What it means
Every process is made up of activities, such as receiving an order, checking credit, approving payment or moving goods. PVA asks of each activity whether the customer would be willing to pay for it if they knew it was happening.
Activities that change the product or service in a way the customer values are called value-adding. Those that do not, such as waiting, rework, inspection or moving documents between desks, are non-value-adding, and some are necessary only because of legal or control requirements.
Once the steps are classified, the team measures the time and cost each one takes. This reveals where the money goes, and often shows that a large part of the cycle time is spent waiting rather than working.
The team then looks for ways to remove, combine, automate or speed up the non-value-adding steps. Some cannot be removed, for example an audit check that is required by regulation, but they can be made more efficient, and the savings are then tracked against the cost of the change.
PVA is closely linked to activity-based costing, which assigns costs to activities and then to products. By identifying which activities add value, managers can target savings without harming quality or customer service.
One caution is that the classification can be subjective. A step that looks pointless to the customer, such as a credit check, may protect the business from losses, so the team should consider the business purpose before cutting anything.
In practice
Real-world examples.
Example
A hospital maps the journey of a patient from arrival to discharge and finds that patients spend most of their time waiting for results. It reorganises the lab schedule, which cuts the average stay by half a day. The saving frees up beds for other patients.
Example
A furniture maker discovers that each order is re-entered into three different systems. The re-keying adds no value for the customer and causes errors. The company links the systems and saves 15 minutes per order. With 8,000 orders a year, that adds up to 2,000 hours of staff time.
Example
A bank reviews its loan approval process and finds that applications wait in queues for 80% of the time. Management introduces automatic credit scoring for small loans. Decisions that used to take a week are made in a day. Staff are freed to deal with complex cases that need human judgement.
Formula
Calculation
Process cycle efficiency = value-adding time / total cycle time x 100
Cost of non-value-adding activities = number of transactions x cost per transaction of non-value-adding steps
Suppose approving a supplier invoice takes 20 days from receipt to payment, but only 2 days involve value-adding work such as checking the goods match the invoice. Process cycle efficiency = 2 / 20 x 100 = 10%.
The company processes 5,000 invoices a year, and the non-value-adding steps (waiting, re-keying, chasing approvals) cost $12 per invoice. The annual cost is 5,000 x 12 = $60,000.
If redesigning the process halves that cost per invoice to $6, the saving is 5,000 x 6 = $30,000 a year.Case study
Seen in the real world.
Kestrel Components is an illustrative, fictional manufacturer whose customers complained about slow delivery of custom orders. A process value analysis team mapped the journey and found that each order took 30 days, but only 6 days involved making the product.
The remaining 24 days were spent in quotation approvals, waiting for drawings to be signed off and moving paperwork between departments. The team calculated that the process cycle efficiency was 6 / 30 x 100 = 20%.
In this illustrative story the company introduced a single approval step, an electronic drawing system and a shared order file. Cycle time fell to 18 days, and efficiency rose to 6 / 18 x 100 = 33%, which let the firm take more orders without extra staff.
Watch out
Common mistakes.
- Cutting any activity that looks unproductive without checking whether it supports legal compliance, safety or risk control.
- Measuring only cost and ignoring time, when waiting time often matters most to customers.
- Doing the analysis once and stopping, when processes drift as staff, systems and customer needs change and the gains gradually disappear without regular review.
Questions
People also ask.
What is a value-adding activity?
One that changes the product or service in a way the customer is willing to pay for, such as assembling a product or giving advice.
Is a necessary but non-value-adding activity possible?
Yes, activities such as statutory reporting or safety inspection do not add customer value but are needed, so the aim is to do them as efficiently as possible.
How does PVA relate to lean?
Lean uses similar ideas, calling non-value-adding steps waste and focusing on removing them to speed up flow and reduce cost, so process value analysis is often one of the tools used inside a lean improvement effort.
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