removes functions customers need.

Related terms

• B2B
• Product life cycle
• Four Ps of marketing
• Minimum viable product