What Payback Can You Expect From Your Lean Six Sigma Project?
Author: Alberto Yáñez-Moreno, Ph.D.
Posted: March 2016
TMAC requires our students to complete one project (for Green Belts) or two projects (for Black Belts) as part of the requirements for certification. All GB and BB candidates must submit their project documentation for review. TMAC staff examine project files for adherence to the DMAIC process, use of appropriate tools, potential technical issues, etc.
Between 2009 and 2013 TMAC compiled over two hundred certification projects. Each of these projects was reviewed in detail, and in many cases there was a phone interview to confirm the reported project results.
Here is a summary of the results reported from those projects:
In considering the reported financial impact per project please keep in mind the following:
• It was calculated on an annual basis
• It encompasses a combination of soft and hard savings
• It includes results from a wide variety of industries including health care, insurance, city government, banking, information systems and manufacturing
• It includes a mix of both kaizen events and full DMAIC projects
• Outliers on the high side were removed (anything over $7.2M)
Here are the results broken out by Black Belt and Green Belt:
Please keep in mind that we recommend using the median as a conservative estimate of what you can expect on your own project. As you know, the mean is skewed due to outliers on the high side. The Green Belt and Black Belt combined median financial impact for a single project was $150,000. Such projects are typically completed in 3 to 8 months. This is not a bad return on investment for a single project.
But that is just the start. For most projects the financial impact is ongoing. As an example, consider a project with a median savings of $150k per year. Over two years that sums to $300k, and after the third year the total accrued savings is $450k. All this from a single project.
Of course not all LSS projects are meant to have a financial payback. We see a number of projects which are focused on regulatory compliance or safety. Such projects may not yield a payback but are linked to strategic goals. We also see some projects which don’t result in a large savings but are important in gaining buy-in for a Lean Six Sigma Program.
Finally, I will note that the mean reported financial payback is quite an astonishing figure, at the tune of over half a million dollars per improvement project. Clearly some LSS projects do result in a huge payback. We hope that by sharing this information it will be easier for you to convince upper management that LSS can have a tremendous financial impact on your company’s bottom line. To see the complete results from my analysis of the 219 projects we reviewed please click here for the presentation.