THE UNIVERSITY OF THE WEST INDIES

ST. AUGUSTINE

THE EXPENDABLES VALUE CONSULTANTS LIMNITED

PHASE 2 INVESTIGATION OF BSAP COMPANY LTD.

PRMG6012 – VALUE ENGINEERING AND MANAGEMENT

Professor Kit Fai Pun

of
BURTON ORR 97030002

TIMMY ALI 02724627

SEON CHARLES 04707759

ANTHONY
809001943
HUTCHINSON

COLIN GREENE 04702931

FACULTY OF SHAM RAMGARIB 04745587
ENGINEERING BRENDON MUNROE 03770078
 ii

Letter to the Managing Director

The Expendables Value Consultants Ltd.

#2 Serpentine Rd.
Caroni
Trinidad
expvalueconsultants@gmail.com
20th November 2010

Managing Director
BSAP Company Ltd.

Dear Mr. E.S. Chan,

The members of The Expendables Value Consultants Ltd. would like to

express our gratitude towards your company for being hired to conduct a

Phase-2 investigation into the issues your company is currently facing. It has

been a pleasure working with you and our staff was glad to have contributed

to the future success of your company.

The attached report contains a detailed diagnosis of the problems, feasible

solutions for the problems, focal areas for further investigation in the final

phase and recommendations on design, implementation and monitoring of

an improvement programme.

The staff of The Expendables Value Consultants Ltd. can assure you that the

recommended solutions will definitely improve the success of your company

and establish a culture of value within your organization.

In the event of any further consultation, please feel free to contact us.

Yours respectfully,
 iii

I.E. Man
Lead VM Consultant
The Expendables Consultants Limited

Table of Contents
Letter to the Managing Director.......................................................................................ii
List of Figures...................................................................................................................v
List of Tables..................................................................................................................vii
1 .0 Introduction.................................................................................................................8
2 .0 Diagnosis of Main Problem and Identification of Causes..........................................9
2.1 Cause and Effect Diagram Showing Main Problem and Possible Causes.............11
2.1.1 Evidence of Causes.........................................................................................11
2.2 Short Term versus Long Term Concerns...............................................................20
2.3 Operational versus Corporate Concerns................................................................21
2.4 Diagnosis of Situations..........................................................................................21
2.4.1 Market Share...................................................................................................21
2.4.2 Quality Standards for CALBILD....................................................................27
2.4.3 Compensation Costs........................................................................................29
3 .0 Possible Solutions to the Problem............................................................................30
3.1 Sensitivity Analysis of Options.............................................................................36
3.1.1 Projected Proportions of Production among Options Generated....................37
3.1.2 Raw Material Cost Per Square Metre of CALBILD Board............................38
3.1.3 Conversion factor............................................................................................38
3.1.4 Raw Material Total Costs per Tonne of CALBILD Board.............................39
3.1.5 Procedures Adopted........................................................................................39
3.1.6 Compensation Practice Approach...................................................................41
3.1.7 Uplifting Approach.........................................................................................41
3.2 Assumptions and Constraints ................................................................................43
3.2.1 Assumptions....................................................................................................43
3.2.2 Constraints......................................................................................................44
4 .0 Focal Areas for Further Investigation in the Final Phase.........................................46
 iv

5 .0 Recommendations on Design, Implementation & Monitoring of a Improvement

Programme.......................................................................................................................49
5.1 Establishment of a Value Management Framework .............................................49
5.2 Value Management Policy.....................................................................................52
5.3 Value Management Programme............................................................................52
5.3.1 Hiring a Value Manager..................................................................................54
5.3.2 Value Management Study..............................................................................54
5.4 Value Management Training.................................................................................55
5.5 Value Management Tools and Methods................................................................56
6 .0 Conclusion................................................................................................................58
References.......................................................................................................................60
...........................................................................................................61
Appendix.........................................................................................................................61
Appendix A. Normal Distributions for Options Generated.........................................62
 v

List of Figures

Figure 2.1: Cause and Effect Diagram Showing Main Problem and Possible Causes....11
Figure 2.1: Cause and Effect Diagram Showing Main Problem and Possible Causes....11
Table 2.1: Fibre Glass Content 2005 - 2009....................................................................17
Table 2.2: Short Term versus Long Term Concerns........................................................20
Table 2.3: Operational versus Corporate Concerns.........................................................21
Table 2.4:Sales Data for CALBILD................................................................................22
Figure 2.2: Graph showing BSAP CALBILD Market Sales...........................................26
Figure 2.2: Graph showing BSAP CALBILD Market Sales...........................................26
Figure 2.3: Normal Distribution of Quality Standards for CALBILD............................27
Figure 2.3: Normal Distribution of Quality Standards for CALBILD............................27
Table 2.5: Analysis of Quality Control Records form Machine 2 (29-01-10 to 18-02-10)
..........................................................................................................................................27
Figure 2.4: Normal Distribution of CALCEIL samples..................................................28
Figure 2.4: Normal Distribution of CALCEIL samples..................................................28
Figure 2.5: Normal Distribution of CALBILD samples..................................................28
Figure 2.5: Normal Distribution of CALBILD samples..................................................28
Figure 2.6:Graph showing the relationship of Compensation Costs and Average %
Fibreglass with time.........................................................................................................29
Figure 2.6:Graph showing the relationship of Compensation Costs and Average %
Fibreglass with time.........................................................................................................29
Figure 3.7: Cause and Effect Diagram Showing Feasible Solutions...............................30
Figure 3.7: Cause and Effect Diagram Showing Feasible Solutions...............................30
Table 3.6: Feasible Options.............................................................................................34
Table 3.7: Projected Proportions among Options Generated...........................................37
Table 3.8: Raw Material Costs Per Square Metre of CALBILD Board..........................38
Table 3.9: Raw Material Total Costs Per Tonne of CALBILD Board............................39
Table 3.10: Compensation Practice Approach.................................................................41
Table 3.11: Uplifting Approach.......................................................................................41
 vi

Figure 3.8: Graphs showing variations in Gross Profits for Compensation Practice &
Uplifting Approach..........................................................................................................42
Figure 3.8: Graphs showing variations in Gross Profits for Compensation Practice &
Uplifting Approach..........................................................................................................42
Figure 5.9: Illustration of Value Management Framework within an Organization.......51
Figure 5.9: Illustration of Value Management Framework within an Organization.......51
Figure 5.10: Expertise/Knowledge Overlap of VM Study Team for BSAP Company...55
Figure 5.10: Expertise/Knowledge Overlap of VM Study Team for BSAP Company...55
Figure A. 1: Normal Distribution Curve for Option 1.....................................................62
Figure A. 2: Normal Distribution Curve for Option 2.....................................................62
Figure A. 3: Normal Distribution Curve for Option 3.....................................................63
Figure A. 4: Normal Distribution Curve for Option 4.....................................................63
Figure A. 5: Normal Distribution Curve for Option 5.....................................................64
Figure A. 6: Normal Distribution Curve for Option 6.....................................................64
Figure A. 7: Normal Distribution Curve for Option 7.....................................................65
Figure A. 8: Normal Distribution Curve for Option 8.....................................................65
Figure A. 9: Normal Distribution Curve for Option 9.....................................................66
 vii

List of Tables

Table 2.1: Fibre Glass Content 2005 - 2009....................................................................17

Table 2.2: Short Term versus Long Term Concerns........................................................20
Table 2.3: Operational versus Corporate Concerns.........................................................21
Table 2.4:Sales Data for CALBILD................................................................................22
Table 2.5: Analysis of Quality Control Records form Machine 2 (29-01-10 to 18-02-10)
..........................................................................................................................................27
Table 3.6: Feasible Options.............................................................................................34
Table 3.7: Projected Proportions among Options Generated...........................................37
Table 3.8: Raw Material Costs Per Square Metre of CALBILD Board..........................38
Table 3.9: Raw Material Total Costs Per Tonne of CALBILD Board............................39
Table 3.10: Compensation Practice Approach.................................................................41
Table 3.11: Uplifting Approach.......................................................................................41
 8

1 .0 Introduction

The BSAP Company limited has been experiencing problems relating to the quality of the

CALBILD product produced by the No. 2 machine. The symptoms arising from this situation

that this company is most concerned with are increased complaints, higher compensation costs,

lower market share, lower competitive power, lower revenue and lower competitive power. The

Expendables Value Consultants has been hired by the Managing Director to carry out a Phase-2

investigation into this problem. The objectives that are to be achieved in this investigation

consist of the following:

• Detailed diagnosis of main problem(s) and identification of causes

• Feasible solutions for the problem(s)

• Focal areas for further investigation in the final phase, and

• Recommendations on design, implementation and monitoring of a improvement

programme.

This report attempts to discuss the findings from the investigation carried out and present

any necessary recommendations.

 9

2 .0 Diagnosis of Main Problem and Identification of Causes

After comprehensive analysis of the BSAP Case, the Expendables Value Consultants

identified the overarching problem to be that of POOR product quality of the CALBILD product

where significant batches fail to meet the B.S. strength specification of 86 Kgm.

A review of the memoranda provided by BSAP Company Limited has revealed the following

symptoms of the overarching problem of poor product quality. These symptoms are listed below.

SYMPTOMS:

The following symptoms have been identified:

• Increase in complaints

• Higher compensation costs

• Lower market share

• Lower competitive power

• Lower revenue

• Poor company image

CAUSES:

The causes of these symptoms can be categorized into five major sections and

represented in the cause and effect diagram shown below.

 10

The categories of the causes of the symptoms are as follows:

• Communication

• Personnel

• Quality Control

• Strengthener Material

• Equipment
 11

2.1 Cause and Effect Diagram Showing Main Problem and Possible
Causes

Communication Personnel Quality Control

Poor staff Chaos between
attitude quality control
towards quality of 2 products
Lack of informal Absence of
discussion Standards Large Variations in
production quality
Mixing of quality control
control records
Insufficient inter- provided
department Failure of staff to
communication accept responsibility
Poor Product Quality
(CALBILD)
Lack of • Increase in complaints
investment • High Compensation Costs
• Lower Market Share
Absence of • Lower competitive power
alternative materials • Lower revenue
Old / Substandard
to chose from machine • Poor Company Image
Increase in Lack of
cost of fibre glass maintenance

Increase in Machine
Low fibre glass
No. 2 variability from
content
2005 - 2010

Strengthener Material Equipment

Figure 2.1: Cause and Effect Diagram Showing Main Problem and Possible Causes

2.1.1 Evidence of Causes

Reference is made to the memoranda and data collected from BSAP as evidence to the

causes of the problems arising.

 12

COMMUNICATION

i. Lack of Formal discussions

Memorandum No. 2 clearly indicates that the Production Director was upset that the

Sales Director raised the problem of outgoing quality at the Board Meetings without

consulting him first. The memorandum seems to suggest that the Production Director’s

style of communication is personal and informal, while the Sales Director communication

style is more formal and objective as can been seen in Memo No. 1 & 4. The Managing

Director responded almost two weeks after the Board meeting held on the 25th February

2010 on the findings of the Sales Director. This shows that managers are not

communicating in a timely manner to solve the company’s numerous problems.

In Memorandum No.3 the Sales Director stated that he found the previous meeting was

non-productive and there seemed to be disagreement on certain issues. It is also inferred

in Memorandum 1 – Memo 2 that there is a lack of properly setting and circulating an

agenda before a meeting, which adds to the inefficiency of a meeting.

ii. Insufficient Inter-department Communication

It also appears that the Sales and Production departments are disconnected when in fact

they are supposed to be closely communicating because decisions made in both

departments have company-wide impact.

Poor communication can also be seen through the difficulty of one department to attain

data from another department. If there were suitable communication tools and methods in

place and employees were trained in using these tools and methods this would result in

timely and accurate distribution of information needed.

 13

PERSONNEL

i. Poor Staff attitude towards quality

Memorandum No. 1 outlines the statements made by the Sales Director concerning the

working attitude of sales department. He stated that there seems to be a great deal of

slackness in the selling operation. “The Sales representatives are far too prone to making

unrealistic delivery promises and reporting of customer visits are sloppy. This is all due

to their clear lack of directive as to what is expected of them”. If the sales representatives

do not understand the uses or differences in CALCEIL and CALBILD they can sell the

wrong product to customers who would in turn lead to increased customer dissatisfaction

and resulting in increase compensation cost poor company image, and decreased market

share.

In Memo No. 4, the Sales Director aired his belief that a great deal depends on the

personal attitudes of the Production Managers concerned. In Memo No. 11, the Sales

Manager stated that he believes all problems would disappear if the Production people

were to roll up their sleeves and introduce procedures to meet quality specifications.

In Memo No.9, the Works Manager does not see a problem with quality variability as he

believes it is comparable to that achieved by the main competitors.

It can also be inferred that employees may be dissatisfied with their compensation

packages and in turn this is represented in their lack of devotion to their jobs. It also

seems that top management is not trained in management skills and practices. There
 14

seems to be an overall lack of professionalism needed at the executive level of the

company.

ii. Mixing of quality control records provided

In memorandum No. 4, the Sales Director indicated to the Board of Directors that some

exploratory work in my department has revealed a number of serious problems in the

quality. He believes that unless the problems are dealt with, the company’s ability to

compete will be placed in jeopardy and future profitability endangered.

He indicated that quality standards on our many products vary enormously from one

product to another and was unable to ascertain why the quality specifications for other

products are not met. It is inferred that a great deal seems to depend on the personal

attitudes of the production managers concerned.

The mixing of the records were discovered where the control records provided in Memo4

represented both CALBILD and CALCEIL products. The mixing of records can create

misconceptions and be misleading to management.

iii. Failure of Staff to accept responsibility

Memorandum No. 4 seeks to infer that the Sales and Production departments appear to be

disconnected when in fact they should operating as an integrated unit because decisions

made in both departments have company-wide impact. Neither department is willing to

take ownership of the problems. It also seems that employees of BSAP Ltd. are not held

accountable for their mistakes and no proper evaluation system is in replace to ensure

training and re-training of employees in their various roles.

 15

QUALITY CONTROL

i. Absence of Standards

In Memo 1, the Sales Director informed the Managing Director that he has initiated a

series of meetings with the area sales managers and they have already made significant

progress in working out new procedures and methods, which hopefully, will lead to more

aggressive selling. This statement seems to imply that there is a need to develop and

implement new procedures and methods. Due to the lack of clearly outlined procedures,

there is no system to guide consistency and support company performance. This can be

seen by the Sales department inability to set delivery times and stick to them and

reporting of customer visits which was deemed as being “ sloppy” by the Sales Director.

Lack of clear standards has also resulted in a lot of money being spent to compensate

customers as indicated in Memorandum No. 4.

ii. Chaos between quality control of two products

In Memorandum No. 7, the Technical Development Officer stated that he was puzzled by

the frequency distribution of strength that was presented from No.2 machine. He stated

that this data may refer to CALCEIL, another product containing fibreglass strengthener

but not intended for the same application as CALBILD. A conclusion can de deduced

that due to human error, the quality control records that were presented by the Sales

Director were mixed up, as the data provided showed that both products were

manufactured using the same machine.

The quality control records from Machine No.2 revealed that 57% of the data was

referring to the correct product, CALBILD and 43% of data collected was referred to
 16

another product type, CALCEIL, which was attributable to one of the main causes for the

high variability problem in product strength.

iii. Large Variations in Production Quality Control

Close examination of CALBILD samples revealed that the mean strength is still

approximately 1.7 Kgm below the British Standard (BS) specification of 86 Kgm; and its

standard deviation is 2 kgm greater than that of the initial level of 6 kgm that was

achieved five years ago, when the machine was first commissioned.

The Sales Director disclosed that the quality standards on many products vary

enormously from one product to another. He also stated that he was unable to discover

why the quality specifications for other products are not met.

The Technical Development Officer stated that he understands what the company could

stand to gain by reducing the variability. He believes increase investment is needed on

No.2 machine in order to achieve this lower variability. We were also informed that the

quality inspectors are told to reject a batch if the strength falls below 78 kgm. However

batches with strengths in the range 70-78 kgm are sold as seconds. Batches lower that 70

kgm are scrapped. In this case 16 % of material are scrapped or sold as seconds. 40 % of

accepted product will lie below the B.S specification of 86 Kgm.

STRENGTHENER MATERIAL

i. Increase in the cost of fibre glass

 17

Memorandum No. 7 indicates clearly, as stated by the Technical Development Manager

that there has been a 10% increase in the cost of fibre glass, the second rise in the last

twelve months.

The Sales Manager stated in Memo No. 11 that they do not have data in the right form to

show how the cost of customer complaints has varied with the proportion of fibre glass

strengthener. He went on to explain that, some idea of the effect can be seen by

displaying the cost of compensating the customer alongside the average % fibre glass for

each of the years 2005-2009.

Table 2.1: Fibre Glass Content 2005 - 2009

Year Average % Fibre Glass Compensation Cost

($)
2005 47.8 100, 000
2006 46.2 140, 000
2007 41.8 260, 000
2008 39.3 320, 000
2009 37.5 400, 000

Overall, there has been a decrease of 10.3 % in fibreglass from 2005 to 2009.

In Memo 12, the Works Manager stated that BSAP Ltd. made the decision to deliberately

decrease the fibreglass content over the years to cut production costs. However, BSAP

Ltd. needs to determine whether lowering the fibreglass content is worth diminishing the

company’s image and paying high compensation cost. This has resulted in decreased

market share for the period 2006 – 2009.

Although BSAP’s market share has decrease from 2006, it appears that sales have

increased (See Table in Memorandum No. 8). This indicates an increase in the local

market due to expansion of the construction industry. This resulted in increased sales
 18

revenue for BSAP Ltd. It is to quite notable as well to observe that as the fiberglass

content increases, the cost of wood flour and resin decreases (See Table 2 in

Memorandum No. 7), thereby mitigating some of the increase in total unit price.

ii. Low fibreglass content

The Production Director informed the Board that the B.S specification of 86 Kgm can be

achieved for CALBILD quite easily by introducing more fibreglass strengthener. There

needs to be a minimum amount of Fibreglass strengthener used in the manufacturing

process for CALBILD for the product to meet the specifications. In Memorandum No.

11, the Sales Director provided an estimate of the change in fibreglass content for the

period 2005 – 2009. This is shown in the table below.

Year Average % Fibre Glass % Change in Fibre

Glass Content
2005 47.8 0
2006 46.2 - 1.6
2007 41.8 - 4.4
2008 39.3 - 2.5
2009 37.5 - 1.8

As the company started to lower the % Fibre glass in an attempt to reduce production costs it was

in fact leading to the a decrease in the product quality and hence increased customer complaints .

iii. Absence of alternative materials to choose from

Inference is made in the memoranda since the Works Manager made a deliberate

decrease in the fiberglass content to maintain production costs. It is also inferred that

there may either be a sole supplier or a regulated industry price for this raw material to

the Company since the cost of glass fiber has increased twice within the last 12 months.
 19

EQUIPMENT

i. Lack of investment

The Technical Department Manager believes investment is needed on No. 2 machine to

lower variability however he is not sure if the economic climate would allow.

The Works Manager stated in Memo 13 that the decrease in fiberglass content over the

years was to cut production costs.

ii. Lack of maintenance

Lack of maintenance is inferred in the case by the increasing variability or increasing

standard deviation of the machine. This can be a combination of lack of maintenance, use

of substandard parts, or lack of applicable knowledge in repair and maintenance of the

machine. The cumulative effect of this over the 5 year period substantiates the sentiments

expressed by the Technical Department Manager in the above point about investment

being needed.

iii. Old/Substandard Machines

Evidence of use of old equipment in BSAP Ltd. is seen by the Works Manager being

unable to keep an appointment because he had to attend an urgent meeting on the

difficulties that Production is experiencing with No.4 machine. In Memo 10 the

Technical Department Manager stated that he believes increase investment is needed on

No.2 machine in order to achieve this lower variability.

It appears that the company is experiencing major problems with its production machine

lines, mainly machine 2 and 4. These problems contribute to the product strength
 20

variability which in turn contributes to wastage, higher compensation cost and customer

dissatisfaction.

iv. Increase in Machine No. 2 Variability from 2005 – 2010

The Technical Director, in Memorandum No. 10 indicated that a critical analysis was

done into the query about the variability in strength of test samples of CALBILD from

No.2 machine (See Table in Memorandum No. 4). It revealed that there is agreement that

the standard deviation of 8 Kgms for these results is high compared with tests made when

the machine was installed five years ago. According to records, the standard deviation

achieved about five years ago was 6 Kgms. The Technical director stated that he sees no

reason why this variability could not be achieved again with adequate control of the

process. He also believes that the company could gain by reducing the variability even

further since quality specifications could be achieved with lower fibreglass content. There

is doubt however as to whether this lower variability could be achieved by improving

quality control over and above that needed to reduce variability to the level in 2005. The

lower variability, he believes could be achieved if investment on No.2 machine is done,

however in the present economic climate he does not see this justifiable.

2.2 Short Term versus Long Term Concerns

The following table shows the short term versus long term concerns of the BSAP Company.

Table 2.2: Short Term versus Long Term Concerns

Short Term Long Term

Machine Variability Decreased Market Share
Customer Complaints Undesirable Organization Culture
Poor Quality Control Poor Company Image
Higher Compensation Costs Decreased Competitive Power
Alternate Materials/Suppliers
Total Quality Management
 21

2.3 Operational versus Corporate Concerns

The following table shows the operational versus corporate concerns of the BSAP Company.

Table 2.3: Operational versus Corporate Concerns

Operational
Lack of machine maintenance
Increased variability of Machine No. 2
Poor Quality Control
Ownership of Responsibility
Inefficient Meetings
Poor Communication
Departments
Reduced Fibreglass Content
Corporate
Lack of capital investment into Machine
No. 2
Poor Company Image
Lower Revenue
Lower Market Share
Lower Competitive Power
between High Compensation Costs
Increased Customer Complaints

2.4 Diagnosis of Situations

Using the data provided in the memorandums, the following situations were analyzed in an

effort to diagnose the main problem.

2.4.1 Market Share

Using the sales data for CALBILD (Memorandum 8), the following market share figures

were calculated.

Constraints and Assumptions

• The assumption made in this calculation is that the BSAP sales presented represent both

“First” and “Second” batches.

• One constraint is that the BSAP sales for the second quarter of 2010 along with the

annual local sales are estimated figures.

The following table displays the sales data along with the market share figures.
 22

2.4.1.1 Analysis of Given Data

Table 2.4:Sales Data for CALBILD

Ye Quart BSAP Sales Annual Local Sales

Market Share
ar er (Tonnes) (Tonnes)

1 230

2 390
20
6,000
06
3 540

4 380

1 260

2 440
20
7,100
07
3 520

4 410
 23

Ye Quart BSAP Sales Annual Local Sales

Market Share
ar er (Tonnes) (Tonnes)

1 290

2 503
20
8,300
08
3 505

4 490

1 350

2 560
20
8,800
09
3 540

4 460
 24

Ye Quart BSAP Sales Annual Local Sales

Market Share
ar er (Tonnes) (Tonnes)

1 390

20
9,600
10

2 600

Calculation of Market Share

The BSAP market share for each year was found using the following calculation:

Sample Calculation:

The market share for 2006 was calculated as follows:

25
 26

These results are presented graphically below.

Figure 2.2: Graph showing BSAP CALBILD Market Sales

From the graph shown in Figure 2.2, it can be seen that BSAP recorded a gradual decline in

the market share between the period 2006 to 2009. This was then followed by an acute, steady

decline from 2009 to 2010. This trend suggests that a problem exists with the CALBILD

product. It is also known that the fibre glass content of the CALBILD product has decreased

during 2005 to 2009 (Memorandum 11). Therefore, it can be deduced that the poor quality of the

CALBILD product is indirectly responsible for this decrease in sales further resulting in a

decline in the market share. This decline in sales creates a poor company image, lowers the

competitive power and generates lower revenue.

 27

2.4.2 Quality Standards for CALBILD

BSAP’s existing standard accepts all products with strengths greater than 78 kgm. Batches

with strengths between 70-78 kgm are considered seconds and those that are lower than 70 kgm

are scrapped. This is shown in the following diagram.

Figure 2.3: Normal Distribution of Quality Standards for CALBILD

Table 2.5: Analysis of Quality Control Records form Machine 2 (29-01-10 to 18-02-10)

Order No. B.S. Standard Sample size Mean strength Standard

(kgm) Deviation (kgm)
824* Not given 43 64.9 7.1
825* 86 kgm 57 83.3 7.3

Sample Calculations

Mean =

Standard Deviation =
 28

Figure 2.4: Normal Distribution of CALCEIL samples

Figure 2.5: Normal Distribution of CALBILD samples

As shown in figure 2.5 above, out of the 57 samples of CALBILD, more than half of the

population (63%) failed to meet the B.S. specified strength of 86 kgm. Additionally,

approximately 41% of the samples lie within one standard deviation of the required mean (78-86
 29

kgm) and this would have been sold as ‘first second’. This area is also where most of the

customer complaints and compensation are generated. Just about 10% of the samples would fall

in the ‘seconds’ category and the remaining 11.5% would have been scrapped.

2.4.3 Compensation Costs

The actual relationship between compensation costs and the proportion of fibreglass

strengtheners is not available (Memorandum 11) but an approximation of their relationship was

obtained dividing the annual output by the annual fibreglass usage to compute the raw material

cost and plotting it against the yearly compensation costs. This is shown in the following

diagram.

Figure 2.6:Graph showing the relationship of Compensation Costs and Average % Fibreglass with time
 30

3 .0 Possible Solutions to the Problem

The following diagram illustrates some possible solutions to the problem that BSAP Company

Limited is currently facing.

Communication Personal Quality Control

2-way Total Quality

communication Management

Performance Quality Control

appraisal system System
More informal Make aware of job
meeting descriptions
Good Product Quality
(CALBILD)
Buy new • Decrease in complaints
machine • Low Compensation Costs
• Higher Market Share
• Increase competitive power
More • Increase revenue
investment • improve Company Image
Increase proportion More
of fibre glass maintenance

Decrease in Machine
Alternative Supplier
No. 2 variability from

Strengthener Material Equipment

Figure 3.7: Cause and Effect Diagram Showing Feasible Solutions

The above cause and effect diagram indicates feasible solutions which can be undertaken

to alleviate some of the problems faced by BSAP Co. Ltd. It must be stressed that most of the

solutions under the various headlines are general solutions based on the views of the consultancy
 31

team. It must be noted however that there are two solutions where sufficient information is

available thus enabling our consulting team to deliberate in detail. These solutions are

highlighted in red on the diagram. Below is a discussion on the proposed solutions.

COMMUNICATION

i. More informal meetings

Improved communication inter-department is crucial so as to enable successful liaison

inter and intra departments. To improve this, our consultancy team suggests the use of the

following methods:

(a) An open door policy which will foster more efficient decision making between

employess and supervisors.

(b) Regular feedback be provided via suggestion box or debriefing sessions to improve

quality of work

(c) A well computerized management information system linking all departments and

enabling effective communication.

ii. Two way communication

To improve this we suggest a workshop for management and employees on

communication skills. Additionally, a team can be appointed to deal with

communications on a regular basis so as to boost employee morale.

PERSONNEL

i. Performance Appraisal System

 32

Implement a performance appraisal system to evaluate performance of employees and

ensure employees receive re-training in their various roles if necessary. This ensures that

staff is accountable and is linked to their functions and reporting structure.

Clearly defined job descriptions must be provided for employees and re-training is done

as the need arises for revision of job descriptions.

QUALITY CONTROL

i. Total Quality Management

Implementation of a Quality Management System ( ISO 9001 :2008) which will require

thatBSAP do the following :-

- Develop a set of procedures that cover all key processes in the business;

- Monitor processes to ensure they are effective;

- Keep adequate records;

- Check output for defects, with appropriate and corrective action where necessary;

- Regularly review individual processes and the quality system itself for effectiveness;

and facilitate continuous improvement

ii. Quality Control System

• Establish formal direct feedback loop between production and inspection departments to

ensure product quality is maintained during production runs

• Establish Measurable key performance indicators per department which utilizes a

performance framework such as a Balance scorecard to assess and discuss ways to

continuously improve performance. Production KPI’s should be based on a combination

of both quality and quantity.

 33

STRENGTHENER MATERIAL

i. Increased proportion of fibre glass

By increasing the fiberglass content the following will occur:

- Improved quality of the CALBILD Board

- Reduced consumer complaints

- A greater market share

- Reduced overall cost of production

ii. Alternative Supplier

- Source and alternative supplier of make arrangements with present supplier to have

reduced cost when purchasing in bulk.

EQUIPMENT

i. Purchase New Machines

BSAP should consider budgeting for a complete machine upgrade. New equipment

coupled with proper training in its use will reduce variability in product quality.

ii. More maintenance

Establish clear maintenance procedures regarding equipment. This will include

preventative maintenance and repair procedures.

 34

iii. More investment

More investment is necessary for the following:

- Training employees in the effective use, repair and maintenance of machines

- purchasing of new equipment to improve product quality

- Research and development to improve product quality

iv. Decrease in machine No. 2 Variability

Since reference is made substantially about the variability of Machine No. 2, we suggest

that a trial be done to ascertain which product is best suited for manufacturing in this

machine. Once this is done then this machine can be solely dedicated to a specific

product. This will not only reduce variations in the setup of production runs but also

optimize product quality and reduce cost of maintenance.

From the cause and effect diagram shown in Figure 3.7 there are numerous feasible

options emerging from combinations of fibre glass content and machine variability. Each

option identified will be analyzed based on two approaches i.e. Compensation Practice

versus Uplifting Approach. Feasible Options

In this section the feasible options will be generated and the implications of each option

will be analyzed. The following table contains a list of feasible options.

Table 3.6: Feasible Options

Optio Mean Strength of Standard Deviation/Variability of

ns CALBILD/(kgm) No. 2 machine
1 83.3 8 (current situation)
2 86 6
 35

3 86 8
4 92 8
5 92 6
6 98 8
7 98 6
8 104 8
9 104 6

Option 1 – “Do Nothing” – This option involves leaving the present situation as is i.e. leaving

the current fibre glass content unchanged (36.1 %) and the machine variability of 8. This

situation yields a mean fibre glass content of 83.3 kgm.

Option 2 – This option involves increasing the fibre glass content to 38.3 % to yield an expected

mean sample strength of 86 kgm. This option also involves changing the standard deviation of

the machine to 6 kgm.

Option 3 – This option involves increasing the fibre glass content to 38.3 % to yield an expected

mean sample strength of 86 kgm. The machine’s standard deviation is left unchanged in this

option.

Option 4 – This option involves increasing the fibre glass content to 44.4 % to yield an expected

mean sample strength of 92 kgm. The machine’s standard deviation is left unchanged in this

option.

Option 5 – This option involves increasing the fibre glass content to 44.4 % to yield an expected

mean sample strength of 92 kgm. This option also involves changing the standard deviation of

the machine to 6 kgm.

Option 6 – This option involves increasing the fibre glass content to 51.7 % to yield an expected

mean sample strength of 98 kgm. The machine’s standard deviation is left unchanged in this

option.
 36

Option 7 – This option involves increasing the fibre glass content to 51.7 % to yield an expected

mean sample strength of 98 kgm. This option also involves changing the machine’s variability to

6 kgm.

Option 8 – This option involves increasing the fibre glass content to 62 % to yield an expected

mean sample strength of 104 kgm. The machine’s variability is left unchanged in this option.

Option 9 – This option involves increasing the fibre glass content to 62 % to yield an expected

mean sample strength of 104 kgm. This option also involves changing the machine’s variability

to 6 kgm.

3.1 Sensitivity Analysis of Options

In this section, the options that were generated above would be exposed to a sensitivity

analysis which involves the application of the Compensation Practice and Uplifting Approach to

determine which approach yields more profits. Sections 3.1.1 to 3.1.5 discuss the preliminary

analyses whose results were used to execute the sensitivity analysis.

Compensation Practice

This approach involves using the existing standard for CALBILD which classifies all

batches of strength 78 kgm or more as acceptable product. This approach requires that customers

be compensated for any complaints. With this approach Grade 1 and 2 batches are sold at $5.00

per square metre and Grade 3 batches at $2.70 per square metre. In this approach Grade 1

batches are considered to be First (> 86 kgm), Grade 2 batches to be First-Second (78-86 kgm)

and Grade 3 batches to be Seconds (70-78 kgm).

 37

Uplifting Approach

This approach involves the increasing of the acceptance level to from 78 kgm to 86 kgm.

This is where whatever was originally considered as First-Second class (i.e. > 86 kgm) will be

considered class. Grade 1 and Grade 2 batches will represent First and First-Seconds respectively

and they will be sold at $5.00 per square metre while Grade 3 batches will represent Seconds and

this product will be sold at $2.70 per square metre.

3.1.1 Projected Proportions of Production among Options Generated

Based on the generated options, the proportions of production was determined and

presented below using normal distribution curves. These results are summarized in Table 3.9.

Shifting of Means, Adjustment of Machine variability and their implications

The diagrams presented in Appendix A: Normal Distributions for Options Generated

shows how the various options affect the mean strength of CALBILD and the proportions of

First, First Second, Seconds and Scrap produced. It can be seen that by increasing the

percentage of fibreglass, the mean strength of the product increases. This produces more of the

First class batch. Secondly, by adjusting the machine variability form 8 to 6, the amount of First

Second produced is increased. This increase in First Second production could result in increased

compensation costs.

Table 3.7: Projected Proportions among Options Generated

Options First First Second Scrap Total

Second
1 40.52% 35.90% 18.93% 4.65% 100%
2 50.00% 41.31% 8.28% 0.41% 100%
3 50.00% 34.10% 13.60% 2.30% 100%
4 83.00% 13.08% 3.62% 0.30% 100%
5 85.08% 13.90% 1.01% 0.01% 100%
6 93.57% 5.83% 0.58% 0.02% 100%
7 97.72% 2.24% 0.045% 0.00% 100%
 38

8 98.75% 1.19% 0.06% 0.00% 100%

9 99.86% 0.14% 0.00% 0.00% 100%

3.1.2 Raw Material Cost Per Square Metre of CALBILD Board

In order to determine the gross profits from each option, the costs to produce CALBILD

product must be determined. Therefore, the following table was computed to reflect the total

costs based on a 10 % fibre increase (as stated in Memorandum 7).

Table 3.8: Raw Material Costs Per Square Metre of CALBILD Board

(1) (2) (3) (4) (1+3+4 (2+3+4)

Option % G.F.O G.F.N. Wood Resi ) New
s G.F . Cost (10% F n Old Total
Cost increase) Cost Cost Total
1 36.1 0.79 0.87 0.40 0.36 1.55 1.63
2 38.3 0.84 0.92 0.38 0.36 1.58 1.66
3 38.3 0.84 0.92 0.38 0.36 1.58 1.66
4 44.4 0.98 1.08 0.34 0.36 1.68 1.78
5 44.4 0.98 1.08 0.34 0.36 1.68 1.78
6 51.7 1.13 1.24 0.29 0.36 1.78 1.89
7 51.7 1.13 1.24 0.29 0.36 1.78 1.89
8 62.0 1.35 1.49 0.21 0.35 1.91 2.05
9 62.0 1.35 1.49 0.21 0.35 1.91 2.05

3.1.3 Conversion factor

The determination of a conversion factor was necessary since the costs in Table 3.8

represents cost per metre and the BSAP sales figures shown in Memorandum 9 are in tonnes.

Therefore, these costs were recalculated to represent costs per tonne since the cost to produce a

percentage of sales will be determined by multiplying the cost per tonne by the BSAP sales in

tonnes. The calculation of the conversion factor is shown below.

Weight of standard sheet of CALBILD board = 31.5 kg 0.0315 tonnes

Area of standard sheet of CALBILD board = 3.0 m × 1.5 m = 4.5 m2

4.5 m2 0.0315 tonnes

 39

=> 1 tonne =

= 142.86 m2

3.1.4 Raw Material Total Costs per Tonne of CALBILD Board

Using the conversion factor that was determined above, the following table was produced.

Table 3.9: Raw Material Total Costs Per Tonne of CALBILD Board

Total Total
Option % (Cost (Cost
s G.F per per
Square Tonne)
Metre)
1 36.1 1.63 232.86
2 38.3 1.66 237.15
3 38.3 1.66 237.15
4 44.4 1.78 254.29
5 44.4 1.78 254.29
6 51.7 1.89 270.01
7 51.7 1.89 270.01
8 62 2.05 292.86
9 62 2.05 292.86

3.1.5 Procedures Adopted

This section outlines the procedures for determination of the gross profit and

compensation costs. This profit was determined by subtracting the cost of goods sold from the

revenue. In the case of the compensation approach, compensation costs were also subtracted. The

following formulas used to obtain revenue and cost of goods sold.

3.1.5.1 Calculation of Revenue

Revenue from Proportion = BSAP Sales (2010)* × Projected Proportion of Production ×

Selling Price per sq/m × Conversion factor

*see Section 3.1.5.4 for determination of BSAP sales for 2010.

 40

3.1.5.2 Calculation of Cost of Proportion of CALBILD sold

Cost of proportion sold = BSAP Sales (2020) × Projected Proportion of Production × Total
Raw Material Cost per tonne

3.1.5.3 Determination of Compensation Costs

Compensation costs for the Compensation Practice approach were determined by

interpolating the data given in Memorandum 11 to arrive at compensation costs for each of the

options generated.

3.1.5.4 Determination of Revenue for Quarter 3 and 4 for 2010

The BSAP sales for the remaining two quarters of 2010 were calculated using the same

rate of change experienced during quarter 3 and 4 of 2009. From this reasoning, quarter three and

four sales were determined to be 579 tonnes and 493 tonnes respectively. These estimations

resulted in total sales for 2010 of 2062 tonnes.

 41

3.1.6 Compensation Practice Approach

The following table displays the projected gross profits for the options generated using the

Compensation Practice Approach.

Table 3.10: Compensation Practice Approach

Optio % Gross Gross Gross Compensati Total

ns Fibre Profit Profit Profit on Costs / $ Gross
Glas (Grade (Grade (Grade 3) Profit / $
s 1) / $ 2) / $ /$
1 36.1 402,253.90 356,389.81 59,667.63 500,000.00* 318,311.3
4
2 38.3 491,941.65 406,442.19 25,366.23 364,444.44 559,305.6
3
3 38.3 491,941.65 335,504.21 41,664.34 364,444.44 504,665.7
6
4 44.4 787,288.71 124,069.11 9810.66 189,090.91 732,077.5
7
5 44.4 807,018.36 131,847.15 2737.23 189,090.91 752,511.8
3
6 51.7 857,219.08 53,410.14 1383.87 0.00 912,013.0
9
7 51.7 895,238.31 21,437.35 119.30 0.00 916,794.9
6
8 62.0 858,146.66 10,341.21 114.89 0.00 868,602.7
6
9 62.0 867,792.67 1216.61 0.00 0.00 869,009.2
8
*Includes administrative costs

3.1.7 Uplifting Approach

The following table displays the projected gross profits for the options generated using the

Uplifting Approach.

Table 3.11: Uplifting Approach

Optio % Gross Profit Gross Profit Gross Profit Total Gross

ns Fibre (Grade 1) / $ (Grade 2) / $ (Grade 3) / $ Profit / $
Glass
1 36.1 402,253.90 113,157.32 59,667.63 575,078.85
2 38.3 491,941.65 126,555.44 25,366.23 643,863.32
3 38.3 491,941.65 104,467.21 41,664.34 638,073.20
 42

4 44.4 787,288.71 35,448.47 9,810.66 832,547.84

5 44.4 807,018.36 37,670.78 2,737.23 847,426.37
6 51.7 857,219.08 13,910.27 1,383.87 872,513.22
7 51.7 895,238.31 5,344.60 119.30 900,702,21
8 62.0 858,146.66 2,278.63 114.89 860,540.18
9 62.0 867,792.67 268,07 0.00 868,060.74

Figure 3.8: Graphs showing variations in Gross Profits for Compensation Practice & Uplifting Approach

From the graph shown above it can be seen that the Uplifting Approach is more

profitable below a fibre glass content of 51.7 %. At this point the machine variability is 8.

Beyond a fibre glass content of 51.7 %, the Compensation Practice becomes more profitable.
 43

3.2 Assumptions and Constraints

This section outlines the assumptions and constraints that were taken into account when

performing the phase 2 investigation of the BSAP Company Ltd.

3.2.1 Assumptions

• BSAP is a medium-sized company – Based on the market share calculations presented

in Section 2.4.1, it was seen that BSAP Ltd. owned an average of 23% of the market.

• Accurate information – It is assumed that the information contained in the memos is

accurate.

• Inefficient policies and procedures – According to Memorandum 1, the Sales Director

states that he is currently working with the Sales Manager to develop new procedures and

methods to create more aggressive selling.

• Absence of quality assurance and control programme – According to Memorandum 4,

the Sales Director indicated that he have been unable to discover why the quality

specifications are not met and he suggests the setting up of a working party to improve

quality of products. Also, according to Memorandum 11, the Sales Manager expressed

dissatisfaction in the Production Department not being able to introduce procedures to

meet quality specifications.

• Unaware of job descriptions – According to Memorandum 1, the Sales Director stated

that representatives of the Operations Department lacked a clear directive of what is

expected of them.
 44

• Sales Data for CALBILD product- The sales data for CALBILD (Memorandum 8)

represents “First” and “First-Second” batches. It was also assumed that the sales data can

be projected. Projection was done for Q3 and Q4 of 2010. The same rate of change for

Q3 and Q4 of 2009 was applied to 2010 during the same period.

• Estimated fixed costs – It was assumed that fixed costs were constant for all fixed cost

items. This assumption allowed for simplicity in calculations.

• Variable costs – It was assumed that some variable cost items and others such as labour

and production costs remained unchanged as the raw materials varied. The total raw

material costs were used for its corresponding option calculation.

• Estimated Compensation Costs (including Administrative Costs) – It was assumed

that 100% of compensation costs were incurred due to the sales of the “First-Second”

products since they all fell below the B.S. specification of 86 kgm.

3.2.2 Constraints

• Machine data - Lack of data relating to the maintenance cost of No. 2 Machine

• Compensation costs – Lack of data relating to the compensation costs for % fibre glass

over 47.8%

• Limited data – Data provided is limited to that provided in the Memos. More

investigation is required in the third phase.

• Insufficient Sales Data – Sales forecast for 2010 was incomplete.

45
 46

4 .0 Focal Areas for Further Investigation in the Final Phase

The Expendables Value Consultants recommended the following areas to be considered for

further investigation:

• Strategic Objectives - Top management should review the company’s strategic

objectives in order to produce a clear company mission and vision for the employees

(Memo 1).

• Job Description - The sales representatives may be unclear about their job

description (Memo 1). This concern is raised by the Sales Director and can be

addressed by reviewing the job specifications of the employees and developing a

Performance Appraisal System.

• Compensation costs versus Fibre glass content - A study into the change in

compensation costs with fibreglass content above 47.8% (Memo 11). This would

enable a more precise calculation of profits for options with fibreglass content over

this amount.

• Quality Assurance and Quality Control - There is no implication that the BSAP

Company employs a Quality Assurance/Quality Control Programme (Memo 4 & 11).

This programme would aid in determining the reasons why the quality specifications

are not being met. A more accurate testing and measuring procedure or equipment

should be considered as the current procedure is unable to give an accuracy of more

than 1 kgm (Memo 7).

 47

• Alternate suppliers - The Company should investigate whether alternate suppliers

for raw materials can be explored. The memos suggest that the company has a sole

supplier.

• Machine Repair - The company should determine whether increased investments

into Machine No.2 can be justified (Memo 10). This increase may exceed the normal

Preventative Maintenance (PM) costs that may have been conducted on the machine.

• Value Management Principles –

 Management Style: the BSAP Company should review their current management

style to determine if the concepts of value and function are being utilized effectively.

Teamwork and communication principles should be investigated as the case indicates

the presence of poor human dynamics in the company. The management team should

encourage a work environment that harbours creativity, innovation, a functional

approach and focus on customer requirements (British Standards Institute 2000).

 Human Dynamics: The BSAP case indicates the presence of poor teamwork as the

different departments, Sales and Production, are not working together to determine

the cause of the problem. Other areas in human dynamics that could be investigated

are satisfaction; giving credit for individual and team contributions, communication; a

common understanding and better group support and ownership; the group or

individual responsible for implementing Value Management activities. (British

Standards Institute 2000).

 48

 Environmental Considerations: The management team should identify conditions,

constraints and opportunities that are internal and external to the organization that

may influence Value Management practices. These may include specific

organizational rules and policies, market conditions and competitors (British

Standards Institute 2000).

 Methods and Tools: The management team should assess their current methods and

tools used to determine the efficiency of their processes and procedures used to

manufacture their products. Common Value Management methods and tools that can

be used are Value Analysis, Function Analysis, Design to Cost and Design to

Objectives (British Standards Institute 2000).

 49

5 .0 Recommendations on Design, Implementation &

Monitoring of a Improvement Programme

The Value Management approach would be adopted to develop an improvement programme

for the BSAP Company Limited. The elements of this approach and the application of its

elements to the BSAP case have been described in the following sections.

Value Management is a style of management, particularly dedicated to motivating people,

developing skills and promoting synergies and innovation, with the aim of maximizing the

overall performance of an organization (British Standards Institute 2000).

The key principles of Value Management which were mentioned as focal areas for further

investigation in the final phase (see Section 4) can be brought together in a management

framework comprising:

• A Policy;

• A Programme;

• Training, and

• Specific studies;

5.1 Establishment of a Value Management Framework

Assuming that there is an absence of a Value Management Framework in the BSAP

Company Ltd., it is recommended that such a framework be developed in order to establish a

 50

Value Culture within the organization. This framework will be used as solution for improvement

within the BSAP Company.

The following diagram illustrates the interrelationship between components of the Value

Management Framework and the rest of an organization’s management structure.

 51

GENERAL MANAGEMENT GOALS

VM Policy
Consistent with and contributes to Other Policies

FEEDBACK FOR CONTINUOUS IMPROVEMENT

Enable innovative decisions based on Value

And to convince customers and stakeholders

VM PROGRAMME
Owned by Champion (the Value Manager)
Establishes procedures for training and Practice
VALUE CULTURE

VM STUDIES
VM TRAINING Formal application of
Establishes culture methods for:
Provides awareness Strategic studies
Builds competence Organizational studies
Operational studies

VM METHODS AND TOOLS

Application of selected methods

RESULTS

Figure 5.9: Illustration of Value Management Framework within an Organization

 52

5.2 Value Management Policy

The BSAP Company’s top management team should develop a Value Management Policy

that is based on the organization’s goals and objectives. This policy should have a holistic

approach and would guide the activities and practices within the VM programme. It should seek

to satisfy the needs of the customers and stakeholders. Adherence to the Value Management

policy should be the responsibility of the middle management team or a Value Manager (British

Standards Institute 2000).

5.3 Value Management Programme

A Value Management Programme is a planned and structured array of activities which

enables the development, implementation and maintenance of a Value Management Policy in a

suitable manner (British Standards Institute 2000). The Value Management Programme includes:

• integration of Value Management within the organization and development of

procedures;

• quantified targets, performance indicators and other means for assessing results;

• Value Management Studies;

• appropriate resources, teams, timetables and budgets;

• a plan for appropriate deployment of resources;

• training and awareness for members of the organization;

• supporting non Value Management studies;

 53

• a management plan of actions to be taken to implement the outcome of Value

Management studies;

• mechanisms for feedback of results and continuous improvement.

 54

5.3.1 Hiring a Value Manager

This is the first initiative that should be adopted by BSAP Company Ltd. since the design,

development and implementation of a Value Management Programme should be made the

responsibility of a single individual, the Value Manager. The duties of the Value Manager will

include collection of suitable subjects for VM studies, form teams, organize training and

supervise progress of studies. Since BSAP Company Ltd. is a medium sized organization, these

duties can be assigned to one member of staff.

5.3.2 Value Management Study

The Value Management study involves the application of one or more methods to a

specific subject identified within a Value Management Programme (British Standards Institute

2000). The VM study is led by a leader. Therefore, the BSAP Company Ltd. should assign a

study leader who will define the objectives of the study in relation to the VM Policy and

Programme. The members of the VM Study team should comprise a disparate group of people

representing the various stakeholders from the departments within the BSAP Company Ltd. It is

recommended that this team be cross-functional in nature. The following diagram reflects the

benefits of the participation and knowledge/expertise overlap obtained through the formation of a

cross-functional team within the BSAP Company.

 55

TECHNICAL MARKETING CONSTRUCTIVE

OVERLAP

WORKS PRODUCTION

Figure 5.10: Expertise/Knowledge Overlap of VM Study Team for BSAP Company

This cross-functional team will be responsible for identifying the methods and supporting

processes needed to achieve the objectives in relation to the VM Policy and Programme. BSAP

Company Ltd. will need to source the necessary training for the application of these methods.

This VM Study team will need to set performance and resource targets and devise a method for

their measurement. The monitoring and measurement of outcomes will be necessary in order to

compare achievements with targets which can further assist in providing feedback for the

benefits of future studies. It is also recommended that the VM study leader establish a timetable

for the study and identify the resources to be used.

5.4 Value Management Training

In order for the BSAP Company to implement the VM programme effectively, proper

training would be needed to develop the Value Culture and competence in Value Management

practices within the entire organization. Firstly, the levels of competence in each of the subject

areas in the VM programme should be determined then the appropriate level of training applied
 56

(British Standards Institute 2000). The training should be made available to employees at all

levels in the company and should focus on support for Value Management activities, methods

and tools to be used in the VM programme and developing an awareness of value among staff.

One benefit of this training would be the future application of Value Management practices to

more complex and strategic issues.

5.5 Value Management Tools and Methods

There are various methods and tools that can be employed by the BSAP Company to assess

or re-engineer key processes and procedures used to bring value to customers. Some of which

are:

• The Function Analysis method, which can be used to identify the key functions of a

product, system or an organization (British Standards Institute 2000). The BSAP

Company can use this tool to determine the product’s functions, its performance

requirements and improve communication among the different departments involved.

• The Value Analysis method improves the competitiveness of a product by allowing the

manufacturer and the customer to design, produce, maintain and use the product

effectively. This tool can be used in conjunction with the Function Analysis method to

increase the value of the product (British Standards Institute 2000).

• A subset of the Function Analysis process is the Function Cost analysis. This tool can be

used by the BSAP Company to determine the total cost in providing a specific function in

a product (British Standards Institute 2000).

57
 58

6 .0 Conclusion

Based on the sensitivity analysis that was performed it is recommended that the BSAP

Company Limited adopt the Uplifting Approach due to the fact that this approach yields more

profits up to a fibre glass content of 51.7 %. Although the Compensation Practice yields more

profits beyond this fibre glass content, these projected profits were calculated with the absence of

information regarding compensation costs over a fibre glass content of 51.7 %. Although, this

lack of information creates a limitation, it can be projected that the actual returns from the

Compensation Practice will definitely be lower than the amounts currently reflected in Figure

3.8. The provision of these compensation costs would have given a true reflection of the

projected returns from the Compensation Practice.

In conjunction with the Uplifting Approach it is recommended that BSAP Company

Limited adopt option 7 since this option yields the most profits. This option involves a reduction

in the machine’s variability to 6 kgm. The information regarding the investment required to

achieve this lower variability was not provided. Therefore, it is advised that BSAP Company

Limited only accept option 7 provided that the required investment does not exceed $28, 188.99

(i.e. difference in profits between option 7 and 6). Otherwise we recommend that management

consider option 6 which is the second most profitable option under the Uplifting Approach with

a machine variability of 8 kgm (i.e. the machine’s condition is unchanged/investments not

required). With the adoption of either of these options, the B.S. specification of 86 kgm mean

strength will be achieved.

Although these options were generated based on the information provided in the memos,

analysis of the other feasible solutions presented in Figure 3.7 is a venture that can be carried out
 59

to determine which one is the most cost effective based on some sort of decision analysis. The

analyses presented in this report focused on the implications of increasing fibre glass content and

reducing the variability of the machine. However, numerous other solutions exists and its worth

exploring their implications.

Considering the focal areas for further investigation, The Expendables Value Consultants

Limited advise that the BSAP Company Limited establish a Value Management Framework as

an improvement programme. This framework will serve as a tool for maximizing the overall

performance of your company and may involve external expertise for its implementation. The

staff at the Expendables Value Consultant Limited will be glad to assist your company in this

endeavour.

The Expendables Value Consultants commend your company in recognizing that a problem

exists and we are eager to provide any further consultation if you desire,
 60

7 .0

References

British Standards Institute. Value Management. Standard, London: British Standards Institute ,
2000.
 61

Appendix
 62

8 .0
Appendix A. Normal Distributions for Options Generated

Figure A. 1: Normal Distribution Curve for Option 1

Figure A. 2: Normal Distribution Curve for Option 2

 63

Figure A. 3: Normal Distribution Curve for Option 3

Figure A. 4: Normal Distribution Curve for Option 4

 64

Figure A. 5: Normal Distribution Curve for Option 5

Figure A. 6: Normal Distribution Curve for Option 6

 65

Figure A. 7: Normal Distribution Curve for Option 7

Figure A. 8: Normal Distribution Curve for Option 8

 66

Figure A. 9: Normal Distribution Curve for Option 9

67