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Calculating ROI for Lean Six Sigma Projects

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This topic contains 3 replies, has 4 voices, and was last updated by  Trish G 7 years, 5 months ago.

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  • January 28, 2012 at 4:14 pm #53944

    Chris Schweighardt
    Participant

    I’m curious to hear examples of how companies conduct return on investment (ROI) calculations and/or cost-benefit-analysis (CBA) SPECIFICALLY for lean six sigma/process improvement projects. And if & how, these activities are formally part of the project process; i.e., do they play a role in deciding whether or not to launch a project.

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    January 30, 2012 at 10:12 am #192167

    Mike Carnell
    ★★★★★★★★★★
    Participant

    @chrissch9674 the CBA for a SS, Lean or LSS project isn”t any different than it is for any other project. We do limit people to claiming benefits beyond 12 months.

    We don’t necessarily have to have a positive ROI (something like a safety project) but people should make a decision to charter or not to charter a project with that piece of information available to them.

    We also track the projected benefits, by month aginst the realized benefits, by month, so we know if something isn’t working.

    The part that seems to be a difficult sell – particularly to accounting people is doing something like a regression between projected benefits (before the project begins) and realized benefits (when the project completes) so if there is a problem with the accuracy of the projections you can fix it. Unfortunately most of the accountants that get involved are used to measuring other peoples performance and improvement but they aren’t real excited about you measuring them.

    Just my opinion.

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    January 30, 2012 at 11:29 am #192176

    MBBinWI
    Participant

    I also am quite strict on counting financial benefits unless/until they are actually realized. Saving 0.25 FTE is not a savings until enough of those projects sum up to an excess greater than 1.0. That doesn’t mean that you don’t do the project, and doesn’t mean that you don’t estimate the benefit of the project based on the 0.35 FTE improvement. You just don’t get to count it for the dpt/business until it has been actually implemented. Seen too many instances where 5 projects had been completed, each having 0.5 FTE improvement, only to have the same number of people in the dpt/business at the end as at the beginning. It’s not a real savings until it’s a real savings.

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    March 26, 2012 at 9:56 am #192736

    Trish G
    Participant

    We have had some efforts that say yield .5 FTE. Since this is not really hard $ savings, I have represented the improvement with an increase in capacity. We are a growing company and so .5 FTE may translate to XX more applications,

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