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Forecasting Six Sigma savings in the early days

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  • #32961

    Astsaturova
    Participant

    We launched our Six Sigma iniative in March of this year and for the 2004 budget process I need to present the projected savings for the overall Six Sigma program.  The challenge is that to date we have only run one project therefore there is little data to base the proejcted savings on. I have read articles outlining that savings can be based on the overall revenue of a company however as the Quality Leader I will be restricted by the number of projects each business within our oragnisation can run based on available resources etc. Does anyone have any ideas you could share on how to forecast savings for the overall Six Sigma program in these early days when the initiative is in its infancy? 

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    #88582

    Bee
    Participant

    What you are asking for is like saying “What is god’s address?”
    The answer is that there is no right answer and no one-single answer.
    However, at the risk of being called a novice, I will share with you some data that we have collected at our company. We seem to have collected some data on the avg. savings per project particularly those in the early stages of SS implementation :
    GB projects typically save about $15K in hard savings and BB projects have given us around $50K in hard savings. For COPQ calculation we are currently not counting the soft savings.
    Hope this helps. (Like saying God can hear you if you pray to Him at bed-time……..)
    Regards,
    Bee

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    #88680

    Dan Upham
    Participant

    I am a champion at one of the units within ITT Industries and I think your are asking an important question that has plagued me in my role since we began our program in early 2000.
    The challenge is significant. We originally used an average project savings of $250K for a Black Belt led project, hard or soft (cost avoidance), didn’t matter, just calculate the savings on the basis of old way cost vs new improved way cost. We then multiplied that expectation times the number of Black Belt projects planned for the year, (4 projects/Bb/year x $250K = $1M/year/BB) and adjusted that number for BB attrition (20%). Then you simply calculate that number times the number of BB.
    Green Belts we plan on $25K per GB project, no scientific formula.
    Using that calculation as a starting point our acutal saving have exceed ed our plan by nearly 200% the first year; so after a couple years of experience we just simply looked at past actuals and used that for future plans. Our projects are averaging slightly over $320K per project and we are doing more than 4 projec6ts per BB. We collect savings realization over a three year period.
    (818) 902-2073 if you have any further questions.

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    #88684

    ong
    Member

    One way to do this is target a % reduction in operational cost also look at your PPM rate with the customer, what does this cost in terms of containment and corrective actions. This will give you global numbers. From this set target for improvement and divide this by the number of BB’s. This gives you an annual target per BB, divide this by the number of projects expected to be completed by each BB and you have an average saving per project. Review at each forecast time.
    Foe Example: We targeted 5% reduction in operational cost and in year 1 min 2 projects per BB, we are now at 6 projects per BB per year, and reducing operational cost by 4-5% each year
    We also developed an online reporting system and have the financial people in plants and functiona; areas validate any savings.
     
    Hope this helps.
     

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    #88691

    Martínez
    Participant

    And, depending on who’s pushing you for this information … if it’s your senior leadership team … they need to hear that MUCH of the potential impact (both practical as well as financial) depends DIRECTLY on the degree of support (both in terms of freeing up resources to support projects, as well as supporting proposed improvement strategies) … that THEY PROVIDE!!
    This is one initiative that needs to widely supported … from the TOP down, but many execs tend to think that they can just sit on the fence and wait to see if they should support it … which is one of the very reasons that Six Sigma initiatives fail to reach their true potential.

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    #88706

    Astsaturova
    Participant

    Thank you to everyone who replied – the information you provided was most helpful. It’s great to have a forum such as this to share ideas.

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