Process value analysis is a systematic approach to identify, analyse and improve the value of specific processes within an organisation.
Process Value Analysis’s (PVA’s) purpose is to cut back the number of redundant processes and prices within the value chain needed to deliver honest service whereas maintaining customer satisfaction. If an activity doesn’t give value to the process, the analysis team appears for tactics to eliminate it. A close process value analysis can facilitate an organization to cut expenses whereas also decreasing the method’s time.
The primary goal of the process-value analysis is to assess the internal process and remove any extra steps. This could aid the company organization in cutting costs associated with internal operations. Due to lower expenses for the business organization, the process-value analysis results in higher customer satisfaction.
Process Value Analysis
Process value analysis (PVA) is a technique that managers use to identify and link all the activities involved in the value chain. It analyses business processes by relating activities to the events that prompt those activities and the resources they consume. Process Value Analysis is fundamental to activity-based responsibility accounting.
Process value analysis can help you evaluate any process—business, financial, customer service, etc. This article will focus on explaining the basic principles and concepts for process value analysis. PVA forces managers to look critically at all phases of their operations. Managers who use ABM find it an efficient way of reducing non-value-adding activities and their costs.
Process Value Analysis (PVA) improves cost traceability and results in significantly more accurate product costs, improving management decisions and increasing profitability. By using PVA to identify nonvalue-adding activities, companies can reduce their costs and redirect their resources to value-adding activities.
For example. PVA has enabled companies like Westinghouse Electric, Pepsi-Cola North America, and Land O’Lakes to reduce the processing costs of purchasing and accounts payable.
After identifying the nonvalue-adding activities involved in small-dollar purchases (e.g.. recording and paying small bills, setting up accounts, and establishing credit with seldom-used suppliers) and their costs, managers of these companies decided to stop performing such activities internally.
Instead, they chose the less expensive alternative of using a particular credit card known as a procurement (or purchasing) card from Visa, Master Card, or American Express to handle large volumes of small-dollar purchases.
Importance of process value analysis in management accounting
PVA is important in management accounting because it can help managers to:
Reduce costs
The application of process value analysis generally uncovers unsuspected inefficiencies and cost-savings opportunities. For instance, a manufacturing organization may find some inspection processes unnecessary, or an organization providing service may learn some administrative functions may be automated. Such findings enable organizations to improve efficiency while achieving or enhancing quality and customer satisfaction.
Improve profitability
By improving the efficiency and effectiveness of their business processes, PVA can help managers to increase their company’s profitability.
Make better decisions
In addition to cost factors, process value analysis assists companies make better decisions in aligning their operations with their strategic goals. It offers a method of assessing whether resources are being utilized in a manner that is supportive of the company’s goals and competitive strengths. Alignment is especially crucial in the current business climate, where companies are required to make ongoing adjustments to shifting market dynamics and customer demands.
Continuous Improvement
Process value analysis supports ongoing improvement activities by providing a baseline for determining process effectiveness and efficiency. Periodic analysis allows organizations to monitor progress, detect early warning signs of emerging problems, and evolve with altering business environments. Ongoing assessment guarantees processes remain effective and relevant in the long run and achieve organizational success and sustainability.
PVA can be used to improve any type of business process, from manufacturing to customer service to administration. It is a particularly useful tool for management accountants because it can help them identify and eliminate waste and inefficiency.
Conclusion
Process Value Analysis (PVA) is a process to help improve business processes by identifying opportunities to automate, standardise and transform business processes, to improve operational efficiency. The method of this process is by examining the data from the real world and using this data to drive the design of improved processes. It is therefore all about the business processes and how they operate within the organization.
