iSixSigma

Research: Black Belt Return on Investment

While Six Sigma improvement projects have many potential benefits to a company, their financial impact often gets the most attention. Business leaders want to know that they are getting a return on their investment in Black Belts. In our most recent research study, we look at Black Belt project pay-offs, where companies are targeting their Lean Six Sigma efforts and the validity of financial results. Where possible, we compare results to a similar study conducted in 2005.

“Hard” and “Soft” Savings

According to survey results, the median value of “hard” financial savings (direct impact to a company’s financial statement) per Six Sigma Black Belt project is $200,000 across all industries and company sizes. This compares to $187,500 when iSixSigma conducted similar research in 2005. Smaller companies, with revenue of up to $100 million, see results about 26 percent less than the median, whereas larger companies, with revenue of more than $1 billion, see results 50 percent higher. Fewer companies track the “soft” financial savings (no direct impact to a company’s financial statement). For those that do, the overall median value of soft savings is $100,000. This compares to $105,000 in 2005.

Figure 1: Considering all Black Belt projects you were involved in that have been completed at your company in the last 12 months, estimate the gross hard (e.g., cost reduction, revenue increase) financial benefits achieved as an average per project. Estimate first year, annualized benefits and exclude the costs associated with the projects.

Figure 1: Considering all Black Belt projects you were involved in that have been completed at your company in the last 12 months, estimate the gross hard (e.g., cost reduction, revenue increase) financial benefits achieved as an average per project. Estimate first year, annualized benefits and exclude the costs associated with the projects.

 

Figure 2: Considering all Black Belt projects you were involved in that have been completed at your company in the last 12 months, estimate the gross soft (e.g., productivity, customer satisfaction) financial benefits achieved as an average per project. Estimate first year, annualized benefits and exclude the costs associated with the projects.

Figure 2: Considering all Black Belt projects you were involved in that have been completed at your company in the last 12 months, estimate the gross soft (e.g., productivity, customer satisfaction) financial benefits achieved as an average per project. Estimate first year, annualized benefits and exclude the costs associated with the projects.

Credibility of Financial Benefits

How believable are those hard and soft project savings? According to survey results, 63 percent of respondents are confident or mostly confident in the accuracy of calculated Black Belt project benefits at their company. Another 31 percent reported feeling somewhat confident. Only 6 percent indicated a high degree of skepticism, reporting that they are not at all confident in the benefit calculations. Comparing these results to past data is dubious due to a change in how the question was posed. In 2005, survey takers were asked to assess how their business leaders viewed the credibility of Six Sigma financial results. In that case, 88 percent of respondents felt that business leaders believed their company’s Six Sigma program financial benefits to be highly credible or somewhat credible. The remaining 12 percent assessed their business leaders’ belief view of Six Sigma results as somewhat not credible or not at all credible.

Figure 3: Which of the following best describes your confidence in the accuracy of calculated Black Belt project benefits at your company? (N = 161)

Figure 3: Which of the following best describes your confidence in the accuracy of calculated Black Belt project benefits at your company? (N = 161)

Auditing of Financial Benefits

Auditing data is one way to affect confidence levels in project results. Survey results indicate that more than half of companies (54 percent of respondents) audit the financial benefits of Black Belt projects to verify accuracy. This is a lower rate of verification than what was reported in the 2005 survey, in which 65 percent of respondents said Black Belt project results were audited.

Figure 4: Are the reported financial benefits of a Black Belt project audited to verify accuracy?

Figure 4: Are the reported financial benefits of a Black Belt project audited to verify accuracy?

Finance Joins the Team

Another way to possibly affect confidence in the financial results of Black Belt projects is to include a financial analyst on the project team. According to survey results, 41 percent of respondents reported that a representative from finance or accounting is included on Black Belt project teams all of the time or most of the time. On the other end of the spectrum, 10 percent said that never happens.

Figure 5: How often is a representative from finance/accounting included on Black Belt project teams? (N = 170)

Figure 5: How often is a representative from finance/accounting included on Black Belt project teams? (N = 170)

Who Calculates Project Financial Benefits

Compared to 2005 data, the percentage of respondents who reported that the Black Belt is responsible for calculating project benefits has stayed the same. What has changed, however, is the rate at which Master Black Belts are identified as the person who calculates the financial benefits. In 2012, 12 percent of respondents reported that the Master Black Belt is responsible for calculating the financial benefit of a Black Belt project, nearly double the number from the 2005 study (6 percent). Perhaps correspondingly, Financial Analysts are less often identified as the party solely responsible for calculating benefits – 37 percent in 2012 compared to 46 percent in 2005. The reality may be that analysts are still involved, but primary responsibility is shifting toward Six Sigma experts.

Figure 6: At your company, who is responsible for calculating the financial benefit of a Black Belt project?

Figure 6: At your company, who is responsible for calculating the financial benefit of a Black Belt project?

Pressure to Inflate Benefits

Not every improvement project can be expected to produce record-breaking results. Even so, 24 percent of respondents reported that they sometimes, frequently or always experience pressure to inflate reported Black Belt project benefits. The good news is that number is declining. According to 2005 survey results, 33 percent of respondents reported the same degree of pressure.

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Of those in 2012 who experience pressure (ranging from rarely to always) to inflate project benefits, 21 percent indicate that pressure is most likely to come from Senior Leadership (e.g., COO, SVP, EVP).

Figure 7: Do you experience pressure to inflate reported Black Belt project benefits?

Figure 7: Do you experience pressure to inflate reported Black Belt project benefits?

Areas of Priority for Black Belt Projects

Lean Six Sigma can be applied to any business problem or issue, but survey results suggest that companies continue to focus Black Belt projects on the bread-and-butter matters of costs and efficiency. A clear majority of respondents, nearly 84 percent, said that their company sets financial targets for Black Belt projects in the area of cost reduction. Another 70 percent said this was true also for productivity. On the other end of the scale, only 5 percent of respondents said financial goals were set for Black Belt projects related to digitization.

Table 1: Does your company set financial targets for Black Belt projects in any of the following ways? (Select all that apply.) (N = 143)

Financial Targets

Response Percent

Cost reduction

84%

Productivity

70%

Cost avoidance

54%

Customer satisfaction

47%

Simplification

31%

Topline/revenue growth

30%

Measurement system development

11%

Infrastructure development

8%

IT integration

8%

Digitization

5%

When asked to rank the importance of the same categories of Black Belt project benefits, again cost reduction and productivity came out on top, with digitization at the bottom on the list.

Table 2: Rank the following categories of Black Belt project benefits in order of importance to your company, where 1 is the most important and 10 is the least important. (N = 155)

Project Benefits

Response Average

Cost reduction

2.51

Productivity

3.23

Customer satisfaction

4.12

Cost avoidance

4.27

Topline/revenue growth

4.84

Simplification

5.39

Measurement system development

7.23

Infrastructure development

7.26

IT integration

7.75

Digitization

8.65

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Survey Methodology: iSixSigma staff designed the survey with input from Six Sigma practitioners. Six Sigma professionals were invited by email to participate in the survey. Additionally, visitors to iSixSigma.com had the opportunity to participate through a link on the website. The survey drew responses from 171 individuals. Some reported totals do not add to 100 percent due to rounding and survey questions that allowed more than one response to be selected. In the calculation of hard and soft savings, outlier data points and data points suspected of being erroneous were removed.

Comments 6

  1. Mike Clayton

    The changes from 2005 to 2012 were of course heavily weighted by the market crash, towards tighter control, but not as drastically (at least per survey answers) as I expected. My experience from 1995 to 2005 was that there was an early spike in “big training” efforts that were killed off by the telecom bubble (which was much larger than dot-com bubble), but was coming back until the mortgage-banking bubble. Government war efforts and future weapons efforts added Lean component to offset anti-war criticism and famous overruns. Capability improvement efforts (6sigma) were well underway before the bigger Lean push got moving, and to some extent they competed for funding. Not sure who responded to survey…BB’s or CEO’s or CFO’s or middle mgmt.

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  2. Katie Barry

    Hi Mike –

    Our respondents broke down as follows:
    Green Belt = 5.8%
    Part-time Black Belt = 12.9%
    Full-time Black Belt = 26.9%
    Master Black Belt = 32.2%
    Deployment Leader = 15.8%
    Champion = 4.1%
    Process Owner = 2.3%

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  3. Mike Carnell

    Katie – Nice job on that article. It is great to see an article based on research/data that isn’t another case study on a new way to use a control chart. Very useful. Thank you.

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  4. Katie Barry

    Thanks @Mike-Carnell – It was definitely a team effort! Glad you find it useful.

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  5. Obabiyi Fagade

    Thanks a lot for this article and for the data shared. Am I able to conclude that measurement system development and digitization projects delivered more value from your sample?
    I ask because I am a trained black belter looking to develop some measurements system development for the marketing team in my organization. I however get the feel the focus is more around cost reduction initiatives which somehow discourages me. What would you advise?

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  6. Albert Viljoen

    I found this article very useful, any similar research available here?

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