How do you connect Lean Six Sigma metrics to financial results?

At one of my clients they faced rising operational costs and variable product quality. Embracing Lean Six Sigma (LSS) organization-wide, we set key financial targets: cost reduction, increased revenue, and improved cash flow. We established baseline performance levels like cycle time, defect rates, and process efficiency. Data analysis uncovered inefficiencies and waste. Through Kaizen events, we streamlined operations and reduced waste, putting control mechanisms in place to sustain improvements. Operational costs dropped by 25%, production capacity increased by 20%, and sales soared. Customer complaints and returns decreased by 30%, while faster cycle times improved our cash flow. Lean Six Sigma indeed transform financial performance.

Na minha experiência em projetos lean seis sigma, sempre começo perguntando "Qual problema queremos resolver?" e partir desse ponto começamos a nos perguntar "Quais indicadores evidenciam esses problemas?". Com essas duas principais perguntas conseguimos definir se o tema é relevante frente a estratégia corporativa para se executado como projeto e em qual horizonte de tempo, a partir desses pontos é importante entender dos indicadores como eles se traduzem em métricas financeiras para falar a "língua" do negócio e tornar o projeto ainda mais atraente do ponto de vista corporativo. Exemplo: - Aumentar a escalabilidade do processo de X para Y (O que isso reflete em ganho de receita para empresa? ou em Eficiência)

The six-sigma fads main contribution to financial results is to accomplish a tax write off for losses. This fad has only two totally unique features: Colored Belts and the moronic allowable process shifts. sick-sigma's large project focus that develops few and involves few assures an effective improvement culture is not developed. The Prime seller of the six-sigma fad is a self-confessed con man, and he was very successful conning the fad addicted Quality Profession. If one desires actual and positive results study Dr. Wheeler. No belt required or needed to actually be effective.

By strategically choosing and monitoring metrics such as defect rate, sigma level, DPMO, and COPQ, you not only align with financial objectives but also systematically tackle waste, enhancing the efficiency and cost-effectiveness of your Lean Six Sigma process. A lower defect rate saves resources spent on rework, while higher sigma levels reduce variations and boost financial performance. Lower DPMO values signify enhanced process efficiency, diminishing defect-related costs. Meanwhile, lower COPQ reflects reduced expenses tied to rework, scrap, and customer dissatisfaction, positively impacting overall financial outcomes.

Tell the story! Describe the current state and compare it to the desired state. Calculate the savings in man hours, equipment lifecycle, reduced material usage/expiry, and etc to illustrate the benefits of the desired state relative to the current state.

As Kirk B pointed out: the financials are often not the problem, but a symptom of the current state (the baseline) and the goals are not properly defined. With no baseline it is impossible to calculate the financial benefit. With a baseline and the goal defined in the same metrics, often the financial benefit calculation is then straight forward: Current efforts on the process: 120 hours (baseline), wanted position 80 hours (goal statement). You calculate the difference: 40 hours (this is so simple, because of the proper definition of the baseline and the goal). Difference 40 hours times the hourly rate equals the benefit. Later when the solution is clear, you need to reduce by the cost of the solution.

As financial benefit is one of the key factors for many organizations embracing Six Sigma, it is important to ensure financial benefits are calculated and signed off Example: 1. Quality: For the reduction of defects by 100 parts, the profit from a sale of 100 products and reduction of rework cost will be savings 2. Productivity: For a process of 100 employees, 10% improvement in productivity will result in saving of 10 employee salaries 2. Delivery: If there is a penalty/expense incurred due to delayed delivery, the penalty/cost incurred will be savings. Customer Engagement: If a certain customer satisfaction/ revenue maximization projects an expected increase in profit due to an increase in sales, there will be financial savings.

É importante estabelecer um bom plano de controle, para que as melhorias implementadas permaneçam. Nesse processo as métricas de acompanhamento são importantes, então no momento da definição temos que partir do processo a ser controlado para os indicadores de acompanhamento, mesmo que seja necessário criar novos indicadores ou revisar métricas.

Link Lean Six Sigma metrics to financial results by: -Metric Selection: Choose metrics impacting cost, revenue, or efficiency directly. -Data Alignment: Ensure metrics capture tangible financial impacts, like cost savings or revenue increase. -Quantification: Convert process improvements (e.g., defect reduction) into financial gains using predetermined monetary values. -ROI Calculation: Calculate ROI by comparing improved metrics against initial financial investments, demonstrating the direct correlation between Lean Six Sigma efforts and financial outcomes. -Communication: Effectively convey how metric improvements translate into tangible financial benefits to stakeholders for clearer understanding and buy-in.

In my experience, here is how you can typically make this connection: 1. Identify Metrics: Select key metrics (e.g., cycle time, defects) for improvement. 2. Quantify Improvements: Measure and specify improvements made through Lean Six Sigma. 3. Financial Impact: Translate metric improvements into financial gains (cost savings, revenue increases). 4. Cost-Benefit Analysis: Compare project costs to financial benefits. 5. ROI Calculation: Compute return on investment (ROI) to assess project profitability. 6. Monitor and Adjust: Continuously track metrics and adjust projections based on outcomes. 7. Communicate Results: Clearly convey financial impacts to stakeholders.