TPV Chapter 2-14-15 En

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Value Analysis and FMEA ILV

Chapter 2 Value Management (VM)


Dr. Werner Leitner Page 2 WS 2014/15

1   Use of methods to solve complex transformation processes 2   Value Management (VM) 3   Value Analysis (VA) 4   Failure Mode and Effects Analysis (FMEA)

(Chapter 2) Value Management

Content Technical Product and Value Analysis

2.1 INTRODUCTION AND DEFINITION Slide 4

2.2 KEY PRINCIPLES OF VALUE MANAGEMENT Slide19

2.3 VALUE MANAGEMENT STUDY Slide 20

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2.1 INTRODUCTION AND DEFINITION Slide 4 strategic orientation, business targets as basis of business activities, economic targets, activities to close the gap to the target, value based management, value management

2.2 KEY PRONCIPLES OF VALUE MANAGEMENT Slide

19 2.3 THE VALUE MANAGEMENT STUDY Slide

20 value methods and tools, functional performance specification (FPS), design to cost (DTC) / design to objectives (DTO)

Content – Value Management



Strategy

2.1 INTRODUCTION AND DEFINITION

Business today

Business tomorrow? (business

goals)

Strengths + Weaknesses

External analysis (Know-how)

•  Globalization of markets •  Intensification of competition •  Time as important dimension •  Innovation pressure •  Development of new business structures

Strategy driver enviroment

Environment changes as strategy driver

New challenge of the 21st century

Steering function of the management

(definition of goals)

è  Strategies have to be developed to respond to those challenges (to reach the business goals)

Fulfilling business goals

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BusinessTargets as Basis of all Business Activities Business targets are the conditions which should be reached on a long term base. The risks to

reach them should be transparent.

Planning of targets = Main task of Management

Social target system •  Securing jobs •  Ergonomic workplaces •  Fair payment •  profit-sharing •  Greater say in companies •  etc.

Business management target system

Economic target system •  Profit (Success) •  Profitability •  Business efficiency •  Productivity •  Liquidity •  Financial structure (EK,

FK) •  etc

Ecological target system •  Environmentally friendly

production •  Waste recycling •  Avoidance of environmentally

critical material •  Recycling capability •  Minimization of the raw material

and the energy use •  etc.



Financial – Economical Goals a)  Earn money (measure: profit)

b)  Secure source of income (measure: equity)

Return on Equity (ROE) = Net Income

Shareholder Equity

Equity Ratio (ER) = Total Shareholder’s Equity

Total Assets

Control through Return on Investment (ROI)

ROI = ROE x ER = Net Income

Total Assets

Profit = income – expenses Goal: Increase profit

1. Increase profit

2. Reduce costs

1.  Maximal Principle The goal of economic activities is to realize a

maximum output with a given input.

2. Minimal Principle The goal of economic activities is to reach a defined

output with a minimal input.

3. General Extremum Principle The goal of economic activities is to optimize the

ratio between input (used resources) and the output (realized earnings) within one economic

process.

Economic principle

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Objectives: Increase Profit – Two Ways to Go

In Anlehnung an Prof. Dr. Udo Lindemann

1. Increase proceeds 2. Decrease costs

•  Market-conform products •  Better distribution •  Shorter delivery times •  Better service

Development of cost-effective products

•  Cost-effective concepts •  Material-effective

construction •  assembly-compatible

construction •  In-house standards:

reduction of component variety, class, modular system

Responsibility of the development

In Anlehnung an Prof. Dr. Udo Lindemann

Rationalization of the production

•  Computer application •  Flexible automation •  Reduction of staff costs •  Planning and controlling

of workflow •  Reduction of stock

Responsibility of the different departments



Business Goals as the Basis of all Business Activities Overall goal e.g. cash

flow

Projection of goal

prediction

effective achievement

of goals

Previous goals

Strategically gap

Operational gap

time

Gap

past presence

future

Overall goal

§  Economic goals §  Ecological goals §  Social goals

Rationalization gap (increase if efficiency)

Innovation gap (increase of effectivity)

Strategy

SWO

T A

naly

sis Internal analysis strengths

or weaknesses

External analysis chances

Or threats

to close …

GA

P A

naly

sis

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Measures to Close the Gaps

Goal: increase profit

(Product) Innovation (increase proceeds )

Rationalization (reduce costs)

Rationalization of the production

•  Computer application •  Automation of the manufacturing •  Reduction of staff costs •  Reduction of stock •  Accelerated workflow

Cost-effective product design •  Reduction of component variety, production and

assembly oriented design, standard components etc.

•  Market-conform products •  Better quality •  Shorter delivery times •  etc.

Innovation = something new in technology and organization.

•  Schumpeter defines innovation as an established technical or organizational change (not only its invention)

•  Generally an innovation can be seen as an idea or an object which is new for the company.

Use of Value Management



Value Management

Value Management The Management fulfils the following

tasks: •  Design: definition of a institutional

framework (enables training and development possibilities)

•  Development: introduction and

overcoming of change processes

•  Control: Definition of goals and realization of thus derived activities

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The Value Concept of Value Management

Value (of an investment) from the view of a company’s shareholder

The goal of the shareholder value concept is to maximize the value of a corporation for the shareholder in a long and sustainable manner (= sum of the stock price gains, dividend and option on ne stocks)

But it is not possible to increase the shareholder value on a long term base if the interests of all other stakeholders are not considered.

Following the EN 12973 VALUE is the relationship between the satisfaction of the customer needs and the resources used to satisfy these needs. Value is nothing absolute. Different parties see value in a different way depending on the situation (the symbol α displays this fact).

Satisfication of Needs

Use of Resources α

(e.g.: Shareholder: invest)

„What does the customer want?“ (e.g.: Shareholder:

income return)

Value



External Stakeholder

The Objective of Value-oriented Management Concepts

Stakeholders, respectively internal and external customers, can have very different viewpoints about the meaning of value:

Internal Stakeholder

Corporation

Employees

Manager

Shareholder

Owner

Supplier

Costomer

Government

Public

Creditor

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Value-oriented Strategical Management

Stakeholder Orientation Shareholder Orientation

Interests: of all stakeholders are taken into consideration.

Aim: to gain value for all stakeholders.

Measure for success: different value indices (often not possible to quantify these, conflict of aims)

Interests: owners have first priority.

Aim: to maximize the value for the owner (Shareholder Value)

Measure for success: Shareholder Value as the main key indicator

The concept of the Shareholder Value is a long-term and broad concept of targets to increase the company’s value. That is the reason why this concept is also called Value Based Management or value-oriented Management.

This is only

possible if …



Successful companies •  Potentials for success •  Results above-average •  Increase of company’s value

Increased competitive level

•  New customers •  Increase of customer

satisfaction and •  customer benefits

•  additional jobs •  attractive employer

•  new and •  better products

New investments

Customer

Public

Supplier

Employees

Government

Shareholder High share price High return: shareholder Low cost of capital

Competitive salary Attractive profit sharing Motivated employees

More taxes through the company and the employees

Capital for funding the company’s growth

Impact of a Value-oriented Management

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Main Elements of a Value-oriented Management Concept

Value-oriented Incentive Systems

è Payment

Value-oriented Management

è Strategy

Value-oriented Communication

è  Investor Relations

Value-oriented Controlling



Value Management

Value Management (VM) is a management style which is especially suitable to activate people, to develop skills and to promote synergies and innovation.

The goal of all this is to maximize the overall performance of an organization.

►  On the management level it is based on a value-oriented organizational culture. The value will not only be considered for the shareholders but for all stakeholders.

►  On the execution level Value Management offers adequate methods and tools.

The development from Value Analysis to Value Management: 1.  VA/VM methodology 2.  operative VA/VM project management 3.  strategic VA/VM culture and philosophy

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The Benefit of Value Management

► Efficient management of activities/project management

► Better understanding of the real customer needs

► High quality business decisions (on a strategic as well as on an operative level)

► Development of competitive products or services

► Problem-oriented working teams

► Development of the organization and their employees, their opinions and the organizational culture



Value Based Management versus Value Management

Value Management Value Based Management

•  Oriented towards the interests of the stakeholder.

•  Management approach which is based on a value and function concept to reach general corporate targets.

•  Value of a product, project, process and more are in the focus.

•  Interests of the owners/shareholder have priority.

•  Management approach which supports the long term and success-oriented economic security through the inclusion of the capital market theory in the operational control system.

•  The focus is on the value of the entire company.

è  Value Management is an important supporter to realize Value Based Management.

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2.2 KEYPRINCIPLESOFVALUE MANAGEMENT

Positive human dynamics

Methods and tools

External and internal

environment

Management style

SUCCESSFUL VM

Management style •  Value concept •  Function concept •  Creativity •  Customer orientation •  Quantitative evaluation

Positive human dynamics Team work is crucial to reach effective results.

External and internal environment

•  Laws/regulations •  National/international

policies •  Market conditions/

competitors •  Infrastructure/resources •  Organizational rules •  Competences of the

employees •  Corporate culture •  Business processes

Methods and tools •  Value Management study

(work plan) •  Methods which are used

within the Value Management study



2.3 THE VALUE MANAGEMENT STUDY Define the objectives in relation to the VM policy

and programme

Identify the methods and the support processes needed to achieve the

objectives

Select the people to be involved in the teams, define their roles and assess their

competences

Provide training as necesssary to apply the methods and work as a team

Agree how to measure changes in perfomance and use of resources

Set targets for performance and use of resources

Identify the essential functions to completely meet the objectives

Validate the proposals and implement them Monitor progress

Monitor and measure outcomes Compare achievements with targets

Apply the methods and support processes Identify innovative ways to achieve targets

Select and develop proposals for implementation at appropriate pre-determined points in projects

FEE

DB

AC

K F

OT

THE

CIP

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Specific Value Methods and Tools

►  Value analysis,

►  Function analysis,

►  Function costs,

►  Functional performance description,

►  Design to Cost/Design to Objectives.

Value Management System

VM Methods and Tools

Methods and Tools used concurrently





Specific Value Management Methods

and Tools

►  QFD

►  FMEA

►  etc.



Functional Performance Specification (FPS)

= Document by which an enquirer expresses his needs

Expression of needs (without references to technical solutions and with a minimum of constraints)

(thus the enquirer gets the most beneficial product)

The wording should stimulates the agent to find the best possible solution

► Performance specifications (user related facts.) ► Evaluation criteria (priorities) ► Must / should criteria

Result

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Work Plan of the Functional Performance Specification (FPS) Basic phase Elementary steps

1 Definition of the product needed 1.1 definition of the product

1.2 principal objectives (price. Time limit for the elaboration of the FPS)

1.3 context of the project

1.4 choice of a team leader, of a decision-maker if suitable

2 Collecting the information 2.1 the market: - existing products - market importance - commercial life prospect

2.2 context of the project (possible situation in a larger programme)

2.3 already carried out or studies on the way

2.4 miscellaneous (standards, patents, further developments, etc.)

3   Functional analysis 3.1 identification of user-related functions (function analysis techniques, etc.)

3.2 structuring and arranging in a hierarchical order of service functions (diagrams, function trees, FAST, etc.)

3.3 identification of indispensable constraints

3.4 characterisation of service functions and constraints

3.5 function costs objectives

4 Carrying out the other elements of the FPS

4.1 exploration of alternatives (expression of the user oriented function through the agent) (exploration of realistic solutions)

4.2 answering frame (functional structure, evaluation matrix)

5 Writing and validation of the FPS 5.1 writing of informative appendices, if suitable

6 Presentation and agreement of the FPS



Design to Cost (DTC) / Design to Objectives (DTO) = Cost oriented construction

Project management (Besides technical output and time, costs are an equally valid parameter)

Best technical solution in the context of the given cost target.

Result

Focus of the work: ► Identification of target costs, ► Cost-effective development and ► Cost control.

Documents

TPV Chapter 2-14-15 En