Process Improvement Financials: Make Sure You Are Really Saving the Money You Think You Are

In last weeks’ PIP, I went over five criteria for project selection.  At the start and during the project, it is important to make sure we have a common understanding of metrics used to measure performance improvement.  In business there are many but in nearly all organizations, they all boil down to money in one form or another.  Like oxygen to the human body, deprived of money an organization will quickly perish.

So how do we measure the true, incremental improvement money our projects deliver?  In a previous PIP I mentioned the importance of determining the true, incremental cost savings or, if appropriate, increased revenue.  You should take the same disciplined approach to analysis of these financial measures as you do with other process metrics. 

You will have to be skeptical with all these measures.  Before six sigma entered the quality profession, many of the gurus and practitioners were too nonchalant with the financials around improvement projects.  The best approach to take is the opposite of the US justice system and can be summed up as ‘guilty until proven innocent’.  An increase in revenue or cost savings is neither until it can be proven with hard, indisputable data.

Lastly don’t forget to include the costs of the project in the calculations.  You and your project colleagues are an expense to the organization.  There is the cost to have your work covered if this is a full-time commitment.  Process or service improvement tests will cost money to develop and trial.  These costs must be added to others when calculating the benefits of the project.

I’m sure all of you are familiar with the common metric categories of increased sales, improved productivity, reduced cycle times, improved satisfaction scores, etc.  Just remember to continually dig deeper and deeper into each so you can determine if they are truly incremental and in fact actual increase revenue or cost savings.