Home > Forums
Topic Title: Calculating 'Real', Tangible / Intangible benefits
Topic Summary: Return on improvement ideas
Created On: 04/04/2017 03:16 AM
Linear : Threading
Send to a Friend Send to a Friend
Search Topic Search Topic
Topic Tools Topic Tools
View similar topics View similar topics
View topic in raw text format. Print this topic.
04/04/2017 06:44 AM
Print this message

Author Icon
Nick Parsons


We have recently set up, for one to a better word "A suggestion scheme"...Basically we have a system that we can capture / accept ideas, suggestions or Business improvement Ideas. These ideas will go through a review process (still need to create the review process) and once accepted will be entered into our register (database, Excel). Progress is monitored for each idea through individual project registers and plans or Gantt's.

Accepting, managing and reporting the projects is working and in place. One of the fields we select when adding a project to the register is called 'Benefit Type'. This is a drop down menu where a selection from one of two options is made.

Option 1: Tangible
Option 2: Intangible

This is where the difficulty starts....

Calculating 'Real' benefits or monetary savings appears to be both difficult and dangerous. When I say dangerous I mean it can be very easy to stitch yourself up and potentially lose manpower. For example, if we improve a process and save 1 hour per day, does this mean the employee in this area simply has an easier working day, or do we need as many employees in this area. If we are to claim a saving of £10,000 due to an improved process time, do we expect to see this saving reflected in the bottom line / budget.

Tangible benefits such as replacing one product for a cheaper one of the same quality could be easy to register. However, other benefits, like I mention, process times etc are so much more difficult to measure and back up.

There are a few this I need to be clearer on.

How do we calculate benefits, is there a calculator out there somewhere to make this simpler by selecting various criteria. How do others do this.

When reporting to director level about financial savings, they need to be as accurately claimed as possible.

This then also lends itself to another subject, incentives. How do you offer an incentive without this in place. A reward scheme needs to be robust otherwise people can easily be switched off when unfair decisions have been made. Im sure some will agree, this is a minefield of complications but also, if done correctly, im sure will work.

I would really appreciate anyone's thought and experience will this. It would be great to hear how others have tackled or struggles with this. Hopefully someone out there has the answer...

Thank you in advance for any input..

04/07/2017 02:57 PM
Print this message

Author Icon
Mark Robinson

Hi Nick

A useful guide to measuring benefits, in a university context anyway, is available at https://evidencingbenefits.strath.ac.uk/Access-the-Guide

It's well thought of access the Lean in universities world.
04/07/2017 02:58 PM
Print this message

Author Icon
Christian Sampedro

All these sound too familiar...

I also got trapped in the calculations in my last "suggestion scheme". Learned a few things:

First things first, be very clear on what are you trying to accomplish by doing this. In the case of my company, all leaders agreed that we wanted to improve our people and to create a culture of continuous improvement (whatever that means, I am trying to create some metrics to see our improvement). We use Paul Akers' 2 Second Lean approach. But even if the expectation is financial, make products cheaper, reduce lead time or any other more tangible metric, BE VERY CLEAR with the purpose and share it with everybody.

Small suggestions are supposed to make activities Easier - Better - Faster - Cheaper (in that order). It is very hard to put a dollar value in the first three, many times is not even worth it, but you don't want to discourage any improvement just because can't be measured.

Do not offer benefits for doing improvements. Just now we are shutting down our rewards program. It takes too much effort to get to a real valuation (just like you are experiencing) , it may never be fair and, at the end it defeats the purpose which for us is to build a culture of improvement. People naturally want to do the right things, we just have to learn how to support them.

I really recommend the 2 Second Lean by Paul Akers. It is doing wonders in my company.
04/10/2017 11:31 AM
Print this message

Author Icon
kevin kobett

Overall, tracking monetary savings/benefits does not add value to the customer. Only do it when it creates customer value.

The bag of dog food had four different kibble shapes, each a different color. Each shape was manufactured separately and stored in huge silos. You then had to mix the kibble from four silos for packaging. Someone created a method to produce all four shapes concurrently. No silos required. The technology was patented. Competitors, cereal makers, etc. paid to use this technology. In a case like this, tracking monetary savings is very important. New customers will value this information.

This is why I am participating in this thread:

"Many unhappy months followed; mostly spent watching the second hand on the clock. Each night dragged on and on. The lack of long term memory kept me from seeking a more technical lab job. Then, finally, at my lowest moment, I saw it!

At first glance, it appeared someone brought their yearbook to work. Never seen a catalog with a hard cover. The pages were heavier and glossier than you would expect. Four to six products were artistically displayed on a page. As with the catalog, the merchandise was high quality. The same quality level the company desired. The company would give points for each accepted suggestion that could be used to obtain merchandise.

A forklift almost hit me. For some reason, a safety mirror wasn't added to this blind corner. My first accepted suggestion yielded 5,000 points. Very few items could be purchased with the minimum award of 5,000 points. The fishing pole I coveted was 20,000 points. I challenged myself to earn those additional points.

Progress was slow. Eventually, I learned every problem irritates someone: employee, customer, supplier, etc. If I seek irritated people, I would find problems. Once a problem was identified, finding a solution was easy. A new door to facilitate access to a rooftop thermometer gave me enough points to get the best fishing rod I have ever owned. Soon, new boots and a wall clock found their way to my house.

The atta boy letters that accompanied the points award checks were too pretty to throw away. One day, I noticed I had collected quite a few of them. This is when my goal changed from obtaining merchandise to averaging one improvement per month.

This challenging goal pushed me to my limit. After five years on the job, I was finally motivated to read the voluminous quality assurance manual and the product specification manuals. I looked for trends in reams of consumer complaints. I listened to anyone with a problem. In three years, I initiated forty-two improvements. Only a couple of my suggestions were rejected. One of those rejected, using an incident journal for each machine, was a subject in one of my future MBA classes. The procedure of comparing machine data to customer feedback reveals the optimal machine settings/procedures.

Although I still collected pots and pans, dishes, utensils, a rifle, the most comfortable robe I have ever worn and toys for a children's shelter, I would have initiated the improvements without the merchandise and did so with other companies."

It's not really a reward/incentive system. It's a behavioral modification program.
05/12/2017 11:29 AM
Print this message

Author Icon
Edward Brekke

We have developed a strong culture our manufacturing company of speaking about red time (non value added time) and green time (value added time) with the definition that value added time is time spent that adds value to the customer. Non value added time adds cost or delay that is passed on to the customer. Should the time spent on process improvement activities like a kaizen event or Value Stream Mapping, which result in improved delivery, lead time or cost, be considered value added time?
05/15/2017 01:32 PM
Print this message

Author Icon
Colin McArdle

Hi Edward. The time you spend improving a process for a customer is time out of your paid hours. Lets say over the course of a week you spend 2 out of 5 days running a Kaizen Event. This gives 40% of your time was not adding value to the customer i.e. during those 2 days time you were probably not changing the form, fit or function of the product or service. Perhaps a number of customers felt the improved product or service for the time during the Kaizen you changed the process to trial and make permanent changes? Post Kaizen NVA time on the process will have been reduced so the benefit is post Kaizen. When measuring our time we must be concise with what we are doing so I recommend that you describe process time as VA and NVA. Then break NVA down further to BNVA (Business Non Value Add) and pure NVA. At that point you can break BNVA into Kaizen Event plus other categories as appropriate. Hope that helps.
05/19/2017 10:20 AM
Print this message

Author Icon
Christian Sampedro

Well, that depends on who your customer is... If you are a consultant and your customer expects from you the improvement then yes. If what the customer expects from you is the product your company makes then probably no. Be careful on how that is being framed, NVA activities not necessarily mean "unnecessary" activities. Inspection is a good example, it is 100% waste but is necessary if your process does not yet have quality built in.
05/22/2017 10:30 AM
Print this message

Author Icon
Robert Simonis

The definition to be considered "value added" has three components: the customer must be willing to pay for it; it must transform the product or service; and it must be done right the first time.

By definition, it is non-value adding. Thinking about or studying improvements is not the same as doing them.

There may be an ROI, but that is not the same as VA.

VA/NVA analysis is usually done with a value stream map or current process analysis; why and where are you using this in terms of continuous improvement activities?
Note: These forums are moderated by the Lean Enterprise Institute. All posts are reviewed within 24-48 hours prior to appearing on the site. Views expressed in these forums do not necessarily represent the views of the Lean Enterprise Institute.