Valuing Six Sigma project benefits is important for prioritizing projects, assigning resources, and reporting to management. What are some guidelines for quantifying project benefits when there are tangible (hard) and non-tangible (soft) business impacts? What is the role of the finance department?
We will address these topics through a presentation from Matt Hansen, Founder and President of StatStuff, Inc. and two archived ISSSP resources. One from a former Director at Pivotal Resources and another from PricewaterhouseCoopers (PwC) Principal Consultants.
Identifying and Categorizing Financial Benefits from a Lean Six Sigma Project
In this excellent video, Matt Hansen, Founder and President of StatStuff, Inc. details how to identify and categorize project financial benefits.
- Financial savings must be reported accurately
- Measurement of success
- Decision tool
- Gauge for sponsors and champions
- Financial savings must be reported consistently
- Credibility for project time and effort
- Common language for communicating savings
Return on Investment (ROI)
- Every project has a financial cost: direct and indirect
- Every success project has financial savings
- Estimate the ROI as early as possible in a project
- Calculating the ROI
- What measures are important to the business?
- Measure the return on potential or actual improvements
- Measure the cost of implementing improvements
- Communicating the ROI
- Use financial terms the business uses
- Use visual displays
- Ensure a finance expert validates savings
Formal Process for Validating Savings with Finance for Larger Organizations following DMAIC Structure
Matt describes the process for three entities: Black Belt, Sponsor, and Finance by listing the appropriate phases
- Project Selection
- Project Define Phase
- Project Improvement Phase
- Project Control Phase
Four Different Categories for Financial Savings
- Direct Tangible
- Actual dollars that impact cash flow
- Indirect Tangible
- Measurable but no impact to cash flow
- Direct Intangible
- Actual dollars that could have impacted cash flow
- Indirect Intangible
- Not quantifiable in dollars, but adds value to the business
Determining the Savings Category
- Does the project affect cash flow?
- Yes = Direct, No = Indirect
- Does the project have a financially measurement improvement to the business?
- Yes = Tangible, No = Intangible
Matt then goes on to give valuable tips on finding savings. He then applies those tips to two example projects. One for improving the efficiency of handling write-offs and the other on the efficiency for improving timeliness.
You can view Matt’s presentation here.
How to assess the business financial impact of a Six Sigma project
In this archived ISSSP Focused Session, Dodd Starbird, former Director of Strategic Services at Pivotal Resources, gives suggestions for assessing the impacts of both hard and soft project savings.
Dodd covers the following topics in his presentation:
- Why assess financial impact?
- Alignment to Six Sigma vision
- How are project results converted into financial impact?
- Project selection
- Defining relevant impacts
- Financial impact assessment
- Financial validation guidelines
- Hard and Soft impacts
- Definition of “Avoidance”
You can access the Focused Session here.
What is the role of Finance in establishing Six Sigma benefits?
In this archived ISSSP white paper and reprint from Quality Progress, PwC principal consultants Debbie Neuscheler-Fritsch and Robert Norris provide detailed requirements for involving Finance in every stage of DMAIC and associated Tollgate reviews.
You can access the report here.