FOLLOWING TOPIC PASTED FROM YAHOO GROUPS

ORIGINATOR: munnaluri_srinivas

DATE: Fri Dec 5, 2008

Hi

I would like to know the approach/methodology adopted in calculating Hard & Soft saves thru Six Sigma Initiatives.

It will be a great help If any body can help me with formulae as well.

Thanks & Regards

Srinivas

FOLLOWING RESPONSES PASTED FROM YAHOO GROUP

Dear Srinivas,

This is a pretty big topic to be addressed in a short note. Here are some general guidelines:

a) Project savings are calculated on a one-year basis after the completion of the project.

b.) All costs incurred are subtracted from the benefits to calculate the net benefits.

c) There should not be any double-counting of benefits especially if there are more than one project responsible for the results.

d) Hard savings are those benefits that result as a result of your project that you can trace to the company's Income statement or changes to the Balance Sheet. Example: Reduction in personnel, overtime etc.

e) Soft savings cannot be directly traced to the company's financial statements but are still beneficial. Example: Elimination of non-value added activities that result in reduction of say 2 hours of workload for a person per week. This reduction does not reduce company costs because the company still has to pay the employee his/her salary.

SJ

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I would like to add a couple of more points - About calculating the savings, one can not wait till the end of the year or end of the project. Therefore the terms Estimate At Completion (EAC), Estimate To Complete (ETC), Cost Variance (CV), Schedule Variance (SV), Earned Value (EV) etc. These are some of the financial tools that provide you status - Financial or Schedule - in real time. But these are not propagated by Six Sigma, these are propagated by Project Management Institute. And if these tools are going to help us in our Six Sigma project, why not embrace them to take advantage of it?

With warm regards,

Arvind Sinha

IBM India