Pin Me

The Value Chain Analysis as a PM Tool

written by: Donna Cosmato • edited by: Michele McDonough • updated: 11/3/2011

Learn more about the concept of the Value Chain Analysis tool and its importance in the field of project management. The tool was originally created by Michael Porter. However, the tool has been modified and simplified to suit project requirements.

  • slide 1 of 2

    The Concept

    Meeting to discuss value chain analysis steps The Value Chain Analysis is a helpful tool used to create value for customers in projects. In a simple example, value is added to raw materials before the product is sold. This is easy to calculate in the manufacturing industry. However, calculations get complicated when value needs to be determined in the service industry, as they require intangible inputs like knowledge, time and equipment to be assessed.

    To know how much value the project team has put into a project, it is important to use the Value Chain Analysis tool. The tool helps the project team identify methods by which value can be created for customers, both internal and external. Further, it also helps to maximize this value.

    The tool can be used in a three-step process:

    • Activity Analysis stage: The project members identify the activities to undertake to deliver the product or service.
    • Value Analysis stage: The project team adds the greatest value to each activity before the product or service reaches the customer.
    • Evaluating Changes and Planning of Action stage: The project team evaluates changes and decides whether it is worth making changes. Once done, they follow the set plan of action.

    In the Activity Analysis stage, the project team brainstorms the activities necessary to undertake on the project to add value that eventually contributes to the end-user's experience. This step requires a systematic business process including marketing, sales, order taking, delivery, operational process, support, etc. that would help serve the customer. In simple terms, this stage involves a systematic flow of work to be carried out by the team. Apart from this, it would also involve other factors such as:

    • How does the project motivate the team to perform more effectively?
    • How to select and develop technologies and techniques?
    • How to get feedback from customers on performance?
    • How to keep up-to-date with effective technologies and techniques?
    • How does recruitment takes place? Recruitment of effective individuals with the right skill would give best value.

    Once the brainstorming is complete, list the activities in a simple flow chart running down the page. This gives a good visual representation of the value chain.

    In the Value Analysis stage, the project team lists value factors for each of the activity identified in the first stage. Value factors are the things customers would value when an activity is conducted. These value factors vary with the nature of business. Right next to the value factors, note down what needs to be done or changed to provide great value to each activity.

    In the final stage, the project team evaluates the changes and plans for action. By now, the team would have generated a list of ideas that would add value for the customer. Do not start working on all tasks at once. Instead, prioritize them and pick the quick and easy tasks to improve the team spirit. Next, move to the subsequent changes. Some may prove to be impractical and would give only marginal improvements at a great cost. Finally, tackle the most difficult tasks in a systematic manner to deliver steady improvement.

  • slide 2 of 2

    Value Chain Analysis Example

    An example helps to explain the tool better. A project has been given to a team that handles software enhancements for their clients. The team uses the Value Chain Analysis tool to deliver excellent service to their customers. For this, they follow the three steps mentioned above.

    In the first stage, or the activity analysis stage, the project team identifies the activities that create value for its customers. These include:

    • Order taking
    • Scheduling
    • Enhancement specification
    • Software development
    • Programmer testing
    • Secondary testing
    • Support
    • Delivery

    Other activities that were identified by the team included recruitment and training as it is important to select the right people for the team and train them effectively.

    Next, the team takes one activity at a time and focuses on the processes to identify factors that would add value to the end-users. The team identifies value factors such as:

    • Answering incoming phone calls effectively
    • Possessing good knowledge of the customer base
    • Asking the right questions
    • Giving accurate feedback
    • Explaining the development process to customers
    • Managing timely delivery

    Finally, the third step requires the team to make a list of tasks that need to be completed to deliver the greatest value to customers. Once done with the brainstorming, the team would be able to identify and prioritize each task. The second and third steps need to be completed for all activities that are noted in step one.

References


involves