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Topic Tracking the Value of Projects (Not Monetarily)

Tracking the Value of Projects (Not Monetarily)

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This topic contains 3 replies, has 4 voices, and was last updated by  David Livezey 2 months, 1 week ago.

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  • #673454 Reply

    David Livezey
    Reputation - 21
    Rank - Aluminum

    Every business I have worked for has set Six Sigma/CIP savings targets for facilities, departments, belt level in dollars. Is there an alternative method for tracking project values for a business other than dollars? Tying objectives to KPIs sounds like an option but how would one account for other Xs that have a greater influence on the KPI then the project.

    #674505 Reply

    Is your system using project charters? Don’t they indicate financial benefits? For tracking benefits, it’s typical to have a financial rep for projects and someone using the KPI’s to autocalculate benefits.

    One great program would actually track “slippage” which were benefits not captured yet expected and then questions would be asked about reality of control plans or whether the problems were solved as well as expected.

    Just a few ideas.

    #674714 Reply

    I sympathize. Cost/benefit estimates aren’t always straightforward and managers may play games to favor a pet project. I’m reminded of my first project as a new project manager when I’d duly included the cost of internal labor, using a nominal fully-loaded hourly rate that I’d gotten from HR, verified by finance. My manager immediately struck this out from the cost estimates, saying it’s a sunk cost. We’re going to pay these salaries whether they work on this project or something else. On a later project the same manager insisted on using the nominal fully-loaded hourly rate to offset the expense of contract labor that would be needed. Go figure.

    Similar games happen with the benefit side. Sometimes they’ll insist that benefits must be bottom-line, balance sheet dollars. Other times they’ll insist that less tangible benefits such as “good will” be quantified and included in the equation. We would hope that a company has firm accounting standards and that game-playing is unacceptable. In real life it doesn’t always work that way.

    One way to deal with this is to estimate a project’s contribution to a strategic goal, in so-called “blue” dollars rather than “green” dollars that clearly show up on the bottom line. You may not even need to quantify a “blue” dollar amount if you can show that the project clearly contributes to achieving a strategic goal which management has already accepted. For comparison purposes with other projects you can estimate contribution toward the goal in non-monetary terms using an agreed upon metric, such as improvement in sigma, reduction of outliers, reduction of customer complaints, etc. The critical thing is that the metric is something management has agreed upon, not something you are proposing. You’re unlikely to get very far with the latter.

    #674951 Reply

    Thanks for the responses to date. The company uses what is termed “Hard Savings” which can be tied loosely to the bottom line and “Soft Savings” which cannot and are based upon algorithms to normalize dollar values to improvements in: OTD, Cycle Time, Through Put, Safety, 6S, etc.

    What initiated my question is we are beginning to look at setting the goals for 2018 and one of the divisional VPs stated he would like to shift the tracking of benefits tying them directly to the company’s KPIs. I do not see a better way of doing it then what we currently have even with all the inherent faults.

    We’ll see if any other folks weight in with some alternative methods.

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