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Tuesday, February 16, 2016

Measurement and Return on Investment

Lean Nation,

It has been a while since my last blog. Too long in fact, but I am committed to blogging more frequently in 2016.  Today's blog is on measurement and Return on Investment.  Great organizations can measure their results.  They can measure them at the local level, at the site level and the enterprise level.  And they can measure things in real time.  No waiting for month end reporting or quarterly reporting to know which way things are trending. 

Aside from real time measurement,  great organizations simply have the ability to measure things.  I firmly believe capability follows motivation. Great organizations do not accept the "computer system" can't give us that information.  they go get it.  Automated if possible, manually if not automated, and with a stop watch if necessary. "Go and See" is the best way to see if something is working.

Before I go on, let me state that measurement is critical because it is the only way we can show improvement.  If you can't measure it, you can't improve it.

Now before we get into ROI, let's review what to measure.  Measurement in an improving environment comes from one of five dimensions. Quality, Delivery, Cost, Staff Morale, and Growth.  Collectively these measures make up we call a balanced scorecard and also make up what we call the "true north" dimensions.  When waste is removed from a process, typically all five of these dimensions move simultaneously.  Done well, you can expect double digit growth in each of these measures year over year.  The following table explains the five dimensions in more detail.

True North Category
True North Measure Definition
Staff morale or staff engagement
Defects per unit of service or process outcomes related to meeting the customer’s requirements
Lead time for goods and services from customer need identified to customer need met expressed in time (minutes/hours/days)
Hours or $ consumed per unit of service. Typically a measure of productivity
Increases in revenues or volumes
Now during the course of improvement, we want to ensure we have a good return on investment.  A well done lean management system will deliver an ROI of 3 or 4 to one on an annual basis.

Be cautious, however, as every A3 and every project will not return hard dollars. Nor should it.  But the collective of your improvement efforts should return 3 or 4 to one annually.  One of the biggest mistakes organizations make is expecting every single project to return hard dollars. This neglects the dozens of important pieces of work that return soft dollars, improve the customer experience, improve staff morale, make the workplace safer, and change the culture of the organization. 

One of the techniques I like to employ is running a multiple team kaizen event.  In this circumstance, one of the teams should have a hard dollar savings. This in effect funds the other teams.  The balance of the teams can attack a variety of different wastes, but may or may not have a hard dollar savings. 

Lean Blessings,


President and Sensei
Breakthrough Horizons LTD 


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