Six Sigma can help make drastic changes to your organization, to improve the quality of processes and products. It is also an excellent measurement tool for return on investment. But what is Return on Investment (ROI)? ROI is your profit on an investment expressed as a percentage. It’s an incredibly useful figure to have in mind and something we explore in today’s article.
What we have to remember about Six Sigma is that it focuses on bridging the gaps in an organization. Gaps in efficiency, productivity, and profit, where waste and variation can accumulate. Investment, when dealing with Six Sigma, requires a significant contribution of resources. You should also make any investment decisions based on the likelihood of your making a return. Today, we look at how you can use Six Sigma to measure your ROI.
Six Sigma Research: A History of Profit
Six Sigma is a proven cost-saving methodology that can enhance your shareholder value. Not only that, but it can also create positive effects for other areas of your company. Of all the organizations that implemented Six Sigma strategies in 2001, around 50% believed their businesses experience resulting improvements. Furthermore, around an additional 60% of Six Sigma companies stated that their customer satisfaction rates had seen vast improvements. As the years have gone on, these figures have increased significantly.
In 2006, research conducted by SigmaPro generated some even more promising results. Their study focused on whether Six Sigma improvement programs had met with success or not. The research demonstrated that over 70% of respondents believed their Six Sigma programs to have achieved either complete or partial success.
Measuring Your Return on Investment
Your Return on Investment compares costs associated with investment over time, judging them against returns over time. The potency of Six Sigma strategy means places particular importance on returns over costs. You can separate your returns into hard savings and soft. Hard savings are easy to trace a line back to tangible profit, such as through waste or headcount reduction. On the other hand, soft savings are often considered less bankable, such as reductions in cycle times.
Soft savings are more subjective when compared to hard savings as their calculations tend to be similar for multiple projects. There are various simple and common errors that come with calculating soft savings, including quantifying gross sales improvements as opposed to net sales. But remember, even with room to interpret mistakes in soft savings, make sure to create a standardized strategy for assigning value. That way, you won’t lose sight of a major source of benefits.
Using Six Sigma to measure Return on Investment brings many benefits. It gives you the power to enhance shareholder value, improve rates of customer and employee satisfaction, minimize risk, and reduce timescales.
Quantifying Your Six Sigma Success
Quantifying the positive effects of the Design for Six Sigma strategy for introducing new products and services doesn’t have to be difficult. Identifying the success of any new introductions is always tricky, but Six Sigma can help streamline the process and make it easier. Design for Six Sigma concerns the difficulties associated with commercialization and reducing technological risk. Even for the inexperienced Six Sigma practitioner, it can take years to measure an adequate number of new products to detect improvement. We often find that DFSS projects generate similar cost-savings when compared to equivalent DMAIC projects.
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