Cost AccountingFinancial Accounting

What is Process Value Analysis?

Process Value Analysis

Process Value Analysis is fundamental to activity-based responsibility accounting.

Process value analysis (PVA) is a technique that managers use to identify and link all the activities involved in the value chain. It analyzes business processes by relating activities to the events that prompt those activities and to the resources that the activities consume.

Process value analysis can help you evaluate any process – business process, financial process, customer service process, 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, which in turn improves management decisions and increases 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.

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