While many Six Sigma projects target opportunities that are not directly financial — such as safety or customer satisfaction — the majority are intended to deliver financial benefits. But not all financial benefits are the same, and understanding the difference between tangible and intangible benefits is critical to gaining leadership alignment and communicating expected project benefits.
Overview: What are tangible benefits?
Tangible benefits are those that are quantifiable and measurable, sometimes called “hard savings.” In other words, they are improvement project benefits that have some specific dollar value, number of labor hours, or other specific metric that can be determined to have been achieved through the project.
This is in contrast to intangible benefits, often referred to as “soft” benefits, that are real results but cannot be quantified financially.
3 ways tangible benefits can improve your business
While continuous improvement projects focusing on intangible benefits like safety improvement or customer satisfaction are valuable, there are some important reasons to strive for tangible benefits. Conversely, not all Six Sigma projects must have tangible benefits calculated, and may even be championed by senior leaders without these benefits.
Organizations are ultimately accountable to produce tangible results, so stating process improvement project benefits in this way better connects the project to the goals executives are responsible for. As a result, leaders are more likely to support the project in anticipation of realizing the tangible benefits on the bottom line.
By stating benefits in a tangible way, continuous improvement projects provide a clearly understood goal in terms that are not interpreted subjectively. Thus the project can be compared to other projects and initiatives in an apples-to-apples way and prioritized accordingly. Similarly, tangible benefits allow for project success to be determined objectively.
3. Blind spots
On the other hand, many objectives cannot be effectively measured using tangible benefits but nonetheless are critically important to the organization’s goals, culture, or performance.
For example, many manufacturers strive to keep their employees safe, and it is in their best interest to support projects that can drive breakthrough improvement in this area. If tangible benefits become the standard for project support, “blind spots” will be created where effective Lean Six Sigma methods could have been utilized to realize large intangible benefits.
Why are tangible benefits important to understand?
Practitioners should understand that ultimately, regardless of improvement tools and methods utilized, continuous improvement is about driving organizational performance. Breakthrough Six Sigma projects celebrated by those involved may be ignored by leaders if their benefits cannot be effectively stated.
Upon completion of a successful process improvement project, it’s important that the achievement gets celebrated by those who participated on the team, those impacted by the improvement, and the leaders that support them. By understanding tangible benefits, a Green Belt or Black Belt is able to ensure clarity in communication of results and therefore understanding by all involved of the breakthrough improvement made.
To be effective as a continuous improvement practitioner, you must be able to vet projects for their value and measure whether or not that value was achieved. Understanding tangible benefits allows a Green Belt or Black Belt to do this in a standard way that relates to the business.
An industry example of tangible benefits
To understand tangible benefits, consider a company that sells bicycles online. Concerned about high shipping costs, an improvement team is tasked with decreasing the cost to ship each bicycle to the customer. The Green Belt leading the project utilizes the DMAIC process and estimates the value of the project before and after using the following metrics:
- Direct shipping cost per bicycle
- Cost of packing materials and labor per bicycle
- Customer satisfaction, rated on a 10-point scale, following delivery
The final solution the team establishes involves sending the bicycle in two separate boxes (the bicycles have always come partially assembled), with a free water bottle used to protect a particularly vulnerable part of the bike during shipping.
Because they can be directly measured and quantified via accounting, the shipping cost, material cost, and labor are all tangible benefits of the project, although they must be balanced against the cost of the free bottle. The project also shows a noticeable increase in customer satisfaction, but this is considered an intangible benefit because it cannot be determined with certainty the value.
2 best practices when thinking about tangible benefits
While conceptually straightforward, differentiating tangible from intangible benefits is not always as easy as it would seem. Following some best practices can help.
1. Consider the bottom line
While there is no question that safety, customer satisfaction, or other common intangible benefits have value, they cannot be measured in a way that can be accounted for on the bottom line. Don’t confuse an ability to correlate them with financial performance as meaning they are tangible in a way that has a certain financial impact.
2. Let tangible benefits help with scoping
Often a project idea is presented with only an intangible benefit. Consider the process in question and whether there are tangential issues that drive tangible benefits as well — it is surprisingly common to find opportunities to drive meaningful tangible benefits even when the primary goal is one with only intangible benefits. A small change in scope can have a big impact on tangible benefits.
Frequently Asked Questions (FAQ) about tangible benefits
1. Are tangible benefits always expressed in dollars?
While tangible benefits are sometimes stated in terms such as labor hours, these are typically always metrics that have a direct, defined translation to dollars.
2. How do tangible benefits differ from intangible benefits?
Tangible benefits can be directly accounted for in financial terms, whereas intangible benefits are measured in non-financial terms or with uncertain financial value.
3. What are examples of tangible benefits?
Tangible benefits include cost savings, labor hours, and scrap reduction.
Linking the practitioner to the leader
Estimating benefits — both as part of project selection and prioritization as well as validation — is a critical part of successful continuous improvement. Tangible benefits typically align to the financial objectives of the organization and can be very beneficial in gaining leadership support for a project or celebration of success.
Understanding what tangible benefits are is a critical skill for any Lean six Sigma practitioner and will ultimately help make you more effective at process improvement!