Value engineering - F5, P5

Currently, we can see that accountant has started to change role to become a hybrid accountant. Hybrid accountant has both accounting knowledge and an in depth understanding of the operating functions or commercial processes of the business. Creation of value becomes one of the roles for management accountant. This is an important part of performance management as it leads to competitive advantage.

Value engineering aims to help design products which meet customer requirements at the lowest cost while assuring the required standards of quality and reliability are maintained. It is often regarded as the same as value analysis but we can separately discuss these concepts and include value analysis as part of value engineering. Value engineering techniques include:
1. Value analysis - this involves identifying and cutting out non-value-added activities. Harmon gives a number of examples for non-value-added activities: preparation and set-up, control and inspection, simply moving a product from one place to another without physically changing it, activities that result from delays or failures of any kind. All these should be eliminated as far as possible.
2. Functional analysis - this involves analysing the production functions to determine how changes can be made to improve so as to reduce costs while adding value to customers. For a camera, a number of functions are highly valued by customers, you can see now digital camera is widely used worldwide and functional analysis could have been undertaken to modify the old camera.
3. Design analysis - this involves determining the best design of the product that will keep the costs at the minimum while adding value to customers. Computer has become smaller and smaller, the design is liked by customers and the cost of producing the smaller computer should have been lower than before.

Management accountant can assist in identifying the opportunities for value enhancement and also removing activities that destroy value. Value engineering is also commonly used to close the cost gap identified in target costing so that target price can be used.