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Soft Average Savings Measurements

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  • #43610

    Richard
    Member

    Is there a standard equation/multipler for an average soft savings measurements? Example … A business owner makes $50/hr and if a process can free up 1 extra hour/day of the owner’s time in a small manufacturing/distribution company ($5M), that would translate into ~$60000 savings/yr. However in reality the extra time can be use for other strategic ways, thus the total saving is ~$300K because of an average multipler of 5x for an owner. Thanks.

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    #138552

    Freddy J
    Participant

    Richard:
    “Soft” savings has been extremely perplexing issue in my experience. As part of a service/transactional business, most of the projects we work on involve soaft savings. My company has been so down on anything considered “Soft” that our Finance group is not to be contacted to provide their “buy-in” of such savings. We all realize that soft savings really does provide a benefit, but the Executive Team does not want us to include it as “real” savings. I would like input from anyone as well on this issue.

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    #138561

    Elbrin
    Participant

    Richard,
    It sounds like you have 2 numbers to deal with, you have a $60000 hard savings.  How the owner chooses to spend that additional hour will determine what other claims you can make.  I would provide him with alternatives.  Such as, an ower of this kind of business is often involved in sales.  How many hours does he spend making a sale?  What is the value of his average sale?  How many more sales could he make per year and what would be the lift in revenue with the added time you can provide him?

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    #138565

    McD
    Participant

    “you have a $60000 hard savings”
    Actually, it isn’t hard until it comes off the books, so it stays soft until the payroll goes down that amount.  Simply redeploying the resource doesn’t result in hard savings.
    –McD
     

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    #138566

    McD
    Participant

    We all realize that soft savings really does provide a benefit, but the Executive Team does not want us to include it as “real” savings.
    This isn’t uncommon, and it might not be such a bad stance, depending on the company, its history, and the availability of hard savings to go after.
    A lot of companies have a long history of “improvement” projects that sounded good at the time, but may have produced questionable results.  While soft savings may, in fact, be real, they are soft basically because you can’t measure them. And if you can’t measure them, then perhaps it isn’t such a bad plan to avoid spending Black Belts on them.
    If a company has opportunities for hard savings that have a measureable effect on the bottom line, then surely that is a better place to spend the company’s valuable resources.
    –McD

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    #138573

    villageidiot
    Member

    Yeah, bad advice.   HC project savings must come off the books and should be statistically proven over a certain number of business intervals (monthly, quarterly, etc).
    Your Business Case criteria should be determined via your steering committee / quality leadership…That is their role, not yours.  Insist on their participation in this regard…Operationally define your financial terms across all parties and have them OK those that constitute viable project savings.  They dont like SC, dont do projects that are validated by them. Simple. 

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    #138804

    Deanb
    Participant

    I agree that none of the stated values here are “hard”….yet. Given it is the owner’s time (owners rarely pay themselves hourly), it is unlikely to ever become a hard figure. However it is very likely that the owner’s time is strategic to other prevention and improvement efforts.
    Using Cost fo Quality you can transform soft items such as this into hard savings if it contributes to the a reduction in one of the COQ categories. In COQ, it pays to do projects that free up time, so more quality time can be spent “preventing.” There actually are 3 kinds of costs you can use: hard (documented), soft (undocumented), and soft-strategic (with strong potential to become hard). It is frequently a very good idea to improve soft-strategic issues.  

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    #138810

    MC
    Participant

    I humbly disagree that Black belts should not waste their time on soft savings project.  An example is rolling out SPC to a supplier.  This does not always generate hard savings, and the soft savings are hard to quantify, but there is no doubt that it is the right thing to do and it provides many intangible benefits.

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    #138811

    McD
    Participant

    My weasel words were carefully chosen.
    All other things being equal, generally one would prefer to deploy Black Belts on hard savings projects.  Thousands of hours have been wasted on projects that sounded good at the time.  SS is all about measuring, and if you can’t measure the results, then why do it.
    That being said, SS also needs to be aligned with the business strategy.  There may be initiatives that need to be undertaken to execute the business strategy whose savings are hard to pin down.  If they need to be done, and SS is the right tool, then it is silly to stand by some rule.  Do what makes sense.
    In some cases there may be few hard savings projects available, or soft savings projects need to be executed in order to facilitate later hard savings projects.  Of course do them.
    At the end of the day, you should do what makes sense.  But without some other compelling driver, you want to sped your valuable resources where they will do the most good, and bottom-line impact is usually better than “feel good”.
    –McD

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    #138817

    Deanb
    Participant

    McD,
    Favoring hard savings over soft is hard to dispute, and that is precisely the problem I have found in many BB initiatives. The fact that so many hard savings depend on complementing soft advancement, makes it dangerous to separate hard and soft in strict terms.
    Soft issues are not necessarily just “feel good” issues either. This is a limiting label that is not value added IMHO. For example, take frustration. If a process’s participants are highly frustrated, and a minor “soft” change can be accomodated to significantly reduce this frustration as a means to win cooperation to win the hard gains, doesn’t the soft issue now take on a different imperative than it merely being a “feel-good” issue?
    I have the reverse scenario too, that hard issues sometimes need to be solved to enable improvement in the soft issues, and the soft issue in the end carried much more value and impact on the organization than the original hard issue. I would venture so far to say that for every hard issue there are corresponding soft issues that should never be ignored in any improvement project. Every project should have both hard and soft components taken into consideration.
    We need to be very careful of our labelling and logical thinking when considering the relative value of solving soft problems in process improvement. Ironically, I have found most CFO’s to be inherently more common-sensed about incorporating soft solutions -without hard ROI data-than many BB’s.

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