FOLLOWING TOPIC PASTED FROM YAHOO GROUPS

ORIGINATOR: VSHURAYS

DATE: Sun Nov 16, 2008

Hi friends,

i have a doubt in financial calculation for six sigma project.

Project is to

1. Increase productivity.

2. Reduce Error Rate.

the pricing is hourly rate. total hrs worked for the project is billed.

Problem No. 1

If we increase productivity it actually have an impact on the Total hrs utilized for the project. so total revenue generated for the project is decreased. we lose revenue in implementing the project.

Problem No. 2

Rework is also billed as total hrs utilized in the project. so reducing error rate is not having any impact in increasing the revenue.

But there is a need for increasing productivity and Reduce error rate. the customer wants prompt delivery and error free product.

Please suggest how to calculate financial benefits for the projects.

Whether i can use only non financial benefits in the projects.

Regards,

Suresh

FOLLOWING REPLIES WERE POSTED TO YAHOO GROUPS

Hi Suresh,

I suggest you share the project charter for any one to give you satisfying reply. First of all you cannot have more than 1 project goal for a project. Secondly Increase something and Decrease something always contradicts. You should have run 2 separate projects and evaluated the benefits.

Thanks and Regards,

Sathyanarayan Venkatesh TSDO : QPM HP MBB ; E1-LSS ; Cert. LA ISMS

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Hi,

Productivity is always having two items

1. Inout and an output: Understand what is their output from the inputs(hours), this is your productivity incease.

Use the same unit to calculate the defect rate

ex: if the job is to test Reports: No: of reports tested per hour is productivity,whereas error rate is no:of reports that were tested 'Pass' from you but 'failed' at the customer'.

Rgds

Arathi

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Hi Suresh.

This is a process improvement project, and process improvement projects often increase the bottom line by reducing the costs rather than increasing the revenue in short run. You can calculate the financial benefits as per the followings 1. Increase in productivity will reduce the resources required and you can have some potential savings (the free resources you can utilize in some other projects). This will also improve your competency in market as you will charge less to your customers. 2. Reducing the error rate will increase the customer satisfaction and hence you will gain in the intangible asset "Customer Goodwill" which in long run will bring more projects to your company.

Best Regards

Umesh

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Hi VShurays,

A few things that I can think of that you may highllight to sell the project....

1. VOC - As you've mentioned in your mail, your customer wants prompt and error free service/product

2. Do you have any financial penaltiea attached to quality/error rate that you can use to sell the idea?

3. What is the scope of increase in business from this customer in short and long term (in $)

4. Can you cut down on resources used with increased productivity levels to keep billed hours at the same level and use these free resources on other projects or think of how best you can use them

Hope this helps.

Regards, Shiva Kumar.

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