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Capital Expenditure Within a Six Sigma Project
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Message: 7073
Posted by: don
Posted on: Thursday, 29th November 2001
How d other companies deal with capital expenditure?
We see Six Sigma projects as being relatively short-term projects with immediate financial impact. Hence we are planning to calculate/record financial savings for the folowing 12 months. Hence we do not need to consider an NPV calculation.
However, if a project were to involve capital expenditure, this would have a (differing) financial impact for many years in to the future.
For now, I'm considering only including 12 months of depreciation charges in the financial impact statement (thereby including the maximum annual cost impact). This is erring on the safe side.
However, I have heard some companies not accepting capital-expenditure type projects as Six Sigma projects. Indeed, we too already have tools/models etc. to consider capital projects.
However, I'm not sure of any specific reasons of why capital projects are not Six Sigma projects.
Any ideas/views?
Message: 7075
Posted by: Mark Almeter
Posted on: Thursday, 29th November 2001
Don,
I would say that any project that uses Six Sigma principles and achieves long-term improvement is a Six Sigma project, regardless of whether or not there are huge capital expenditures.
Different projects may require different methods of calculating cost savings, and each project (be it long term and complex with capital $$$ or short-term low hanging fruit) must use the method which most accurately refelcts those cost savings if you wish to measure the real financial impact.
Just my 2 cents.
Mark
Message: 7079
Posted by: gt
Posted on: Thursday, 29th November 2001
if they follow the methodology and are able to demonstrate at least one tool per phase, we consider it (should) SS project.
For the capital expenditure, for us that's a recuirrent cost of a project
rgds
Message: 7252
Posted by: Kevin
Posted on: Wednesday, 5th December 2001
At my company, how capital expenditures are handled depends upon the type of project.
Since the objective of a DMAIC project is to move the capability of the process toward "entitlement," the capital requirements for this type of project should be small in comparison to the benefits of the project. We subtract the capital requirements, like any other costs, from the benefits to obtain net benefit. (I suppose that the tax savings from depreciation would be more cost savings in future years, but we do not get that complicated.)
If the capital requirements are large, then we are normally applying the capital to improve our "entitlement" (as for example, in a Design for SS project). This must undergo standard capital review with calculation of payback time, etc.
I am interested in how other companies view these.
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