The Impact of Value Analysis and Value Engineering on Organizational Profitability

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ABSTRACT

This work focuses on The Impact of Value Analysis and Value Engineering on Organizational Profitability

CHAPTER 1

1.1 BACKGROUND OF THE STUDY

Value Analysis/Value Engineering is a systematic and organized procedural decision-making process. It has been used in almost any kind of application. It helps people creatively generate alternatives to secure essential functions at the greatest worth as opposed to costs. This is referred to as value. It is also known as Value Analysis, Value Management, Value Planning, and a host of other names.

As organization seeks to maximize profitability, they have utilized various business strategies and techniques to ensure that this objective is realized. With the current competitive and fast pace dynamic environment, every organization strive to maintain it customers based, and also gain competitive advantage over its competitors by providing goods that are of value to the customers. Value according to Miles (1989) is the lowest possible price that can be paid for to provide a reliable function or services.

Over the world, there is always a need to provide goods that are of values and also capture the attention of the customers, and Nigeria is not an exception. Organization can do this by revisiting the product designs of products offered to the market. So there is a need for value engineering as a management tool that aims at providing an improved product design that will not reduce the value derived by the customers.

According to West Virginia division of highway (2004), “Value engineering is the systematic application of recognized technique by multi- discipline team that identifies the function of a product or service, establishes a worth for that function; generates alternative through the use of creative thinking, and provides the needed functions, reliability at the lowest overall cost.” This approach requires that in the process of minimizing cost, the required quality and performance should not be sacrifice. Value engineering as a technique involves the identification of new alternatives to product design at a reduced cost. So organizational profitability has become the concern of researcher as there are quite a number of study on value engineering, but not much work has be done empirically on this topic in this part of the globe. So this study aims at empirically ascertain value analysis and value engineering impact on organizational profitability.

Value Analysis and Value Engineering (VA/VE) has both primary and secondary functions.

PRIMARY FUNCTIONS

Value Analysis is a study of function, the function of parts material or service is the function of parts material or service is the job it does. Its frequently defined as “something” which makes an item work or sell” it can be usually be defined with a verb and a noun viz.

Knife: Cut materials.

Thermometer:- indicates temperatures.

Defining function by using just two word, the verb, the noun, represents the attempt to define more than one simple function at one time and makes the function in addition to the primary or basic function earlier mentioned.

SECONDARY FUNCTION

Which are the creation of eye appeal to help sell the product and certain added feature which will appeal to the buyer but really add nothing to the accomplishment of the basic function except for the advanced countries like those of the America and Europe, among others, the concept of Value Analysis and Value Engineering had meant little or nothing to the developing nation of the globe.

However, there has emerged a possible recognition of it in the recent times. Therefore, some of the companies are recording better mark ups on their sales and purchasing personnel through the program are offering fair prices on procurement activities.

1.2 STATEMENT OF RESEARCH PROBLEMS

Since organization needs to present products that are of value to the customer for them to be profitable, every organization is in a need to achieve this. But the problem here is that not all organization has what it takes to provide the necessary product design that will culminate to value to the organization.

Lack of innovation product design which is part of value engineering is lacking in organization. Also inability to identify alternative to indentified function of a product is a problem faced by most organization in their production process. If there is no alternative to identified function, it will be difficult to reduced cost without sacrificing the value to be derived by the customers. Therefore cost reducing is an essential criterion of public limited companies in Nigeria for been profitable and Value Engineering remains a technique for achieving this goal of cost reduction and profitability in Public Limited Companies.