Estimating Project Benefits ISE Sr. Design

Benefit Categories  Defects Reduction  Warranty Reduction  Maintenance Reduction  Labor or Asset Reduction  Actual Transfer of Labor or Assets to Other Use  Transportation Reduction  Excess Inventory Reduction  Cost Avoidance  Lost Profit Avoidance  Profit Enhancement via Added Sales  …..

Benefit Categories Example If the Defect Percentage Can Be Decreased from 5% to 1%  Defects Reduction  Warranty Reduction  Maintenance Reduction  Labor or Asset Reduction  Actual Transfer of Labor or Assets to Other Use  Transportation Reduction  Excess Inventory Reduction  Cost Avoidance  Lost Profit Avoidance  Profit Enhancement via Added Sales

Benefits Categories...Then Cost of Doing Nothing (1 Year) Cost After Doing Something (1 Year) Project Benefit Defects Reduction Then company can decrease number of scrapped units per day from 50 to 10 given a daily production volume of 1,000 50x100x365=$1,825,0 00 (cost per unit scrapped is $100) 10x100x365 =$365,000 $1,460,000 Warranty Reduction Then company can meet order commitment of 980 units per day Company is failing on average to deliver 30 units per day and the penalty is $1 per unit not delivered $0$10,950 Actual Transfer of Labor or Assets to Other Use Then company can redeploy one quality control inspector from this line to another line Salary of one quality control inspector is $60,000 a year $0$60,000 Lost Profit Avoidance Then company can sell an additional 30 units a day 30x10x365=$109,500 (based on $10 profit per unit sold) $0$109,500 Total Estimated Project Benefits$1,640,450

General Information Needed in Estimating Benefits  Current Status  Cost of Doing Nothing (1 Year)  Cost After Doing Something (1 Year)  Project Benefit

Benefit Categories  Defects Reduction  Warranty Reduction  Maintenance Reduction  Labor or Asset Reduction  Actual Transfer of Labor or Assets to Other Use  Transportation Reduction  Excess Inventory Reduction  Cost Avoidance  Lost Profit Avoidance  Profit Enhancement via Added Sales  …..

Financial Benefits of Six Sigma Projects  Creates additional/new revenue  Creates cost savings through tax avoidance  Enables cost avoidance  Faster return on investments  Increases cash flow  Increases profitability of existing products/services  Increases revenue of existing sources  Increases stock price/shareholder value  Lowers cost of production  Lowers cost of servicing

Organizational Benefits of Six Sigma Projects  Builds company reputation  Creates new customer opportunities  Fosters company vision and mission  Improves market position relative to competitors  Improves the ability to serve customers  Increases competitiveness and ability to charge a premium

Operational Benefits of Six Sigma Projects  Decreases employee work loads for undesirable work  Eliminates non-value added activities  Improves employee morale / team spirit  Improves internal communication between departments and groups  Improves use of workspace  Increases employee and process productivity  Reduces cycle time  Reduces cycle time of production/process  Reduces external inputs to processes  Reduces person-hours  Reduces process steps  Simplifies processes and workflow steps

Information Technology Benefits of Six Sigma Projects  Decreases maintenance/support costs  Enables service level agreement (SLA) obligations  Improves application/system performance  Improves application/system utilization rate  Increases efficiency of support activities  Increases productivity through automation  Maintains intellectual property investment  Preserves value of technology  Reduces application/system variation (increases reliability)  Reduces paper documentation requirements  Strengthens application/system security