Estimating ROI for a Process Improvement Program
Posted by: meikah | 22 February 2010 | 7:49 pm
It’s a fact that in every process improvement that you do, the ROI is always an important matter to consider.
Here’s another good resource for you. Anand Paropkari’s article on iSixSigma is a good discussion on how to estimate the return of investment (ROI) for a process improvement program.
ROI Fundamentals
ROI is the ratio of the amount of resources invested in a project to the net benefits reaped from it, often expressed as percentage. It can be used in cases where management needs to know how the business is going to benefit from a project that carries significant costs. The percentage can be calculated with the following formula:
ROI = ((Total benefits – Total cost)/Total cost) x 100%
For example, if an initiative that cost $10 million provides total benefits of $17.5 million, then, according to the formula, the ROI is 75 percent.
It is obvious from the above equation that:
- ROI less than 0 percent is not economical
- ROI equal to 0 percent is considered a “no loss, no gain†situation
- The greater the ROI, the larger the benefit
Essentially there are two factors to take into account when calculating ROI: cost and benefit.
Filed under: Processes, ROI, Six Sigma
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Achieving ROI with Lean Six Sigma
Posted by: meikah | 1 February 2010 | 7:48 pm
Six Sigma Zone shares a presentation by Abbott on how the company achieved a return of investment (ROI) through Lean Six Sigma.
One of the insights in the presentation is:
For most production operations, only a small fraction of the total time and effort actually adds value for the end customer.
By clearly defining “value” for a specific product or service from the end customer’s perspective, all the non-value activities — or waste — can be targeted for removal step by step.
Filed under: Abbott Labs, Lean Six Sigma, ROI, Six Sigma
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Six Sigma Questions for the Holidays
Posted by: meikah | 18 December 2007 | 8:35 pm
I don’t know about other countries, but here in the Philippines, we prepare—anticipate may even be a better word—for Christmas about three months before the day itself.
Preparing means playing Christmas songs, putting on Christmas decors. Stores begin to sell Christmas stuff as early too, and I know some people start their Christmas shopping, too, that early.
Now, if we view it from a management standpoint, we would ask:
- do those stores selling Christmas stuff early get good ROIs without battling with inventory issues?
- do they avoid the holiday rush thus they don’t suffer from delays in delivery
- is the early selling dictated by VOC?
- do these stores have the data to support their action?
- what metrics did they use to connect supply to ROI?
- since I see this happening every year, do most customers really shop early?
- do these stores try to improve the quality of their product and service every year?
- have they set up a devise that will tell them that this is the way to go?
- or are they just doing some agenda-setting, that is condition the mind of customers to shop early and prepare for Christmas early, to increase bottomline?
Holly Hawkins had similar questions more than a year ago. Check her post!
If you have the answers to these questions, do share them with us. 
*Photo from pbhomepage
