Q. What are some CORE principles for achieving
desirable LEAN Six Sigma Return on Investment (ROI) goals?
- Make absolutely sure every program has a
Champion from senior management or it is unlikely to achieve targeted
returns on investment.
- Returns can be segregated into hard
(traceable to actual cash) and soft savings (less bankable like cycle time
reductions) as well as one-time vs. recurring (equal to the present value of
the related cash flows over the time they recur) savings.
- Apply practical valuation methods such as
Economic Value Analysis when you need to measure non-cash-yielding
improvements that could impact a company’s intrinsic value, thus yielding
shareholder value well beyond the scope of any project’s anticipated
savings.
However,
the greatest difficulty in measuring ROI in any performance improvement
initiative is assigning value to non-cash-yielding improvements, like
if the initiative boosts sales growth rates or advances the company's
competitive position.
These kind of improvements can impact a
company's intrinsic value, thus creating shareholder value well in excess of any
project savings. To assign value to such improvements, one must look to more
sophisticated valuation theories such as Economic Value Analysis, which
addresses shareholder value in a more significant way.
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