What Is Process Value Analysis?

Process Value Analysis (PVA) is the examination of an internal process that businesses undertake to determine if it can be streamlined. PVA looks at what the customer wants and then asks if a step in a process is necessary to achieve that result. The goal of PVA is to eliminate unnecessary steps and expenses incurred in the value chain required to create a good or service without sacrificing customer satisfaction. The result is that a good or service may be delivered to the customer more rapidly and at a lower cost.

Key Takeaways

  • A Process Value Analysis (PVA) examines each step in a specific business process to determine if it can be improved or streamlined while still maintaining customer satisfaction.
  • Companies that conduct a PVA want to provide goods or services to customers at a lower cost and more rapidly.
  • A drawback to conducting a PVA is the potential the company eliminates a process or alters a step that then results in unintended consequences, such as delaying the delivery of goods or impairing its relationship with its customers.

Understanding Process Value Analysis (PVA)

In conducting PVA, managers will consider whether any new technologies could be profitably implemented, whether errors are being made that could be avoided, whether there are extra steps in the process that are unnecessary, and so on. Any steps in the process that are identified as not adding economic value may be changed or thrown out. A process may repeatedly be examined as new technologies emerge that could make the process more efficient.

A PVA requires managers to objectively analyze all areas of their operations, pinpointing those activities that do not add value and are not cost-effective.

Management can conduct PVAs to review and evaluate processes in a full range of business areas throughout the company. For example, a company could assess the processes and functioning of inbound logistics, operations, outbound logistics, marketing, sales, and customer service.

Criticism of Process Value Analysis (PVA)

One risk of PVA is that some critical steps in a process may be eliminated. Processes sometimes include control points to ensure that rules are followed. These rules may be designed to establish cost controls, safeguard proper accounting procedures, and other internal controls. Eliminating a needed control point can result in unintended consequences for the company.

For example, if a PVA focuses too much on cutting costs, the company runs the risk of removing or altering a process that keeps the business running smoothly. An illustration of this would be a company that decides to outsource its customer service department to a third-party vendor only to find that the vendor does not have the workforce or expertise in place to provide good customer service. To prevent situations like this from occurring, a company may hire a controls analyst to help oversee the PVA and to consult with the internal accounting staff and management.

Examples of Process Value Analysis (PVA)

Some companies have undertaken PVA to streamline their purchasing processes. For small purchases, they have opted to issue managers procurement cards from major credit card companies. This has proved less expensive than requiring that small purchases go through the multi-step process normally required for large purchases.

Companies will sometimes conduct PVAs when they have made an acquisition. A PVA may reveal whether the acquired company has processes that are less efficient than those of the acquiring company or vice versa. A PVA can also help management maximize the synergy or potential financial benefit it hopes to achieve through the combining of companies.