Value Analysis

There are 2 terms that we use frequently, ‘value adding’ and ‘non-value adding’. We use these terms to categorize processes, functions, activities etc. In most instances it is implied that an activity could be either value adding or non-value adding. However, there is a third category also which comprise of “required” activities. This article is intended to give a basic understanding of these 3 categories.

1. Value adding activities 

These are the activities for which customer is willing to pay. According to many lean six sigma practitioners an activity must meet the following criteria in order to be a value adding activity.

1. The activity must change/transform the product (or service)
2. Customer is willing to pay for the change caused by the activity.
3. The activity must be performed right the first time.

2. Non- value adding activities

These are the activities which do not add any value to the customer. In lean management an activity is considered as a non-value adding activity if it results in any of the following

1. Defects
2. Overproduction
3. Waiting
4. Non utilized staff
5. Transport
6. Inventory
7. Motion
8. Excess Processing

(This can be easily remembered using the acronym DOWNTIME. )

3. Required activities. 

Although an activity is a non-value adding one, it may not be possible to simply eliminate it. Most of such activities are required for some reason such as administrative, compliance requirements etc. Such activities can be categorized under a third category which are ‘non-value adding but necessary’. In fact, it seems most of the activities in service delivery fall into this category.

Now let’s take a simple business process of withdrawing money from an ATM to understand this further. Activities of this process might include.

• Language selection is a non-value adding activity which can be eliminated. Ideally the bank should have recorded customer’s preferred language to be used in ATM
• Selecting bank account is also a non-value adding activity. This is not required unless the customer is having more than one account and also the debit card is linked to more than one account. In such instances only it should ask the customer to select the required account.
• There are many required activities which do not add value. It seems these cannot be eliminated but optimized. E.g. It is possible to combine the two activities 9 and 11 by displaying ‘print receipt’ as an option under “any other service is required?”. This will help reduce one screen. 

How can we apply this understanding in practice?

1. Try to categorize all activities in to these 3 groups
2. Improve value-adding activities.
3. Minimize non-value adding but required activities.
4. Eliminate non-value adding activities.