ROI on Six Sigma % of improvement

Yes, answers depend completely on the nature of the projects (e.g., capital or expense), maturity/capability of the process that is the subject of the project, etc.

That said I’ll give you some very GENERAL responses with qualifiers that I’m sure others will add to in follow up replies:

1. Typical investment, at least initially, is mostly in soft costs of personnel time and expense dollars for training/mentoring. Most companies that start with Lean Six Sigma end up targeting pure process improvements first (typically the low-hanging fruit) so the investment is minimal after you spin up some capable resources. If you have experienced/certified belts at your disposal the majority of the typical early project investments are the burdened costs for employees participating in the project.

2. ROI can vary GREATLY from 50% to 5000% easily. Small changes in a continuous process (e.g., manufacturing) in a high volume environment can generate ROIs in the thousands in my experience (again this is if you’re in an environment where processes are highly incapable.) Sorry this is such a large range. If I had to guestimate over the 200+ projects I’ve been involved with in some manner I’d say the average ROI for them (in a mature Continuous Improvement environment where most of the low-hanging fruit was already picked) is somewhere in the 500-800% ballpark for pure transactional process improvement. For capital projects, which account for only about 10% of my experience, I think the typical ROIs I’ve seen are closer to 200% – 300% on average.

3. Duration for a Green Belt project is typically targeted at less than 6 months in my experience and can range from 2-6+ months in reality. More complex Black Belt projects can easily run 9 – 12+ months. In should be noted that typically the Green Belt is working 25-50% of their time on the project max in my experience. By contrast Black Belts ideally are dedicated resources working full-time during the duration of their project(s).

4. % of quality improvement again depends on baseline process capability. That said, a typical goal for improvement of a defined process defect is a 70% – 80% improvement in my experience (as opposed to a specific goal of a 6-Sigma process capability.)

Again there are a lot of generalizations/assumptions in my statements. I’m sure others will join in with different perspectives.

Good luck with your research.

” Black Belt projects can easily run 9 – 12+ months”?

I would fire the BB that took that long. I BB should complete a minimum of 4 projects a year.

Implementation of Six sigma projects invariably involves investment of mangerial time ,money etc. Therefor progressive approach is followed. Starting with few projects & scaling up as savings /advantages get increased. In other words as the returns on investment are received,further investment is planned in taking up more projects ,going all across the organisation ,covering all functions & processes. Strategy must be ‘save & invest’. As projects start increasing in number returns exceed much more than investment.Conclusion- Start in a small way & expand as success is achieved,thus avoiding the concern of whether proper return on investment is received.

Depends on your environment (e.g., I worked in one where management changed direction / goals every other month – literally), maturity/capability of process, as well as work load for BB. My BBs rarely worked less than a couple of projects at a time so when I say 9 months that is not dedicated time but elapsed time. The luxury of focusing on just a single project is rare in my experience.

In an environment with good process capability a BB can complete projects faster than they can in the period right after the low-lying fruit has been picked in my experience.

Gary wrote:

” Black Belt projects can easily run 9 – 12+ months”?

I would fire the BB that took that long. I BB should complete a minimum of 4 projects a year.

Student (and I’m assuming you’re not William Gosset – if so, pass the Guinness): For most Fortune 500 companies, they would be looking at BB projects in the range of $250k and up ea. As Stan says, you should expect a competent BB to deliver on 4 projects per year for 2 years, so that’s roughly $2MM+. Assume a $100k salary/benefits for the belt, and any project to have at most a one year payback period, and you should be able to get a good estimate on the overall ROI. Since training costs are all over the map, you’ll need to figure that one separately.