Page 213 - The Six Sigma Project Planner

Financial Results Validation
Claimed Six Sigma financial benefits for every project must be confirmed by experts in
accounting or finance. Initial savings estimates may be calculated by Black Belts or
sponsors, but final results require at least the concurrence of the finance department.
This should be built in from the start. The finance person assigned to work with the
team should be listed in the project charter. Without this involvement, the claimed
savings are simply not credible. Aside from the built-in bias involved in calculating the
benefit created from one’s own project, there is the issue of qualifications. The people
best qualified to calculate financial benefits are generally those who do such
calculations for a living.
This is not to imply that the finance expert’s numbers should go unchallenged. If the
results appear to be unreasonable, either high or low, then they should be clearly
explained in terms the sponsor understands. The Six Sigma leader also has an interest in
ensuring that the numbers are valid. Invalid results pose a threat to the viability of the
Six Sigma effort itself.

For example, on one project the Black Belt claimed savings of several hundred thousand
dollars for “unpaid overtime.” A finance person concurred. However, the Six Sigma
leader would not accept the savings, arguing quite reasonably that the company hadn’t
saved anything if it had never paid the overtime. This isn’t to say that the project didn’t
have a benefit, e.g., perhaps morale improved or turnover declined due to the shorter
working hours. However, if these are the benefits claimed, then they need to be
documented directly, not converted into a dubious dollar savings. Care must be taken
to show the benefits properly.

Types of Savings
The accounting or finance department should formally define the different categories of
savings. Savings are typically placed in categories such as the following:
• Hard savings are actual reductions in dollars now being spent, such as reduced
budgets, fewer employees, reduction of prices paid on purchasing contracts, etc.
Hard savings can be used to lower prices, change bid models, increase profits, or
for other purposes where a high degree of confidence in the benefit is required.
• Soft savings are projected reductions that should result from the project. For
example, savings from less inventory, reduced testing, lower cycle times,
improved yields, lower rework rates, and reduced scrap. It is important that
savings be integrated into the business systems of the organization. If the
institutional framework doesn’t change, the savings could eventually be lost. For
example, if a Six Sigma project improves a process yield, be sure the MRP
system’s calculations reflect the new yields.

Lessons Learned: Capture and Replication

It is often possible to apply the lessons learned from a project to other processes, either
internally or externally. Most companies have more than one person or organizational

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