In a 3-quart saucepan melt butter. Stir in onion; cook over medium heat until tender (4-5 mins.). Stir in flour until smooth and bubbly. Stir in potatoes, milk, salt and pepper. Cover and continue cooking, stirring occasionally until potatoes are fork tender (about 25-30 mins.) Stir in cheese and ham. Continue cooking and stirring occasionally until cheese is melted and ham is heated through (about 2-3 mins.) Serve and enjoy!!!!