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Early Revenue Realization

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  • #55039

    Nibin
    Participant

    Hi All-

    I am pretty new to Six Sigma Culture. Need some help to understand some doubts I have.

    I am doing a project on “Early Revenue Realization”. I am trying to improve the turnaround time of process so that the revenue will be realized early.

    1. Can you help me with a write up on the same
    2. What would be the saving of this if I realize $30M 30 days earlier than the current state.
    3. What would be the savings type? Soft or Hard?

    Please help!

    Nibin

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    #198340

    Amit Kumar Ojha
    Participant

    Hi Nibin,

    BY write up, what exactly do you mean ? If you mean Project Charter, here are few guidelines:
    1. You need to mention Business Case (Current Pain Area), Specific Problem Statement (Pain Area Quantified), Goal Statement (Improvement target), In scope and Out Scope, Team Roles and Responsibilities.
    2. Only if you explain the entire business case and improvement, I can help you with estimated savings. Actual Saving depends upon your actual data. For Cost/Benefit or ROI analysis take Impacted Users*Usage Frequency*Effort Saved*CTC

    3. This is Soft Saving. Hard saving is direct tangible savings such as releasing a facility / machinery etc.

    Hope my response helps..
    Best of Luck!!!

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    #198344

    JB
    Participant

    @nibin,

    These questions would be best answered by a financial expert which, I am not. But, I think in regards to your questions

    2) At minimum, I think you can calculate the time-value of the money associated for the 30 days. It could be simply a cost of capital calculation. Maybe 10-12% of the total dollar value?
    3) It would be hard savings because the dollars are real. It’s not a “cost-avoidance” situation…. In this case you actually have money longer then you otherwise would have. A financial person would be able to tell you how to properly account for the financial impact of that.

    I’d suggest researching DSO “Days Sales Outstanding”. It sounds to me from your post that is basically what your project is trying to do.

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    #198360

    Norbert Feher
    Participant

    Hi,

    I am an economist by profession:-)
    If I understand correctly realization means that you cash in the money earlier.

    Saving is the interest cost of the amount you collect earlier:
    Let’s suppose annual interest rate is 12% and You collect 30 days earlier the money, which is 30/360=1/12.
    Therefore sacving is 30 mUSD * 1% = 300 k USD.

    Is it hard or soft?
    Normally anything that takes out cost from the P&L or increases revenue is considered as a hard saving. For example a reduction in interest expense.
    But in case if no expense is taken out from the P&L (because the company is a net saver) I would report it as soft saving.

    Hope I could help You.

    Regards,

    Norbert

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    #198361

    Shelby Jarvis
    Participant

    In addition to DSO, you may also find value is studying cash flow, working capital, inventory turns, etc. These are all related. As a general statement; From a supply chain, you will make significant gains if you collect money for goods sold in a shorter cycle than you are required to process your AP.

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    #198397

    Nibin
    Participant

    @Nfeher
    @JRBGuy
    @AmitOjha

    (Amount * Number of Days Improved)/365

    Is it a right method of calculation to identify the soft savings provided?

    Interest would be the hard savings as the amount is real? right?

    Thanks for your help!

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    #198406

    Norbert Feher
    Participant

    Hi,

    Amount * annual interest rate * number of days / 365

    In case if interest expense reduces in the P&L You could book it as hard savings.

    With best regards,

    Norbert

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    #198409

    Jim Ha
    Participant

    1. Project charter would help to summarize the project.
    Just summarize Before vs After process summary on another back up slide.

    2. It is a hard benefis since you are bringing in NET INCREMENTAL revenue

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    #198421

    Mike Carnell
    Participant

    Nibin It is hard savings. Anyone who thinks it is soft has never owned a business and had to manage cash flow.

    Get hold of your finance person and do the cash flow analysis for the two different scenarios. The difference between the two is your benefit/loss. In the situation it should be a benefit.

    Just my opinion

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