Financial Impact Matrix

Six Sigma – iSixSigma Forums Old Forums General Financial Impact Matrix

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    Would be interested to discuss various approaches regarding measuring the financial impact of Six Sigma Projects. In particular what information needs to be recorded at the Project Charter stage in order to prioritise projects.

    Common systems used by Motorola and Allied Signal split costs into the categories:
    Cash Flow
    Non Value Add
    Cost Avoidance
    Cost Savings

    What other information do people use?
    Should we separate ‘immediate savings’ from ‘cost avoidance’?
    What about NPV as opposed to just cost savings?
    Timing? Resources? Other factors?

    Would be interested to discuss with people who are already using Six Sigma or who are planning to implement soon.


    Kim Niles

    I’m really surprised that you haven’t had multiple posts on this by now, as it is a weak and controversial topic of Six Sigma. Perhaps the fact that it is a weak area is the reason…no one knows.

    Tom Pyzdek advocates Net present value but I doubt it’s used much.

    I believe the goal is to weed out the hidden costs so that improvement efforts are realistic. I like to get down and dirty by calculating out every cost of a project from material costs, material overhead, labor costs, labor overhead, machine costs, machine overhead, rework costs, scrap costs, SG&A costs, costs of alternate plans, etc. because sometimes things pop up that are hard to see.

    What is cost avoidance?

    I hope you get more posts because this is really an important topic to discuss.




    Thanks Kim.

    I agree that it is a very sketchy area.

    It’s a critical area of a Six Sigma program, but I find that little detailed information is available.

    I was hoping to start up a serious discussion on the issue, as I have my own ideas, but would like to benchmark against other people’s ideas and/or experiences.

    I look forward to hearing more views.


    Drew Algase

    As six-sigma is incorporated into our Lean Business System, we use the same methods of determining financial impact for all our lean processes (i.e. VA/VE, kaizen, 6-sigma {DMAIC, DFSS, administrative}). We count as hard savings only current improvements in direct costs. Soft savings are opportunity costs and cost avoidances. This is problematic for proactive projects like Value Engineering and DFSS.
    I’d be interested to hear about other approaches.



    We have used the NPV model projected out to 3 years for implementation & burn costs and benefits. We have used the categories that Kim mentioned in her post. I agree that there is a lot of gray areas, especially around quantifying qualitative benefits.

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