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How Can We Quantify Soft Benefits?

Six Sigma – iSixSigma Forums General Forums Implementation How Can We Quantify Soft Benefits?

This topic contains 7 replies, has 6 voices, and was last updated by  Karthik Dharmalingam 2 weeks, 4 days ago.

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  • #237349

    Rtp
    Participant

    We want to quantify financial benefits derived from LSS projects. One of the topics we currently struggle is where we have improved the quality for example of a report. A report is improved to provide accurate data, how can it be measured in terms of financials ? In this scenario there is no effort / time saved as well as its all automated, just the data that was fed were modified to reflect right data .

    Another example: improved services to our customers. It’s not easy to track how it’s improved our sales considering this as a small improvement and may not impact sales.

    Any suggestions on how we can measure soft benefits ?

    Thanks.

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    #237354

    Katie Barry
    Keymaster
    #237450

    Chris Seider
    Participant

    I’d definitely separate soft benefits but get finance involved on approaches to quantify them.

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    #237525

    Mike Carnell
    Participant

    @rekhaprakash26 I will be right up front with you I think soft savings are nonsense. There should be enough hard savings that the soft are not even worth discussing. People seem to have forgotten that when we began this program at Motorola the company vision was “Total Customer Satisfaction”. I didn’t like it then either but this quantifying soft savings is not new. It began in 1986. You asked about service to customers. Ask them. We ran SS at Motorola for 2 years and asked the customer if they saw any difference and they said no. We made changes to the program for the second 2 years.

    In terms of what you have posted it sounds like you have accountants involved. Motorola had all of us read a book called Relevance Lost. It basically says accounting was developed around the turn of the century has not progressed since then. Without a doubt it is pretty worthless for process improvement of any type not just Six Sigma. Look at Activity Based Costing (ABC). Do not use the term openly around accountants because it tends to induce anaphylaxis shock. If you do involve accountants then everything is going to be related to cost rather than benefits. If you get someone with a finance degree involved you will do better in accomplishing what you want to do. The first thing we do is create a Benefits Capture Protocol. A document that defines how you value a project – hard or soft. You have to have consistency of input particularly for soft savings. Soft savings opens the door for total BS and you will get it by the truck load.

    You should be selecting projects with a cost model already completed. If you are not then I have no clue how you are deciding if you are wasting peoples time. There is a thing called a Dupont Chart. These are not new. They began in the 1920’s. You should be able to take your project financial model and look at where it impacts the Dupont Chart and follow the flow to see where the impact shows up. That is about how uncomplicated this is.

    The other issue is hitting the bottom line. Just because I save $10,000 per month on a project doesn’t mean it hits the bottom line and it sure isn’t the Belts responsibility to get it there. A Belt does not have the authority in an organization to drive bottom line results. That is the management team. You put $10k in benefits and it doesn’t hit the CEO should be asking his direct reports why THEY cannot get it to the bottom line. Typically a process is so out of control that monthly fluctuations will keep benefits from hitting the bottom line. Until the CEO holds their staff accountable for that nobody is really responsible for the entire process end to end being stable enough to drop $10k in one end and see it come out the other end. That is a benefit SS can get from a concurrent Lean program. Use a VSM to establish how stable your process is. Put it together with a Dupont chart and you should be able to tell the story.

    Just my opinion.

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    #237761

    Chris Seider
    Participant

    @mike-carnell I actually ran into one organization who told me they don’t track financial benefits for any of their projects.

    I didn’t get understand how they prioritized projects but thought it would give you “a bone to chew on” in the forum.

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    #237826

    Mike Carnell
    Participant

    @cseider There have always been a few that didn’t track benefits. The company culture has to be a real outlier to sustain this. It can also kill a deployment in a hurry. It is tradition in most companies at around Q3 people start shutting down expenses, particularly expenses that are perceived as not adding value. If you do not track financial benefits you are just loading the gun of every passive aggressive manager that doesn’t want a program that drives change.

    Selecting projects without financial data? I cannot imagine doing that but the entire Lean initiative drives on it. You hear them saying “If you are asking about financial benefits you are asking the wrong question.” I wonder if they do the same with CapEx projects? There was a discussion on LinkedIn about ROI calculations. One of the higher visibility Lean guys asked about the ROI and calculating ROI. That was pretty close to the dumbest comment I have seen in this millennium.

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    #237986

    Strayer
    Participant

    Sometimes benefits are called “soft”, such as making an internal report more useful, because we aren’t willing to do the work to determine how they affect the bottom line, although they do. That said, there are things such as goodwill, social responsibility, employee satisfaction and morale, that are good to do but have nebulous bottom line benefit. That doesn’t mean we shouldn’t do them. But they are not candidates for DMAIC projects.

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    #238052

    Karthik Dharmalingam
    Participant

    @rekhaprakash26, it is relatively tough and trivial to compute soft savings/benefits in $. That too in your scenario, you have mentioned that there was no impact on time & efforts :( . Having said that, if you or your boss emphasise to report the $ value, you can think about effect of inaccurate data and how would it affect the process/people involved in terms of T&E and try converting it to $ value, but this will be superficial though. This is jus my thought process…

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