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Measurement of Improvements Question

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  • #53679

    HopeOverExperience
    Participant

    Background

    Currently we monitor savings as with hard savings (visible changes to the P&L) and soft savings (time savings which have reduced the effort to do something but have not resulted in a reduction in resource costs).

    The default is to try and measure all projects as hard savings as we can the check for the impact onto the P&L.

    Soft savings are used where we can not link the time saved to improvements to revenues or OM due to changes in what price we sell items at and what the current demand is or what we are producing. Also as we’re continuously making improvements it is difficult to link a saving to a specific project.

    The Problem

    It has now been decided that only hard savings count so these will be the only ones which are measured. I worry that this change will stop people making the time savings type projects which overall make a large impact to the profitability of the company. We are very goal driven company so removing this from the goal could cause problems.

    The Question

    Has anyone had success in either;
    showing hard savings for these soft savings type of projects which the finance group will agree to or
    found a way to show the improvements to the P&L of all of the projects hard and soft savings e.g. a method to say that if you’d had this volume with this selling profit margin last year you would have an OM of X but with this set you have Y with the difference being all the improvements the department had made or
    someother method for making sure that people still make teh improvements and get the career benefits along with the actual benefits?

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    #191073

    Strayer
    Participant

    If the time savings result in reduced cycle time, increased inventory turns, etc. you should be able to show financial benefit. Since you say “soft savings” I assume you mean reduced labor. If you can’t show that labor time savings resulted in staff reduction or that the time freed up was used for additional value added work… Basically I agree with your management’s decision to only count hard savings. Otherwise you risk the inflated savings claims that could not be seen in financial statements and that critics used to say that SS was hyped.

    It’s an interesting fact that labor savings are often squandered. Cyril Northcote Parkinson wrote in The Economist (1955) that “Work expands to fill the time available for its completion.” This is called Parkinson’s law. A corollary is that reducing the amount of work necessary to complete a task does not mean that the task will be completed in sooner. And it certainly doesn’t mean that whatever time was saved will be put to good use.

    Challenge your project teams to show how time savings translated to actual bottom line savings. If they can do that, they deserve reward and recognition.

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    #191106

    HopeOverExperience
    Participant

    Thank you for your answer.

    I agree also that only hard savings count the issue we have is in showing these. The problem is that every piece that comes in is bespoke, each taking different levels of effort, cycle time and just for fun sold at different % operating margin.

    To add to the problems not all people need to fill in time sheets and those that do will be working on multiple projects and have bucket codes to indicate this so we can’t see what effort has been spent on a piece of work. This is something I’m working on….

    Given this if we only make a small improvement we can not show that this was down to the change implemented or just a change in a mix of products.

    At the moment what I’m looking at is to measure the soft savings and when an area is booking a given amount e.g. equivalent to a person, they have to show us a hard saving change somewhere in their P&L if they can’t they loose the savings.

    Any thoughts.

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