The ROI Impact of Frontline Continuous Improvement
3 minutes, 6 seconds read
Dr. W. Edwards Deming once said, “He should know that before he starts process and quality improvements, that he will be able to quantify a trivial part of the gain.” The idea was that a continuous improvement program generates a far greater ROI than can actually be measured.
But most organizational departments are expected to be able to calculate their programs’ ROI. Why should continuous improvement be exempt? And how can you expect your frontline to comply with your continuous improvement expectations when you can’t articulate the true benefit?
Why you must track continuous improvement ROI
Look at it this way: you can’t reduce waste until you know where waste exists. By tracking the time or cost savings that result from specific improvements or waste reductions, a company can build a stronger argument for continuous improvement. Moreover, you can better steer the frontline’s program suggestions to areas that will have the greatest measurable effect on productivity.
But there’s another reason to track the ROI of your continuous improvement program. Many organizations are surprised to find that, over time, their continuous improvement programs become less impactful. As low-hanging fruit is captured, companies are finding that they must embrace Industry 4.0 practices to reap greater rewards from their improvement programs. In this case, what you don’t measure can cost you.
Ways to track your ROI
Typically the first step to track an ROI is to establish a baseline. If you’re aiming for improvements on frontline operations, then you need to first know how long it takes to perform specific activities and the costs of each step. From there, you can more easily target where to push for improvement.
The most basic formula for calculating ROI is to add your expected benefits, subtract any upfront costs or fees and then divide that number by your total costs. The final percentage is your total ROI.
Direct costs, which go directly back to the organization’s bottom-line, are certainly the easiest to measure. But there are other targets for savings. For example, a continuous improvement suggestion may shorten the time needed to perform a specific frontline task. Reducing the amount of time an employee spends on a specific task can free that employee to perform more alue-added activities. Calculating the amount of time saved by the employee’s hourly wage provides a sense of the ROI implications. Alternately, the improvement may help you avoid hiring new personnel. Then you can gauge your ROI based on the salary savings.
Catch the unquantifiable
However, IBM’s Colin O’Neill also notes that some benefits of an improved process can be described but not quantified. He encourages documenting the non-quantifiable improvement aspects in the business case nonetheless “so as not to be lost as part of the overall process improvement strategy.” Examples of these non-quantifiable improvements might include changes that impact morale, improve the customer experience or rally the organization more clearly around a mission.
Unquantifiable benefits often can be quantified with a bit of creativity. But noting them is important, as these cumulative improvements do impact your company culture. They can improve employee retention, strengthen customer preference and have a huge impact on your product or service’s overall success.
Streamline your continuous improvement program
Of course, streamlining the continuous improvement process itself can contribute to a greater ROI. When frontline team members can more quickly and easily share, test and implement improvement ideas, the continuous improvement process itself becomes less time-intensive. By simplifying continuous improvement, organizations may find they can reap larger benefits.
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