Velocity of Value

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    An interesting business metric is called “velocity of value.”
    To grasp the underpinnings of this performance metric,
    we will define present value as V1 = [ ( C1 / C2 ) x C2 ] /
    C3. For this definition, C1 is the realized capacity of
    something, C2 is the potential capacity and C3 is the total
    cost associated with C1 and C2. Consistent with this
    equation we reason that the capability of virtually
    anything can be defined as C1 / C2. For example,
    consider a 5 liter container of something that has been
    filled to the point of 2.5 liters. The present capability
    would be given as 50%. If the cost of 5 liters is 1 dollar,
    the present value would be stated as V1 = .50 x 5 /1 = 2.5
    liters per dollar. Now, the velocity of value can be
    computed as VOV = ( V1 – V2 ) / T, recognizing that V1 is
    the present value state and V2 is the entitlement
    (potential) value state. By merging the two equations we
    find that the velocity of value is the rate of change in
    present value while simultaneously considering the cost.
    Simplifying the merged equations we see that the velocity
    of value is concerned with the beneficial rate of
    improvement in realized capacity. Because most every
    improvement effort can be reduced to a capacity problem,
    the VOV metric could prove to be a very useful tool in the
    practice of six sigma.


    Joe BB




    A –
    Please stop posting in a bothersome harassing picayune rambling esoteric arcane mathematical context in close proximity or in response to my postings.   The minimally analytical Solo has already suspected at the very least some questionable inbreeding. 



    And you don’t think this one is Reigle?



    I can’t decide.  They range from reading like his past postings to reading like Reigle on methamphetamine.    The distribution is almost bimodal.Vinny



    My vote is for Laxman.BTDT



    Reviewing the posts from this forum’s highly prestigious
    consultants (concerning this topic), it might appear they
    do not find any merit to the velocity of value metric (VOV).
    Might these diligent and considerate consultants choose
    to point out where this metric is analytically flawed?
    Seems to me that VOV is quite akin to the OEE
    performance metric, but possesses some distinct
    advantages and applications? To simply reject the
    premise and underlying dynamics of VOV in such a fast
    and discounting way does not support this site’s reputed
    reputation for scholarly discussion and innovative
    thought, especially among its primary contributors. I feel
    certain that such antidotes (as posted thus far) is a
    collective yet humorous diatribe that will soon lead to a
    more serious discussion and treatment of the topic. On
    the other hand, it might just lead to more humorous
    diatribe of a personal nature. Either way will have a lot to



    We use TVM as a metric. It’s easy to calculate and standard stuff for the accountants to understand. Rework and abandonment can be incorporated. We don’t need another metric that no one understands.



    Please recognize that this conspicuous call for discussion
    (about the VOV metric) will involve more that a simple
    canned response, like so many FAQ’s on technically
    oriented websites. I am also hoping that the efforts put
    forth toward a lively and meaningful exchange will
    reinforce the general proposition that six sigma
    practitioners (and their leaders) are continually looking for
    innovative and inventive thinking, especially those ideas
    that can benefit a business enterprise and the discipline
    at large. If you choose not to focus your expertise on this
    issue, I certainly understand and respect that decision.
    As you might suggest, the VOV metric is a relatively new
    performance measure and might not deserve the same
    attention as other issues presented within this forum.
    However, if after a positive due diligence (of the technical
    variety), you might discover that the VOV metric has a
    high level of merit. It might prove to be the kind of
    reasoning that drives six sigma to yet another level. The
    potential implications and applications are many, across
    all industries. I look forward to your positive response.



    A –
    I’m not going to brawl with you a great deal about this, but what is your question?   A google search on Velocity of Value yields some interesting thoughts – easily enough done, read and understood.   I particularly liked the application to Keynesian economics.   Your linkage to OEE was not apparent unless you are saying that there are now two things that you have thrown out for commentary.
    Velocity of Value could certainly be a valuable metric when determining the stakeholder benefits derived through return on investment garnered by inventory accrued, expended and turned in support of a particular enterprise.   Thanks for the pointer. 
    It seems that you are kicking around in the dirt and picking up stones, declaring them to be gems, and criticizing the forum community for not either having found them first or entertaining you through animated appreciative discussion.
    These are all thrown out as a childish communal test – one which you launch the initiative and grade response.   My response to your actions is one of wondering who you believe empowered you to assess the qualifications and contributions of anyone.
    Demonstrate expertise, tell of something that you have done, an approach you have taken, ask for assistance, critique the comments of others, do any sort of thing that will yield a thoughtful exchange of ideas – but these little tests demonstrate only that you can cut and paste the work of others found on the internet.   And if you just want to duke it out over something technical grab something that you are familiar with, that’s relevant to the forum you’re playing in, state your case and hold your ground – all of which can be done without what appears to be a cut and paste of someone else’s work and asking others to comment on it which is really more the mark of a weak intellect than in anyway contributory.



    To fuel our anticipated discussion of the VOV metric, let
    us gradually consider the idea of process yield and
    product yield. To begin, we naturally understand that any
    given process ( P ) is nothing more than a progressive set
    of steps ( S ), where the execution of S1 , … , SN can be
    sequential or parallel in nature. Each S is a repetitive
    cycle of activity, characterized by the common ITO model
    (i.e., input-transformation-output). If S is fully and
    successfully executed, it will produce the desired
    outcome. So, the limiting number of S per unit of time
    precisely reflects the capacity of a process step. In this
    respect, the potential capacity of a process step can be
    generically expressed as the number of entitlement
    cycles per unit of time; e.g., 20 cycles per hour. Activation
    yield is the proportion of potential cycles that were
    activated over some period of time. In this sense,
    activation yield is merely the ratio of activated cycles
    contrasted to the total number of potential cycles
    (available cycles). By the same reasoning, we compute
    the cycle completion yield (i.e., proportion of activated
    cycles that completed the ITO cycle). Remember that the
    ITO cycle can be activated but not completed due to a
    host of operational reasons (e.g., equipment malfunction
    and so on). It is interesting to note that an ITO cycle can
    be competed, but not produce an outcome, such as a
    machine that runs empty stations. Those ITO cycles that
    do produce an outcome (regardless of quality) contributes
    to the realization of product yield. In this sense, it is
    possible to produce an outcome, but not a quality
    outcome. With the same reasoning, we are able to
    compute the quality yield. The cross-product of these 4
    yields provides us with the probability of achieving an
    entitlement cycle. Of course, each cycle that achieves its
    intended aim is operating at its minimum cost (given the
    prevailing product and process design). Suppose that in
    a given hour of operation, we are entitled to 100 cycles. If
    we activate 90 of these cycles, the activation yield would
    be 90.00%. In the event that only 80 of the 90 activated
    cycles completed each progressive phase of the ITO
    model, the completion yield would be 88.89%. If only 70
    of the 80 completed cycles produced a physical outcome,
    the product yield would be 87.50%. Finally, if only 50 of
    the 70 provided a defect-free outcome, the quality yield
    would be 71.43%. Thus, we discover the entitlement
    yield to be .9000 x .8889 x .8750 x .7143 = .50, or 50%.
    This means that there is a 50% chance that any given
    cycle (within the given period of time) will yield full VALUE
    ENTITLEMENT. As you may have noticed, the idea of
    value yield is not common to the current practice of six
    sigma. Should we pursue this disscussion further, or
    would you prefer to stop and conclude that these
    concepts are inappropriate, trivial, and of no value?
    Either way is OK with me. Like you, I am just trying to
    make a (free) contribution to the world of six sigma and
    this forum.



    Mr. Vinny. Please provide the web-site address you
    believe there was a “cut-and-paste” action. I am overly
    confident you cannot provide such a reference since the
    work is original and not yet published, so the accusation
    is duly noted as being false and unjustified. I am sure the
    larger forum community would agree that, if you accuse
    someone of plagarism, you shoulde be able to cite your
    reference for all to see. Merely making the accusation is
    a far cry from demonstrating it. Thank you most


    Ken Feldman

    You got my vote for the Laxmeister.  Still love the one about the wind blowing through the house.



    Mr/Ms BTDT. The time value of money (TVM) metric is not
    computationally or analytically comparable to the velocity
    of value metric (VOV), as referenced in this forum thread.
    While easy to understand and interpret at higher levels of
    corporate accounting, the TVM metric does not provide
    sufficient diagnostic capability or traceability at the
    operational and process levels of a business enterprise.
    Generally speaking, TVM is a class of performance metric
    related to ROI. It does not adequately reflect the relative
    efficiency of the activities that generates the return. I am
    most confident that you recognize the need for a set of
    performance metrics that are hierarchically correlated
    throughout a transitive cycle of business. Although such
    a set of governing metrics is often daunting in number,
    they are (nonetheless) essential to the efficacious
    management of a large global enterprise. In abbreviated
    form, we must understand that the business, operations,
    and process levels of an organization can only be
    improved if the corresponding tiers (of performance
    metrics) are cascaded in a cause-and-effect manner.
    Otherwise, it is not possible for a senior management
    team to reach the control function of a corporation. Along
    these same lines, the cost-of-quality metric has often
    plagued corporations whose accounting systems lack the
    capability to vertically and horizontally trace the
    associated costs. Therefore, metrics are needed that
    correlate to the true cost of quality, but remain
    independent of these metrics limitations.



    Mr. Vinny. I so hope that my contributions (thus far) on the
    VOV topic have generally qualified me to participate
    within this distinguished forum. Perhaps my postings on
    the velocity of value will serve as a calling card that
    reflects my limited capability, knowledge, and experience.
    In so demonstrating these humble assets to you (and the
    other forum consultants), perhaps I will be allowed the
    privilege of contributing the expected intellectual benefits.
    At the same time, I also expect a respectful exchange of
    ideas followed by fruitful discussion — free of personal
    inferences and demeaning remarks. If we can agree on
    these mutually beneficial ground rules, a wonderful thing
    can happen. For the benefit of interested parties, please
    respond with your positive decision.


    Stans’ Friend

    A and I have worked out the following.  Please give us your comments.
    The work function is simply a name that we have given to the intercept made by a straight line that does not pass through the origin.
    y = hx + c = hx – W = h[x – (W/h)]…………….(1)
    These are all equivalent representations of the equation of a straight line. If W = 0, or c = 0, the straight line passes through the origin.
    As the analogy with Einstein’s idea of a work function is more widely appreciated, the whole thing will become perfectly clear.  In the problem that Einstein solve, the efficiency can be defined as follows:
    K = hf – W…………….(2)
    Efficiency = K/hf = 1 – (W/hf)…………… (3)
    This is exactly like Profits = (Revenues – Costs) or Good parts = (Total parts – Defects).
    Does a linear law apply between profits and revenues? Can we use it to extrapolate and predict the profits of a company as revenues increase?  Can we predict how defects will increase as more parts are made?
    These questions can only be answered by careful analysis of the observations from many walks of life that are available.  We have studied the profits and revenues data for literally hundreds and thousands of corporations reported in leading business magazines like Fortune, Forbes, Business Week, etc. over the last six years, before we came to this forum, and started talking about the broader meaning of the term work function.
    Planck’s law is a nonlinear law.  But, there is a fixed quantum of energy underlying this law.  Einstein took this germ of an idea, a fixed quantum of energy, and showed how effective it was to explain a very complex problem. But, he had to create a work function to explain how light interacts with a metal to produce electrons.  The efficiency of Einstein’s Photon Engine is given by equation 3 above.  It is just like the efficiency of a Heat Engine (automobile or aircraft engines) which is given by the equations
    Work done = (Heat in – Heat out)
    Efficiency = Work done/Heat in = 1 – Heat Out/Heat in
    We have seen the linear relation between profits and revenues with many corporations, large and small. Unfortunately, this is not widely known mainly because, we think, no one has yet looked for it and tried to see if there is such a simple relation and if it can be used to project profits as revenues increase. Statistical arguments have generally been used to “estimate” profits and earnings.  We would be very happy to present these findings as well in this forum.
    It is hard to deny FACTS. Nothing would please us more than to see Six Sigma practitioners testing this idea further and prove to themselves if it is indeed a useful one. Regards.



    Let us consider your definition of relative efficiency, where
    E = K/hf = 1 – (W/hf). This is so true, analogously
    speaking. As previously discussed within this thread, the
    ratio C1 / C2 is a relative measure of capability, where C1
    is the realized capacity of a process and C2 is the
    potential (entitlement) capacity. Thus, the relative
    inefficiency of one’s potential capacity can be expressed
    as E = 1 – (C1 / C2). On the positive side of things, the
    relative efficiency is simply C1 / C2. Of course, the
    inverse of the later function represents the extent of
    potential capacity that is required to overcome the
    inefficiencies associated with realization.


    Laxmanan’s Uncle

    As originally posted by:
    Posted by: V LaxmananPosted on: Monday, 5th July 2004, 9:40 AM
    He lives….



    For those forum members that are interested, I am not
    Laxmanan, nor am I his uncle. His contributing work on
    the subject of adaptive work functions was highly
    innovative and most creative. Although not directly
    related to the subject of work functions, the VOV metric, as
    well as its foundational equations, is fully unique and (as
    such) represents an independent subject worthy of
    separate analysis.



    In your first equation you have V1 = [ ( C1 / C2 ) x C2 ] / C3.
    Doesn’t  ( C1 / C2 ) x C2 simplify to C1?  Making your equation V1 = C1/C3.
    Additionally, if I improve things might my realized capacity increase (or at least stay the same) and my total associated cost decrease?  Which, for this situation, make V2>V1?  Making V1-V2 a negative number and therefore VOV = ( V1 – V2 ) / T, a negative value?
    By the way, what is T?  You never defined that in your initial posting.
    In layman’s terms, what is your VOV again?  The simple definition.


    Monkeys Unkle

    What a load of Bollo*ks.  Since Mr Annoy has come on board this forum just goes back and forth i an intelectual tennis match that is a complete waste of time.  What people want to hear about is real world application – not a load of pompus cr*p.
    Mr Annoy – take a break – only post helpfull information – this is not the classroom !



    Now, now, Unk….
    Annoy has only been on board for a short while, yet the pompus poop has existed much longer than that.
    By the way, is your Nephew trying to get work with the Mesa, AZ police department? I read that he may be used to do skilled tasks like search and rescue, and be fitted with a kevlar vest, a hard-hat and a radio. Here’s a photo, but he doesn’t look to happy in it. There may be a link attached to the story too.
    Post his address and I’ll crochet him a sweater after I finish the CEO’s I’m working on.



    Mr. EdG. Thank you very much for your interest in the
    VOV performance metric. I am delighted you detected my
    oversight. The numerator term of the VOV equation
    should be V2 – V1, not V1 – V2. Consequentially we
    should now understand that V2 > V1, at least for most
    conceivable applications (before improvement). As the
    realized capacity improves, the inequality will be reduced.
    By simple reasoning, we conclude that the limiting value
    of C2 – C1 is zero. In answer to the first portion of your
    post, the value equation does in fact reduce to C1 / C2.
    However, in expanded form, it is easier to conceptualize
    the quantity as being V = ( Capability x Capacity ) / Cost.
    By your observation and analysis, it is true that the idea of
    value can be condensed to V = C1 / C3. For example, if
    our current process capability is 80% and the potential
    capacity is 100 units, then C1 = 80 units. Assuming the
    total realization cost to be $40, the present value ( V )
    would be computed as V = C1 / C3 = 80 units / $40 = 2
    units per dollar. Furthering this idea leads to the velocity
    of value. If the potential value is 80 units / $20 = 4 units
    per dollar and the time ( T ) required to realize the case
    C1 = C2 is 1 year, then the velocity of value would be
    given as VOV = ( V2 – V1 ) / T = ( 4 – 2 ) / 1 = 2 units per
    dollar per year. Thus, we are now aware that the VOV
    metric reports on the relative rate of improvement in
    realized capacity. Of course, any true quality
    improvement will increase the realized capacity ( C1 ).
    Consider the instance of repairable defects. If DPU = 1.0,
    then the throughput yield is computed as Y = e^-DPU =
    .3679. This is to say that there exits a 36.79% chance of
    realizing a defect-free unit of product. For the case of
    repairable product and given a level of process capability
    such that Y = 36.79%, we compute the quantity 1+ ( 1 – e^
    DPU ) = 1.6321. For non-repairable units of product, the
    comparable quantity would be 1 / e^DPU. Either quantity
    represents the number of equivalent units that must be
    initiated to complete one good unit. In summary, the
    quantity 1.6321 is the initial process capacity that is
    required to fully realize a quality product. So now we
    understand the connection between quality, capacity and
    value, but have a relation that has been made relative to
    cost and time.


    Mr IAM

    A –
    How would someone apply the VOV metric to a typical value stream? 
    1) from product ideation to launch
    2) from product or service order to cash
    3) from raw material to finished product
    If you can, please try to keep the math simple!  Thanks!



    A –
    In regard to my plagiarism comment, I cannot support my statement.   An advantage in having been on a university faculty is in having friends with access to various query systems.   I ran the text of your various postings through EVE-2 Essay Verification Engine (one of the anti-plagiarism programs) and did not find that you had lifted text from another source.   I was in error and should have done my research in advance of making the statement.  
    That does not mean that I agree with your approach or have managed to and been inclined to wade through your various formulae and conclusions.   It also should not be taken that you no longer furrow my brow and no longer give me a pulsing headache.  



    Your VOV seems to be a combination of cost and process capability. If I were to come up with a velocity of value metric, I would first determine how long it takes to produce a quantity of value, hence the TVM calculation. I could combine this with a measure of process efficiency where,
    Process efficiency = actual capacity/theoretical capacity
    Combine the two to measure how efficient you are at generating value. I would want to include all the components of ‘value’ in the metric, fixed costs, variable costs, depreciation, taxes, etc. You mention ROI – include all the components then. The financial terms will show up in the calculation of the process efficiency and the TVM.
    We tried introducing a metric in finance called ‘dollar days’ to get the collections people to spend less time going after $10 at 59 days overdue and more time chasing $100,000 at 1 day overdue. It failed because they did not want a new metric.
    New metrics may have some diagnostic value, but little value in Control if the process owners do not understand them.



    There are a hundreds of metrics for operations and finance.
    Cunningham and Fiume (Real numbers – management accounting in a lean organization) have done a good job at convincing me how even financial reporting is not easy or clear. ROI is a function of A/R, cash, liabilities, taxes, COGS, depreciation, materials, labor, overhead. I have participated in meetings where the operational folk debate at great length the difference between contribution margin and operating margin. Even the strategic plan of the company may vary according to an emphasis on margin or revenue growth.Before constructing a new metric, consider the following:
    Who are the metrics for?
    How often are they to be calculated?
    Are they intended for summary, diagnostics, analysis, monitoring or control?
    I would prefer to augment and analyze the individual components of your VOV metric because different parts will point me to different aspects and components of the process. Averages are too good at hiding the variation that is at the source of the problem.
    If I wanted an upper end diagnostic metric to focus my improvement efforts I would prefer metrics that ‘financialize’ the operation rather then ‘operationalize’ the finances. In other works concentrate on $ = f(what you do) rather than ‘what you do’ = f($). This always translates the consequences of business decisions on the finances of the company.



    Dr. Vinny. Thank you for the generous and candid reply
    concerning the EVE-2 Engine. The apology is graciously
    accepted and most appreciated. It is a fine reflection of
    your personal integrity, professional courtesy and public
    demeanor. Herein, I will always look forward to your
    posts. Without saying, you represent all that would be
    expected of a coach and mentor. Fine leadership indeed.



    What is the world were you thinking?????????
    We’ll be calling you Vinny Brown Nose soon.



    Now Stan, please leave Vinny alone!
    Vinny has had a busy day. A new student to mentor, an self-invitation to a DOE chicken dinner, all on top of his pulsing headache.
    And a public apology to the guy who drummed up that Dr. Vinny the wine expert, well……….forget it, I’m with you, Stan.
    Vinny, what in the world were you thinking?
    Did you have a minor in Journalism early-on in that rigorous academic career that you had some remorse-ful flashbacks that you needed to clear from your psyche? Or is GiantMedicalProducts Company doing some kind of drug testing that you are taking part in aimed at a method of pharmaceutical integrity for those holding political office.
    Did the EVE cover all available print versions of college texts, cuz there are still some people who still have their suspicions about the particularlly exact wording used by a certain poster, let’s call him “A,” questions.   



    Mr. IAM. As I understand, your question is: How could
    someone apply the VOV metric to a typical value stream?
    This is an excellent question and I hope to provide you a
    satisfactory answer, addressing each of the subordinate
    points you mention. Today, I am a somewhat pressed for
    time, but tomorrow I will work on a response. Thanks for
    your consideration and question(s).


    Ken Feldman




    Yeah, I know….
    But in some circles there’s nothing more significant than hoisting and waving the plagiarism flag.  I don’t take it lightly.  Where I grew up horrid shame befalls both the true plagiarist and the false accuser.  I have seen some brilliant, brilliant academic careers get smoked both ways.    
    I just knew I’d read some of it before – but apparently not.   EVE-2 is not the very best but it’s good enough.  
    And sometimes you REALLY hate to be wrong, like with this.  



    Here’s hoping you stay pressed for time.



    Mr/Ms BTDT. Your diligent discussion of the TVM
    perspective has motivated me to dig a little deeper into
    this particular metric. You make a very good conceptual
    case and reinforce your thinking with sound experience.
    Today, I am short of time, but tomorrow I will get back to
    you with a more pronounced response. Your
    observations and recommendations are well received
    and very deserving of further study, analysis and
    discussion. I kindly thank you. I will strive to provide an
    informed and thought-out perspective.



    He’s got my vote. He’ll lose that intregrity stuff when he gets to Washington.



    During elections all kinds of things surface. Here is an cute old photo sent to me by a former neighbor of Vinny, of the young stats/operations wizard as a youth.

    As you can imagine, a bit older, but some things never change.



    At least it did not keep me out of sports later on.   Here I am on the college golf team – in the rough again but Muffin kept slipping on my chip shots.   Vinny



    Ken Feldman

    Now we can appreciate the genesis of the animal cranial adornments. 
     But the first questions they will ask when you are nominated will be, “So, Dr. Vinny, as a graduate of the rigorous PhD program at Berkley, have you ever inhaled any illicit drug?  Been arrested for driving under the influence?  Wore a stained blue dress?  Drank wine from a Coke can?  Walked in another man’s shoes?  Taken the time to smell the roses?  Had a cheeseburger in Paradise?  Posted on isixsigma under another name?  Fantasized throwing Mr. Annoying off a moving cable car?  Wished you had invented SS and the 1.5 shift?  Peeked through BofAS’s window? Woken up in downtown Oakland and wondered how you got there?  Wished we never started this thread?”
    Personally, I think you are better suited to replace one of the old codgers on the Supreme Court.  But you have my support and that of the Darkside in whatever office you chose to run for.
    VINNY!  VINNY!  VINNY!  Come on!  Let’s hear you chant.



    If asked in nomination:
    “So, Dr. Vinny, as a graduate of the rigorous PhD program at Berkley (sp), have you ever inhaled any illicit drug?  Been arrested for driving under the influence?  Wore a stained blue dress?  Drank wine from a Coke can?  Walked in another man’s shoes?  Taken the time to smell the roses?  Had a cheeseburger in Paradise?  Posted on isixsigma under another name?  Fantasized throwing Mr. Annoying off a moving cable car?  Wished you had invented SS and the 1.5 shift?  Peeked through BofAS’s window? Woken up in downtown Oakland and wondered how you got there?  Wished we never started this thread?”
    I can only respond, “Yes, unfortunately, all of the above, and then some, but I had a really good time, and, after all, isn’t that what life’s all about?”  


    Mr IAM

    Yes, I would like to see how to apply this.   Thanks!



    Mr. IAM.
    As promised, I am responding to your recent inquiry concerning the application of VOV to value stream mapping (VSM).  Before launching into a length discussion, let us establish common ground by setting forth some rudimentary principles and definitions.  Do you have any questions related to the following?
    The Merriam-Webster Online Dictionary describes the idea of capacity as “the maximum amount or number that can be contained or accommodated.”  For our purposes, we refine this definition as “the maximum amount of work per unit of time.”  Of course, the idea of “work” can take on a wide array of meanings and applications. 
    Constraining this idea to the discussion at hand, we correlate the idea of “work” to the basic ITO model: input à transform à output.  Thus, we logically grant that the ITO model is the basis for everything an enterprise does or seeks to do.  As an outgrowth of this reasoning we confidently assert that the idea of capacity can be fully described by the simple equation: C = A / B, where C is the capacity, A is the total number of ITO cycles and B is the total amount of time required to realize A. 
    For example, if a certain productive activity requires a minimum of 60 minutes to complete, then the theoretical capacity (potential capacity) is 1 cycle per hour.  Hence, it is self-evident that, during an 8 hour period of operation, we would compute the entitlement (potential) capacity as: C2 = 8 / 8 = 1.0 cycle per hour.  But if only 6 of these potential cycles are successfully executed during a particular 8 hour period, the realized (actual) capacity would be: C1 = 6 / 8 = .75 cycles per hour. 
    Postulating that the total cost of realizing the 6 cycles was $30, the present value would be: V = C1 / C3 = .75 / $30 = .025 cycles per hour per dollar, where C3 is the total cost to realize C1.
    Thank you for your consideration.
    Mr. Annoy


    Mr IAM

    Y –
    To understand correctly then, VOV does not consider customer demand, but available maximum capacity?  I do not mean to suggest that VOV will have no value if it does not take into account demand rates, just trying to understand.
    Thanks! Mr IAM



    Mr. IAM
    Thank you for the great insight.  You are absolutely right, but think of “customer demand” as merely another form of capacity.  In most cases, there exits a potential demand capacity — some number of required units, regardless of their nature (i.e., units of product or service).  This requirement can be viewed as the potential demand capacity experienced by a provider.  However, from this particular vantage point (customer focus), the base of computation (i.e., unit) is a product, not a cycle.  If we consider the simple relation Y=f(X), then the Y side of things calls upon the idea of “units of product” to serve as the basis for defining capacity, whereas the X side of things employs the idea of “IPO cycles” to serve as the basis for defining capacity.  Do you need more explaination or does this satisfy your question?
    Again, thanks for the input.
    Mr. Annoy



    We met with one of these guys a few years ago when we were investigating Six Sigma consultants. Our schedule was to have dinner with them on the first night. They were late but dressed in all their cowboy regalia. It didn’t really impress a group from New Jersey They immediately started into a dialogue about how they don’t talk to people like us and how we were at to low of a level in the organization to speak to and on and on.
    Our group made plans to leave the next day before the meetings took place. There were some fast talking phone calls that our changed the plans and we ended up staying. The attitude was more than any of us were willing to endure. We hired another company.
    That must be how they build a thriving business? It seems unusual that a group of people from Motorola who drove Total Customer Satisfaction as a goal would behave like this.



    Mr. IAM,
    This the typical arrogance of the Dr. Harry and Reigle camp. They did not get the that’s incredible response they were craving in the first few responses. Re-read Reigle’s response to those two people and see how humble that reads. It sounds more like the Enron movie The Smartest Guys In The Room. The most arrogant guys in the room? Probably. Certainly not the smartest and most assuredly not the most enlightened. They use the word humble when in fact it is a feeling they have never experienced. Spending a short period of time will make it very clear to you they have no respect for you at all.
    These self proclaimed manufacturing experts have just discovered OEE and the relevance of speed while the rest of us have understood this for about a decade. If all this is so profound and they are such experts find some mention of OEE in the notorious White or Green books.
    In their arrogant fashion the now create some new terminology to sell an idea that adds no value other than it is the new and improved secret formula to Dr. Harry’s claim about Six Sigma at FedEx speed. You are turning yourself into the straight-person for the perennial Six Sigma comedy team.
    If you buy into this they will probably throw in some used cowboy hats and boots. Thank god that one seems to have passed.



    Mr. Annoying Reigle,
    Too bad you did not stay pressed for time. No posses to ride today?
    Bradley has it right.


    Ken Feldman

    Stan, are you totally convinced it is Reigle and not Laxman?  The writing is so deja vu.  Same “I’m going to be busy for a while” followed by a flurry of posts.  The same “Good catch, guess I made an error”.  Same “Dodge’em Dance’em” responses to requests for some application….without a bunch of errors.  Same “what the fxxx is he talking about”.  If he offered a simple postulate followed by a valid, error free proof, followed by an application to the real world, he might gain a following and some respect….except possibly from you.  Since you know R better than most, does he post this kind of stuff especially without the requisite Dr. Harry comments?



    In an earlier post, you define your value term “V = (Capability x Capacity)/Cost.”  And in a later post you explain Customer Demand as “merely another form of capacity.” (Thanks IAM for catching that one…)
    Lets take a look at Demand versus Capacity.  As you have already provided, Merriam-Webster Online Dictionary describes the idea of capacity as “the maximum amount or number that can be contained or accommodated.”  Additionally on that website, demand is defined as “willingness and ability to purchase a commodity or service “ and “the requirement of work or of the expenditure of a resource.”  So I would interpret Customer Demand as “the requirement of the expenditure of a resource due to someone’s willingness and ability to purchase a commodity or service.”  So I would extrapolate that Customer Demand creates a NEED for capacity, but it is by no means a form of capacity. 
    Short analogy.  I may walk into a restaurant and desire food (customer demand).  But just because I am hungry, the capacity (or capability for that matter) of the kitchen is in no way impacted by my desire.  If they were at max capacity when I entered, my additional demand did not alter their capacity.  However, it created a need for them to increase their capacity. 
    What is the Velocity of Value if Customer Demand is Zero?  



    Mr. EdG. From your recent post, I was able to gleem the
    question: What is the velocity of value if customer demand
    is zero? First, it is my opinion that you have conceptually
    linked one’s ability to create value (with a defined
    velocity) to another’s need to make use of that value. By
    reciprocal analogy, it can be reasoned that a six sigma
    process has no value if there is no demand for its
    corresponding output. Of course, logical arguments can
    be made on both sides of this fence, perhaps ad-infinitum.
    As you dissect the value equation previously discussed, it
    is likely you will uncover the fact that value can be
    prescribed from two perspectives. The first perspective is
    that of the customer. On the customer side of things,
    every cycle of demand has an inherent capability to
    satisfy its associative need. On the provider’s side of the
    fence, every cycle of creation has an inherent capability to
    realize an output. Before a need can be satisfied, there
    must exist a capacity to fulfill that need. Considering the
    relation Y=f(X), we most naturally understand that if Y is
    the need, the demand for Y is implicit; otherwise, there
    would be no reason for the need. However, before Y can
    be satisfied, X must exist and be capable. Idealistically,
    the velocity of value inherent to X must be synchronized
    to the demand for Y. If the velocity of value associated
    with the realization of X is not synchronized to the velocity
    of demand value, the resultant is certain to displease
    someone (customer and/or provider). At the risk of
    overstatement, I would like to again thank you for your
    input to this wonderful discussion.



    Mr. IAM. Thank you so much for your additional inquiry.
    To further our discussion, would it be possible for you to
    clarify the term “customer demand.” Is your
    understanding that this term is allied to the “quantity of
    units” requested by the customer (i.e., units of product or
    service that the customer wants) or is it based on the idea
    of transactional cycles? Your clarification will be most
    helpful in formulating the nature and direction of my full
    response. A deeper examination of the customer’s
    demand on a provider’s capacity would certainly be an
    interesting inquiry. The word “trans” can be defined as “to
    change thoroughly.” The term “action” means “the
    process of doing something in order to achieve a
    purpose.” A simple integration of the two terms reveals
    that a “transaction” is simply “the process of changing
    something in order to achieve a purpose.” In this context
    it is easy to see that a basic ITO cycle is nothing more
    than a set of actions that is intended to achieve a
    prescribed outcome – a process transaction. A business
    transaction could be viewed as “the exchange of value.”
    Hence, we can have cycles of value exchange. We can
    have cycles of customer demand. We can have cycles of
    management control. Given the existence of any type of
    repetitive and transformative cycle, the concept of
    capacity applies (potential and actual). Thus, we are able
    to connect the velocity of value concept to a wide array of
    things – on the customer’s side and the provider’s side.
    Again, thank you so kindly for your interest in this topic. It
    is very exciting and might well represent the next step in
    the evolution of Six Sigma.



    Read the post from Bradley. I am sure he has it right.



    Mr. Iam,
    Stop asking this idiot questions. It is time for him to go away (again)



    Mr./Ms. Bradley. Are you also a Doctor of Philosophy?
    Please inform me so that I can address you by this proper
    and distinctive title. This degree is highly prestigious and
    deserves full recognition for all those that are so
    accomplished. From your recent post, it would appear
    that you might have a strong capability to provide some
    valuable insights into the formulaic connection between
    VOV and OEE. I would greatly appreciate your
    professional contribution to the communication that is
    now underway (as it pertains to this topic). In advance of
    your positive contributions, I would like to thank you for
    helping me explain these concepts to the readership of
    this professional and cooperative forum.



    Mr. Stan. I humbly and most graciously apologize for
    disturbing or annoying you. My intent is merely to further
    examine the VOV concept that you too seem to be
    following quite closely. I have reviewed a number of your
    posts and you certainly give the impression that you can
    and want to further the aims of Six Sigma through critical
    thinking and leading edge concepts. Please position
    yourself to assist in my efforts. I believe all will benefit
    and gain new perspectives from this highly innovative
    and exciting set of ideas. Again, thanks for your
    professional inputs.



    You don’t annoy me, you just waste people’s time. You are an idiot.



    These guys didn’t drive anything at Motorola. They are an artifact of a government contracting environment where cost plus absorbed a lot of self promotion and non value added activity.


    Paul Gibbons

    Dear A,
    I can see that you are trying to get some discussion going based around VOV and I do not see why others in this forum take offence as this is a discussion forum, isn’t it?  
    My personal interest is in OEE and I have been following the discussions from afar. I am not interested in getting hung up on definitions at the micro level of discussion, it is at this level you start to get into epistemology and ontology, two things that I hate!
    Could we perhaps broaden the discussion to say cover a working example, as someone has requested earlier, if my memory serves me correct?
    How about….
    I run a plant 24/7, the fixed cost (accountants!) to the business of running the plant is £100 per hour whether running or not.
    The OEE was 34% over a six week period and I have carried out some improvements and re-measured over a further six week period. post improvement OEE = 62%.
    £100x24x7x6 = £100 800 to run at 34% efficiency
    £100 800 to run at 62% efficiency
    Where does the VOV come in and what use is it to me?
    Keep up the good work and please, for my sake, be prepared to generalise a bit to make the answers more succinct.



    Answear for Paul Gibbons.
    First of all,  Thank you very much for having brought back the discussion on a proper and professional tone. I thougt it would not be necessary to do that, since this forum is supposedly used by professional people, exchanging knowledge and ideas in a professional way!
    Unfortunately that is not always the case, and we have to learn to live with that, because the freedom of exchanging ideas is very well worth the inconvenience of finding that from time to time, someone is using the forum to launch personal attacks and insults!!!
    Now to our question, on the two level of OEE.
    If I understood your question right, the fixed cost of operating the plant does not change, it is true, but the result on income from the operation changes dramatically, since in the second level of OEE, the plant is producing double amount of GOOD parts, that can be shipped and invoiced, therefore producing income or Value!!!
    If I misunderstood your question, and this consideration does not apply, I am happy anyway that we have this forum to exchange our views, and I will not feel offended if someone will choose to reproch my mistake with a personal insult.



    No, Frank is the Real Hero!


    Paul Gibbons

    Hi Gary,
    You understand me correctly.
    I understand there will be more income from more output, so long as what you have made gets sold (this is a key point I think, build to stock or build to order?, does this affect the VOV?).
    So during the six week period I produced x amount of products that went into stock because that is our production system. Do we need to know the sales value of the production output?



     You state, “before a need can be satisfied, there must exist a capacity to fulfill that need.”  But, just because you have a capacity (and capability) does not mean that this is what will satisfy the need.  My example would be last night’s The Apprentice” show.  There was one need, but two separate and distinct capacities (and capabilities) developed to satisfy the same need.  One was successful while the other failed miserably.
    Throughout this discussion, it sound very much like you are using value as defined by the creator, not the Customer.  As a student of TPS (and lean) I cannot agree with that.  You seem to be stuck on the philosophy, “build a better mousetrap…”  But, if there is no need for a mousetrap in the first place, then who cares (there is no one there to buy it).
    Even if you had instantaneous VOV, if no one values what you are creating then you still end up in Bankruptcy Court at the end of the week.   I may not possess a Harvard MBA, but this just seams obvious.  Then again, maybe I am just too naive…



    Mr. Paul Gibbons. First, let me say that your recent post
    was fantastic. Your fine example is simple, yet very
    effective. Your question was: Where does the VOV come
    in [to play] and what use is it to me? In a very broad and
    general context, the VOV concept is concerned with a
    couple of vital issues. First, it reports on the relative rate
    of improvement associated with the realization of
    potential capacity. We all recognize that idle capacity is
    not a good thing. We also understand that the utilization
    of capacity without demand may or may not be a good
    thing, depending upon the prevailing circumstances (i.e.,
    demand lag, inventory, and so on). By way of example,
    we shall now move closer to your point. Suppose that on
    June 1, 2004 the capability of a certain process was
    estimated to be 4 sigma and then on June 1, 2005 the
    capability was again assessed and found to be 5 sigma.
    We would then compute the velocity of capability to be 1
    sigma per year. This is farily self-explanitory. Clearly, we
    see the concept of velocity being applied as a relative
    rate of improvement. What is not so clear is how the
    capability was computed. Generally speaking, the
    reported capability of a process is spawned from product
    data. Once computed, the measure would then be
    reported and perhaps acted upon. In so doing, the
    reporting agent assumes that the product capability is
    highly correlated with the process capability. The agent-
    at-large believes that the product reports on the process.
    This would be a valid conclusion assuming two
    concurrent ideas: y=f(x)+e and e=0. So why should we
    make such assumption? Just go directly to the source of
    capability – the process itself. At this point, we can
    assess the capability as being: C = A / B, where C is the
    process capability, A is the number of successful process
    cycles per unit of time, and B is the limiting number of
    potentially successful cycles per unit of time. Remember,
    a defect can only occur when; 1) a process cycle has
    been activated, 2) completed its transformation, and 3)
    produced an outcome in a non-quality way. Point 3 is
    only a part of the total “process capability” picture. True
    process capability must also take into account (and report
    on) points 1 and 2. As you may have noticed from my
    initial posts on this topic, the VOV metric concurrently
    considers all three points. I anxiously look forward to your
    reply and thank you so much for your participation in this



    Mr. EdG. Thank you kindly for your insightful reply. You
    are absolutely right; I am currently constraining my
    discussion to the producer’s side of things. I do believe
    the VOV concept can be more easily understood by
    staying on this side of the fence for a while. I strongly
    seek to provide this forum with quality answers (and
    questions). As you likely know, one’s attempt to “type”
    technical explanations can be rather difficult and time
    consuming. I am working very diligently to keep all of the
    related issues separated and properly treated before
    attempting a large-scale conceptual integration. By the
    way, you are not naive. This is a very new concept and is
    quite involved. Your reasoning is sound and on the mark.
    Thanks again for your valued contribution to this subject.


    Mr IAM

    I was thinking of demand in terms of units.  Yes.  I was wondering if there was a connection between takt time (rate to produce to meet customer demand) and VOV.  As some have suggested, it seems that the best measures of capacity and the systems ability to perform the best, should have some focus around what is required by our customers.  I’m just trying to understand if there is additional value to VOV, above and beyond a Lean Mfg approach….  I love to learn… not quick to shut the door on anything until I’m sure I understand it…  Thanks!, IAM



    Mr. EdG. Thank you kindly for your insightful reply. You
    are absolutely right; I am currently constraining my
    discussion on the producer’s side of things. I do believe
    the VOV concept can be more easily understood by
    staying on this side of the fence for a while. I strongly
    seek to provide this forum with quality answers (and
    questions). As you likely know, one’s attempts to “type”
    explanations can be rather difficult and time consuming. I
    am working very diligently to keep all of the related issues
    separated and treated properly before attempting a large-
    scale integration. By the way, you are not naive. This is a
    new concept and is quite involved. Your reasoning is
    quite sound and on the mark. Thanks again for your
    valued contribution to this subject.



    Mr. IAM. Again, let me applaud your continued
    contribution to this discussion. I too love to learn. The
    contributors to this forum can (and have) teach me a thing
    or two (and likely much more). As you are not quick to
    shut the door, neither am I. I will stick with this discussion;
    at least until my small brain collapses from thinking of
    ways to better explain these concepts. Please read my
    recent response to Mr. Gibbons dated Friday, 22nd April
    2005, 7:17 AM. The discussion about process capability
    versus product capability is quite germane to this topic.
    Please let me know if you understand my response to Mr.
    Gibbons and I will address any questions you may have.
    Together, we will get through this topic and jointly
    advance our knowledge. Thank you, Mr. Annoy (mous).



    Frank, as in Frankly Speaking? 



    It occurs to me that currently available process capability
    metrics exist in two preeminent domains. The first domain
    embodies a class of metrics designed for continuous
    data. The second domain encompasses those metrics
    that rely on discrete data. The commonality of these two
    domains is reflected by the concept of a ratio; i.e., a
    numerator and denominator term that, when taken
    together, describes capability. For example, consider the
    capability ratio called “Cp.” This is a continuous measure.
    Its numerator term reports on the expected (entitlement)
    performance (i.e., design requirement) and the
    denominator represents the underlying base of
    comparison (observed bandwidth of operation). In this
    case, the underlying base is expressed as the actual
    performance (as defined by the absolute range of unity).
    Thusly we are able to contrast or otherwise compare the
    actual performance to the expected; therein, providing a
    relative measure of capability: Cp = |USL – LSL| / 6S.
    Another example would be a discrete measure of process
    capability called “dpo.” This particular measure locates
    the actual performance (defects) in the numerator term
    and offers the contrast (base) in the denominator. This
    provides the simple equation: DPO = D / O, where D is the
    number of defects and O is the number of related
    opportunities. For continuous and discrete measures
    alike, the capability is realized by contrasting the actual
    performance to a meaningful base that is independent,
    but associated with, the performance variable of interest.
    Given the validity of this conclusion, we can offer a
    generalized solution in the form: C = A / B, where C is the
    capability ratio, A is the actual performance and B is the
    contrasting base. However, this generalized solution is
    still plagued by the fact that the data are often obtained by
    measuring the product and not the process itself. So, it is
    more accurate to say that process capability ratios (as
    widely used today) are really measures of product
    capability. To assess process capability, we must directly
    measure one or more attributes of the process, not the
    product. So, what process attribute(s) should be
    measured? It is our contention that the key attribute is the
    ITO cycle, using the idea of “capacity” as a basis for
    computing “capability.” Hence, we contend that C = A / B,
    where C is process capability ratio; A is the total number
    of ITO cycles per standard unit of time that were
    successfully activated, transacted, and fully manifested a
    quality outcome; and B is the total number of potential
    (entitlement) cycles per standard unit of time. This is a
    very “generic” and understandable measure of capability
    that can be applied to all types and forms of continuous
    and discrete performance problems. In summary, we can
    now view and apply the idea of “process capability” in a
    broader, yet more definitive and simple way. The idea of
    process capability is merely the ratio of two independent
    (but related) measures of capacity. In this sense the
    numerator and denominator has a conjugal, yet
    independent relationship. In the context of VOV, we
    simply apply this idea to any type of problem that employs
    a repetitive cycle of activity that converts a set of inputs
    (each possessing some inherent value) to a higher state
    of value. We call this process “value creation.” So, what
    is the capability of an organization, process, factory,
    business, institution, step, action, or event to create
    value? Can a single generic measure of capability be
    used to report on every type and form of data? Would
    such a “grand unified” metric be worth having and using?
    Well, we think so. What do you think? Your ideas and
    comments are most welcome and immensely
    appreciated. Mr. Annoymous.



    It occurs to me that you need to learn how to use the “Return” key on your computer!  Please for the love of all humanity and that which is sacred to the world of statistics, learn about paragraphs. 
    I get a headache everytime I attempt to read your “philosophy” and I don’t know whether it is from the material or my eyes going crosseyed attempting to read it or both!



    It’s the material. It’s the old garbage in / garbage out model.


    Paul Gibbons

    Mr A,
    Please can you get to the point and answer my question without going to Hawaii via Brighton. I can only read up to three lines or so at a time without losing interest, unless of course it is about rugby.
    Politeness is ok, redundancy is ok, but getting to the point will generate further discussion.



    Mr. Paul Gibbons.  To satisfy your need; e.g., getting to the point:
    1) There exist too many capability metrics (discrete and continuous).
    2) Current capability metrics are difficult to amalgamate.
    3) Only one metric is needed for all applications.
    4) Capability = Actual Performance / Ideal Performance
    5) The absolute range of point 4 is zero to one (i.e., yield).
    6) Value = (Capability x Capacity) / Cost
    7) Velocity of Value = (Ideal Value – Actual Value) / Time
    8) Any cycle of value creation can be reduced to a capacity problem.
    9) Given point 8, points 3 through 7 apply.
    10) The merits of points 1 through 9 suggests further discussion.
    Best of Wishes
    Mr. Annonymous



    Mr. Kirk. 
    I will happily compy with your request and must admit that, once the text had posted, it was very difficult to read.  I apologize for your underserved headache and will ensure that humanity is never again subjected to this inconvienent format.  We certainly do not want the world of Six Sigma to become crosseyed — good vision for this area is certainly needed.
    Thank you for the helpful suggestion
    Mr. Annonymous



    Mr. Gibbons.  Please reference the following addendum:
    4a) Process capacity can be expressed in terms of ITO cycles.
    4b) With respect to 4a, process capacity is correlated to output units
    4c) A = Number of successful ITO cycles per standard unit of time.
    4d) B = Number of potential ITO cycles per standard unit of time.
    4e) C = Capability = A / B
    4f) Notice that the units of time are canceled out with respect to 4c.
    4g) Example: A = 50 realized cycles    B = 100 entitlement cycles
    4h) Based on the parameters of 4f, C = A / B = 50 / 100 = .50
    4i) Consider the quantity 1 / C = 1.0 / .50 = 2.0
    4j) Point 4h: Number of equivalent cycles needed to get 1 good cycle
    Again, my best wishes
    Mr. Annonymous



    Mr. Gibbons.  Please reference the following corrected addendum:
    4a) Process capacity can be expressed in terms of ITO cycles.
    4b) With respect to 4a, process capacity is correlated to output units
    4c) A = Number of successful ITO cycles per standard unit of time.
    4d) B = Number of potential ITO cycles per standard unit of time.
    4e) C = Capability = A / B
    4f) Notice that the units of time are canceled out with respect to 4e.
    4g) Example: A = 50 realized cycles    B = 100 entitlement cycles
    4h) Based on the parameters of 4f, C = A / B = 50 / 100 = .50
    4i) Consider the quantity 1 / C = 1.0 / .50 = 2.0
    4j) Point 4i: Number of equivalent cycles needed to get 1 good cycle
    Again, my best wishes
    Mr. Annonymous



    my god…is there a button to push to stop you?
    I bet $100 that you are the smartest person you know.


    Mr. Bradley

    There is a question in a later post from Darth about your identity. Your response should be the final answer on Darth’s question. Your reference to the Doctor of Philosophy is a simple setup for the ultimate reference to Dr. Harry. He has a PhD so obviously he cannot be questioned. This would be the same arrogance that has been referred to by the individuals who have had to deal directly with you in the past. What could possibly be more arrogant, for those of us who have been sent to attend training, than having to endure an inch worm like training session while you two constantly break because of your lack of control of a nicotine habit.
    You seem to have it in your mind that if you constantly refer to this post as an interesting discussion it will become one. The only response of value to this point was provided by Gary who seems to be able to deal with the real world as opposed to your theoretical scenarios. That appears to be consistent with your Six Sigma knowledge as well. Write books teach equations and subcontract the application. That further reinforces the belief that this is nothing more than a marketing ploy in which, you and Dr. Harry will unleash the Fourth Reich of Six Sigma.



    Perhaps a real world example is in order:
    1)       The fixed cost of a particular process is $100 per hour
    2)       The variable cost has a mean of $25 per hour
    3)       The variable cost has a standard deviation of $3 per hour
    4)       The process cycles every 10 minutes
    5)       A unit of product is produced upon completion of each cycle
    6)       For a given 8 hour period of operation, 35 units where produced
    7)       During production of the 35 units, 26 defects were observed
    8)    End of line inspection revealed 5 defects
    8)    Each unit contains 300 defect opportunites
    What is the product capabiliity?  What is the process capability?  What is the probability that a defect-free unit can be produced at minimum cost in the minimum time?  Only these units will fully and concurrently satisfy the customer and provider (assuming a demand greater than zero).



    Mr. Bradley:
    It is a fact that I am the smartest person I know, simply because I recognize how stupid I really am.  I struggle so much with this every day of my life; doing stupid things in a stupid way, asking stupid questions.  If only I was a little smarter.  I do yearn for this so much. 
    Only then would I be able to detect something other than my own stupidity.  Only then could I have the intellecutal capability (and capacity) to find out what is and should be known. 
    I am therefore compelled to seek your mindful insights and share in your rich experiences.  Through this process, we both shall gain.  I will gain a more broad and deeper understanding of my many worldly limitations (through your postings) and you will also benefit — you will learn about about your self (again, through your postings).
    Therefore, I can only conclude that your postings will be far better than anything I could possibly offer.
    With thankfulness and warm regards,
    Mr. Annonymous



    Anybody’s post will be far better than anything you can offer.
    Believe the part about stupid. Don’t believe the part about smart, someone has grossly misled you on that one.
    One thing I have noticed is people are as smart as those they choose to hang with. Change your company, your IQ is bound to rise.



    No, as in Frank Demouge.



    Ahhh…… as in REAL football!!



    Is the calculation that you posted correct?
    The first part (C1 / C2) x C2 will ALWAYS be equal to C1 so I guess there is a mistake in there somewhere.
    Apologies if this has been posted already, but this site is currently running too slow for me to read all the replies.



    Mr./Ms. Jeremy.  Yes, the posted caclulation is correct.  Your are absolutely right, it does reduce to C1.  So the idea of value can be described as C1 / C3 = realized capacity / realized cost, or units per dollar per unit of time.  Thank you for your inquiry.
    Best of Regards
    Mr. Annonymous



    When I noticed this error in your equation, I initially assumed that this was a typo.  If it isn’t, as your posting would lead one to believe, then I have to ask:
    Why would you ever include the C2 variable in your equation in the first place?  It doesn’t make any sense to include it.  It was MATHEMATICAL MUDA!!!



    Mathematical Muda?
    That’s pretty harsh.  
    I think it’s more of a misunderstanding of the work of Dr. Lokam at the University of Michigan when he was describing graph complexity and slice functions in his paper published in the Theory of Computing Systems.  
    Sure Dr. Lokam was pretty specific that he was dealing with, amongst other things, the lower bounds of depth-3 bipartite graph formula complexity but he did use the term “formula complexity” quite a few times in a respectful research oriented manner and it’s not inconceivable that another researcher new to his field and anxious to make a name for himself would jump on “formula complexity” as the path to academic success.
    So, what are a few additional and, as you so adroitly and calmly pointed out, truly inconsequential formulaic components when you are already careening wildly and with increasing velocity down the value path?



    To Dr. EdG. 
    Thank you for your interest in the concept of value creation.  Inclusion of the C2 term helps us to better understand the root ideas that underpin the common term we refer to as “capability.”  That is to say, the capability of something (virtually anything) is actually the ratio of its realized capacitiy contrasted to the associated maximum capacity. 
    Including this term helps us to better understand its inherent meaning; e.g., Value = (Capability x Capacity) / Cost.  Ignoring the C2 term (when initially explaining the concept) leaves us with the idea that Value = Realized Capacity / Cost.  Of course, this is also true.  But then again, not all people have the ability to derive this insight.  I am happy that you see it.
    Thank you for your kind consideration.
    Mr. Annonymous



    Yes, Frank Demouge the best Soccer rookie in the world! He will soon be playing for Chelsea or another great club.
    Go Frank!


    I understand now…

    It’s clear to me now……


    bighead todd

    No you still don’t get it….   Look to the universal graph of complexity for the best correlation to VOV.

    Got it now?   I hope so.   BHT


    Darth’s Mentor

    This is the answer and the connection to the Force:


    Ken Feldman

    Hey, that’s just a model of Annoying’s DNA.  But, notice a few critical pairs are missing thus giving us further insight into his posts.



    Any-mouse fails to consider that there is already a well developed theory of everything.   Like the guys in the math lab used to say, “It’s either math or it’s not.”


    Reigle Stewart

    Vinny, that graph was too funny. I enjoyed it.



    Funny?   Funny?   What was funny about it?   I was serious.   It’s the theory of everything and it’s either math or it’s not…   
    Yeah, I enjoyed it also.   I had a poster size version of it in my office once that tended to stop too much traffic going down the hall. 



    Back to the math on this thing. If I take the proposed formula:
    V1 = [ ( C1 / C2 ) x C2 ] / C3
    Let’s reduce this down. The C2s cancel each other out so we end up with:
    V1=C1/C3  or V1=realized capacity divided by your costs
    It sounds like this could tell you how you are doing in a process, but it does not take into account the potential. Or am I missing something?



    “It’s either math or it’s not.”
    That is great!!!  Can I quote you?
    Just as good as, “Ya can argue with me but ya can’t with figures.  It’s simple mathematics.  Two half-nothins equal a whole nothin…”  But shorter…



    Certainly you may.   I’m pleased to have helped round out your mathematical apothegms.


    Reigle Stewart

    To bbdavid:
    To help you through this, consider the following:
    1) V1 is the value of realized capacity per dollar; i.e., V1 = C1 /C3, where C1 is the realized capacity and C3 is the total cost of realization.
    2) V2 is the value of potential capacity per dollar; i.e., V2 = C2 / C3, where C2 is the potential capacity (or some other idealized state that one elects to study).
    The Velocity of Value (VOV) equation is:
    VOV = ( V2 – V1 ) / T, where V1 is the current state of affairs, V2 is the desired state (potential) and T is the amount of time required to realize V2.  The resultant of this computation represents the relative rate of improvement in realized capacity per dollar per unit of time.
    Thus, one can now see that the “potential” state-of-affairs” is duly accounted for.
    Best of Regards,
    Reigle Stewart

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