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Personnel savings in six sigma projects

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  • #35389

    Naveed
    Participant

    We have improved a process and reduced headcount by two persons. Do we count the savings (their salaries) in the first year only or for 3 years (the normal span for counting the savings)? 

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    #99389

    indresh
    Participant

    logically speaking take into account a few things
    – will the personnel involved in all non value added stuff which you improved and tehreby shall never be required again
    – if for example you reduce number of calls coming at a given point which are dependent on total subscribers you may reduce the headcount for few months but these people shall be required as the number of subscribers increase, typical case of linking projects savings which are short term
    – if there is an automation done which reduced the personnel completely and which takes care of long term as well you may take the savings of their salaries
    else can put the savings at the end of the year seeing that these personnels were not required at all and the process worked smoothly
    hope it suffice
     

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    #99402

    Naveed
    Participant

    Indresh
     
    But you did not reply to the real question: how long the period is for counting the savings? just the first year or next 3-4 years? What is the norm in these matters? Is there an industry standard or different companies would have different policies?
    Presume that process output remains the same in foreseeable future.
     

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    #99445

    Malcolm Upton
    Participant

    I would think this is a question that should be answered by your finance people. They are in a better position of knowing what the rules being used to count savings for Six Sigma projects and what the accounting rules your company is using. All we could do is make guesses based on what our finance people have decided. Those guesses will only be helpful if we happen to have made all the same choices on the accounting rules, not a highly likely event.

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    #100511

    Norbert
    Participant

    If the savings are certain, then you do not have to wait to validate the improvement and you can immediately close your project.
    I guess the way you report savings must be established within your organization. We always report project results on a per year basis.
     

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    #100530

    DD
    Participant

    On eyear or three years, depends on how your company wants to make the determination. My comapny uses one year savings in all aspects.

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    #100641

    GOPAL
    Participant

    I think it is generally considered on one year basis.

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    #100658

    Bob J
    Participant

    Naveed,
    My experience is that it is typically baselined against the previous years performance…
    Bob J

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