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Expected Dollar Value of Projects

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  • #30553

    Tony G
    Member

    My Company is in the second year of Six Sigma deployment.  They expect $ 500,000 return for each Black Belt project.  Does this seem like a realistic expectation?

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    #79656

    Trev
    Member

    This does seem a bit high. It takes into account certain assumptions that your company is making, however, and I think we may need to visit some of these to justify (or not) the expectation:

    Is this your initial deployment and, as such, is there a tremendous amount of low hanging fruit to gather?
    Are your black belts fully trained and are they high performers within the organization. Do they already understand the business they are improving?
    Do all Black Belts have MBB coaches to help?
    Is there a fully developed organizational structure associated with your company’s deployment (champion/sponsor, process owners, etc.)?
    If the answer to the above questions is yes, then you have a shot. I typically see Black Belt (discussing only BBs here, not GBs or MBBs) projects savings (in my mature organization) at the $50K (on the low end) to $200K. I’d say the average is $125K.
    Trev

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    #79657

    Joy Cowling
    Participant

    That isn’t anywhere close to a realistic expectation.  There may be projects that reach that amount, but they will be the exception, not the rule.  If you have employed a consulting firm to help you with your implementation, they’ve missed the boat on expectations with managers.  Somebody should take a close look at what you expect to get out of the program and how you will get there.  Otherwise, I think management will be disppointed and Six Sigma may become just another failed initiative.
    Joy

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    #79788

    john beaudoin
    Participant

    Our Blackbelt last year saved $2.6 million.  The trick is that it was not all done by him and it wasn’t all done on one project.  This is the result of all of the Greenbelts (25) working on individual projects (1-3 each during the year) being supported and guided by the Blackbelt.
    What role are your Blackbelt’s expected to fill?
    What is the sum of the Cost of Poor Quality for your facility?

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    #79791

    john beaudoin
    Participant

    If you really mean $500,000 for each project, that is way off base.  Most Blackbelts are responsible for several Greenbelts and each will be responsible for 2 or more projects annually.  If the savings is roled out annually to a Blackbelt, this would make sense.  The only exeption would be if the company management has a particular project in mind that will warrant that type of savings.

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    #79792

    Barry Bickley
    Participant

    I’m operating in an organization that averages  $1M on GB projects.  The key is that it is the average range.I’ve had several GBs certified on projects of less than $50K (the company benchmark is $250K).  I can do this only because we are balancing out what we refer to as enabling projects with real money producers.  We had one project that only increased our revenue $18K in one year.  However, it saved our suppliers almost a third of a million dollars–it was a good project.  There are really several things you have to consider:

    You need to take into account the size and budget of your organization, and the focus of the projects. Expenses for most parts of my organization are under $1M a year (less than 200 people in my division; over 100,000 in the company).  My company originally only wanted to certify on process improvements/cost savings.  Those are my $18-50K GB projects.  With some pushing, they also allowed us to certify on revenue increase projects.  (This is a major consideration–if you are in a 10% margin business and they want a bottom line increase of $500K per project, you would need a $5M increase in revenue to give you this.)
    You have to look at average savings–and have some trust.  Initially, every project had to save $250K.  However, as we started to develop solid projects under that amount that saved partners money or set the stage for future savings/earnings, we were allowed to manage our own affairs as long as we hit the required average amount. Management also has to trust that doing the right things will eventually pay off in a cultural change.  If your projects are small but succeed in changing the culture of the company, 5 years down the road, you will be highly successful.
    You have to consider the philosophy of the company.  Is the $500K number a challenge thrown out by non-believing managment as a test?  (Other people are doing this, you can’t, so this isn’t a good program for us.)  If so, put out your resume, now.  On the other hand, we are also in our first two years of deployment and six sigma is not an option.  It is how we are expected to meet our goals.  $250K average is what we need to meet those goals and it is fully supported by and a part of all company life from the top down.
    That is a long answer for a simple message:  “it depends.”  It depends on management support, infrastructure, flexibility, and focus–do you have to save money, or can you also increase revenue?  Are you trying to change/create a culture, or just prop up a sagging bottom line?  It makes a difference!
    Good luck!  Barry

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    #79796

    Tony G
    Member

    We have 3 blackbelts (not yet certified) ,about 15 green belts (most not yet certified), and we just hired a MBB form outside the company.   The blackbelt’s role is to lead problem solving teams as directed by management (somewhat in fire-fighting mode)
    We still don’t have a good handle on documenting COPQ (quality dept working on that issue) so I can’t even give you a good number.
    I’m just hoping that setting our initial goals too high won’t hinder our depolyment efforts.

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    #79803

    john beaudoin
    Participant

    Depending on the complexity of the projects, you will have some variation, but to be conservative, you should average 1 $75,000 project for each of the personell you mentioned.  This will give you about $1.425 million in savings after 1 year.  This is a reasonable number as we saved about $2.6 million with 1 black-belt, 3 really good green belts, and 25 greenbelts that were pretty green and needed a lot of help. (Hard and Soft savings combined).
    As to the goal, it is better to set your goal too high than too low.  It is a good motivation to work hard and put effort in the program.  The problem lies in who your Greenbelts are and who their managers may be.  You need to have management support that allows for these individuals to spend time on projects (20%).  If you don’t, you will be set up to fail.

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    #79822

    Stephens
    Participant

    I totally agree that it is an easy way to set up for failure when management is trying to set a specific $$ for ROI regarding six sigma implementors. Its ironic actually. The main reason I beleive they set a $$ amount is to justify the training investment and show the delta between what they invested to what is expected. Such expectations have come from consultants and six sigma trainers to justify the $30-$50k to teach black belts to do what they (we) do. Each project is variable. It is almost possible to do a multivariate regression based on the the complexity of the projects to determine the probability and confidence that $200k would be accurate and possible.
    Don’t chase $$ chase variability instead. The $$ will come.
    -Craig

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    #79836

    John J. Flaig
    Participant

    Craig,
    There is merit to what your saying but it is important to be able to estimate the project costs. The best way I know of is Net Present Value Analysis. There usually is a limited amount of resources to be allocated to projects so it is important to select the ones that generate the optimal economic results. This by the way is not always the top five on the frequency Pareto.  See my 1993 paper in Quality Engineering on Optimal Resource Allocation.
    John J. Flaig, Ph.D. @Applied Technology (e-AT-USA.com)

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    #79840

    Stephens
    Participant

    John-
    NPV is indeed a good ‘assist’ beyond Pareto or Priority Matrix. I get a little bent when organizations may or may not fully understand process improvement and attempt to pigeon hole or budget for improvements when it isn’t really known how much contribution can be realized. I am more of the school that moving toward a six sigma approach as the ‘investment of doing business’ (twisting the old saying of the ‘cost of doing business’)
    Thank you for your insight. I look forward to reading what you authored.
    Craig

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    #79853

    Mike Carnell
    Participant

    Tony,
    I have been watching this thing spin out of control for a couple days when Joy gave you the straight answer to your question very early on. Setting the bar at $500k is beyond stupidity. Your company would have to be screwed up beyond belief to have a plethora of half million dollar projects laying around. Come to think of it if they can mindlessly set the goal that high then they are probably capable of running a company badly enough to have those types of projects. When it is that bad nobody needs SS to fix anything.
    You might want to contact Boy Scouts of America and see if they have a spare scout master or two around. It sounds like your company needs some adult leadership.
    Sorry about the sarcasm but there seems to be this rash of people putting unreasonable metrics on BB’s when the people around the system are more prone to screw it up and they have nothing in the way of accountability for the programs success.
    I have been doing deployments since 1995 and the best average (that is average – some above and some below) was $175k. That didn’t hold over time.
    Good luck. If they don’t change the metric get out pretty quickly. They are to stupid to work for.

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    #79856

    Joy Cowling
    Participant

    I finally returned to this thread after my initial post.  As I read through all this stuff sputtering in disbelief, I get to the end and see that someone is finally the voice of reason.  Thanks Mike. 
    There is no circumstance under which I would tell Tony that setting a goal of $500K (on average or any other way) is going to be good for his program success.
    But I guess Mike already said that.
    Joy

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    #79871

    Mike Carnell
    Participant

    Joy,
    Thank you.

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    #79980

    Darryl
    Participant

    I agree with Tony’s sentiments.  The value of projects is way over-estimated many times.  I can’t say what our averge savings at Comalco is (because i don’t know), but if it was anywhere near 500K, we’d have been out of business long ago.
    One thing to keep in mind is that “Green Belt” (and black belt, etc.) may mean something a little different at different companies.  For example, a green belt at Comalco is nominally someone that spends approx. 50% of their time on projects, the other half on their existing work.  Not sure if they’re full time at your company?
    Don’t be pressured into inflating the value of your projects arteficially.  Does it matter what the “average” value of projects is?  I think each company should look at their specific opportunities, prioritise them from highest to lowest value (roughly), and tackle the biggest priority first.  It’s hard to lose that way.
    All the best.  Daz

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    #80035

    Luis
    Participant

    Dear Darryl: I think you’re 100% right but although that automatically works in a 99% of the cases, there are still 1% other instances which are expecting to have the “carrot” closer and lower so it´d  be possible for them to reach it, and eventually  score out the one “effective” point they´re after.
    For these cases, let´s just lower a bit Maslow´s basket once in a while, and they´ll gladly keep on pulling the wagon like the rest of us do
    Regards !

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