Full Question: In an IT company, the labor hours saved are not always easy to convert in to dollar values – Finance is not able to see those dollar values unless you convert those hours saved into billable hours. If these hours aren’t converted, then the hours saved by eliminating waste is not a direct bottom line impact to the business. How do you convert eliminated Waste into dollar values that show how they affect the bottom line to convey the benefits of Lean Six Sigma to the CFO/CEO?
I can understand your frustration as hard savings impact the bottom line directly by increasing revenue or decreasing expenses. If you’re saving labor hours but not reducing people, then labor savings are soft – i.e., not impacting bottom line but improving efficiency. Some ways to quantify efficiency are:
- Increased Throughput: Being able to process more units with the same staffing. With that approach you can quantify the increased capacity, or # units processed/day.
- Scrap Cost Savings: Total the cost saved of defects discarded and not reworked. To do this, quantify the cost of scrap plus the or quantify the savings of less rework hours.
Hope this helps!