Hi, guys. Welcome back. I'm Katherine McKeever, and this is your lean six Sigma green belt.
So in the last module, I introduced the idea of your project benefits, which are different from your project objectives. Your benefits are what What do you get? What does the organization get from completing this project? So we know we have our problems statement. We have our objectives.
Now the benefits are when we wrap up our project. What were the things that this project brought to the organization?
So in the last module, I introduced the idea of three different benefits and this module we're going to learn how to develop or calculate those. And I want to make sure by the time you're done with this module, you are crystal clear on the differences and the three types of benefits because we've introduced it and then you've seen them in action.
So with that, calculating hard benefits is the most straightforward calculation. This is going to be your pre project process expenses minus your post project process expenses. What that's going to give you is your hard savings. If you remember from your last
module, when we talked about hard savings Thies. This is things that hit your bottom line.
So these are the things that your CFO and your controllers are really excited about because their expenses that don't have to be budgeted for next year, So examples of these could be raw materials before and after. So if you have decreased to rework or your scrap rate,
you're going to need to buy less materials, which means that you have those materials costs in your budget decreased rent due to decreased inventory. If you have a wonderful lean system where you've got some polling, some flow
and you don't have the waste of inventory where you don't need as large of a wear house, decreasing that rent goes straight into your bottom line. We love this because this is a flashy benefit. However, that being said, it doesn't tend to be the most common benefit. So lean and six Sigma projects
tend to be more in the soft benefits. So, um,
when you think about soft benefits, you want to think about better, faster, cheaper. You want to think about doing more work with the same number of people you want to think about increased opportunity or capacity to take on additional projects or responsibilities. With that, soft benefits
are most likely going to be reported as capacity eso. The way that I like to report capacity because
people understand dollar values, is we're gonna take the number of hours saved times your hourly rate that will give you soft benefits. I tend to put a normalizing factoring here, so I tend
to protect people's salaries and put my hourly rate as $50 then give it over to
the process owner and say, Plug in what's appropriate for your department. People sometimes could be a little funny about posting hourly
salaries. So ask yourself if our benefit is that we can do more work with the same number of employees, how would you want to calculate that?
So for that calculation, you're actually going to work backwards. So you're going to start with This was our baseline before. So how many employees and how many units? And that will give you an idea of in place for units Quick calculation. Then you're gonna look at how many employees
versus how many units,
and then when you look at that ratio, then you can carry through what is the hourly rate. So in the old process, we needed this many employees to create this many units and the new process. We need this many employees to create this many units
and then the gap in those employees, preferably less, because that
because you are creating a benefit, not adding more cost to the company, the gap, and that you can calculate out for an hourly rate so you can still use this capacity calculation, even if you're looking at being more productive with the same amount of them. Please, you just want to normalize that out to how many employees did we need before?
How many employees doing after
for the same number of units?
Tertiary benefits tend to be really, really tricky. They're very seductive. We like Teoh report on them because we have completed our project and we know that it is going to fix everything in the world. However, my rule of thumb for tertiary benefits is anything that you say due to
is a tertiary benefits was a benefit that can't be calculated.
Onda. We say that it can't be calculated because it could be due to a bunch of things.
So, for example, increased employee satisfaction could be due to reduced in mandatory overtime. Or it could be due to a cleaner, more organized workspace or could be due to employee perks. We had a pizza party,
so when you have these benefits that you're not 100% certain is entirely attributable to your project like employee satisfaction, um, you're going to want to call it due to, and if you're not able, Teoh
measure the benefits. So employee satisfaction is a really great example because we love to say that everybody's happier because we did our project and all of these great successes and we listened to your input is the stakeholders. When we implement it, the solutions that you've been thinking about this is all really great. We're excited to do this.
What happens then is employee satisfaction can be measured annually by annually every six months or so, depending on your organization, it might never be measured. But then how do you say that those baseline results are directly related to this wonderfully successful project that you've done
unless you're mindful and you run employees satisfactions before and after projects,
I would definitely not recommend this one of the tricky things and employee satisfaction surveys is that if employees give you feedback and you don't act on it, it actually decreases their satisfaction because they're like, What the heck? You asked for my opinion, and now you don't want it, So
I would recommend not including anything. Like many measurements associated with out with your project.
Another one has decreased in missed opportunities. So if you think about opportunity cost or we talked a little bit about in cost a poor quality. But opportunity cost is what are we missing out on by using or by doing this? So you hear about it quite a bit in organizations where we
decide that we're going to develop this project. So what are the projects that we choose not to develop because we're investing? Resource is in it.
So you find that your tertiary benefits can also be decreasing missed opportunities because your employees have increased capacity. So when you do your capacity calculations, your soft benefits and you say, Oh my goodness, my employees have all of these extra hours Then we can now take in these missed opportunities.
The reason why I say that this is a tertiary benefit
is because you don't know it's a missed opportunity until the opportunity arises and you choose to do something else. So now this gives you the option to take on more work. But that doesn't guarantee that that opportunity is there, which is why we're going to say, due to increased capacity.
So with that, when we're talking about benefits reporting, you're going to want to create a projection for your organization. You're going to want to document your how you calculate this. This will come up and are later modules about actually validating your benefits. So
in the control fees, how do you actually report your project benefits? Now that you've done your project,
my recommendation for you is under. Report eso if it's something where you're like Well, I think we might save, you know, 10%. But we might also save 12%.
Go with the under reporting and then delight your sponsors and stakeholders.
One of the most uncomfortable situations I was ever in as a lean six Sigma practitioner is one of my employees reported that we were going to have $4 million hard savings. Eso that was kind of our our project benefits as we're gonna have the all these hard savings because we're gonna
do We're going to meet all of these project objectives,
unfortunately, that employees separated from the company and I was responsible to go back to the board of directors and report the completion of the project. And, um, we had about a $1,000,000. So if you imagine standing in front of a board of directors who's expecting four million and you're like
turns out I was closer to a 1,000,000 it's a really uncomfortable conversation tohave
so with that, my next recommendation would be partner with your finance partners. First, the finance people love to be involved in these kinds of projects because they have a lot of insight as faras benefits and hourly rates and hard and soft financial reporting.
So make sure that you partner with, um and have them validate what you're finding on. Then, of course, we're gonna mention this was we wrap up our projects, but make sure you re measure my recommendation. Would be pilots
full implementation 30 91 80 in one year. And that has to do with when we don't keep our eyes on a project they tend to start going back to the way the used to be. So you want to re measure that to make sure that you're still seeing those benefits actual life.
So with that today, we went over how you calculate your types of benefits. And in our next module, we're gonna switch over to some buy in questions and 10 things your project sponsor might ask. So I will see you guys there.