GBMP Return on Investment (ROI) Analysis Tool For Continuous Improve

Company:
ROI = {(Total Benefits - Program Costs)/Program Costs} x 100%

Expected ROI on Continuous Improvement

When properly implemented, high ROI values can be achieved for Continuous Improvement programs. This projection
is provided to assist you in capturing the benefits and costs associated with the proposed Continuous Improvement programs
and helps to translate them into an actual or projected return on investment for the organization.

Step 1: Identify Program Benefits

Step 2: Convert benefits to money
Step 3: Calculate fully loaded costs
Step 4: Identify intangible benefits
Step 5: Compare monetary benefits to costs using the ROI calculat

Step 1: Identify Program Benefits CI Start date After Project

Inventory
Cost/unit
Lead-time 0 0
Quality
Grievances
Revenue
*Define how measured
below
______________________
______________________
__________ Productivity*
Energy
Rework
Recycling
Oper Inc/Sales %
Market Share
Time to Market
Employee Turnover
Other: list all that apply

Step 2: Convert Program Benefits to money

Define Conversion
assumptions Amount of Change
 Avg monthly
inventory and
warehousing costs in
period x turns
improvements for a
Inventory month 0
Unit Cost savings x #
of units
manufactured in this
Cost time period 0
Lead-time 0
Quality 0
Grievances 0

x Avg # of employees
Rev/Employee Revenue in this time period 0
Productivity 0
Energy 0

Rework x Sales during period 0

Recycling 0

Net Profit x Sales during period 0

Total units sold in
market x avg sales
Market Share price 0
Time to Market 0
Employee Turnover 0
Other: list all that apply 0 0
0 0
0 0
0 0
0 0
Grand Total Tangible

Step 3: Calculate fully loaded costs

Employee training costs

Employee Cost Categories

Avg. cost/hr for
salary/benefits 25
Avg. cost/hr for
salary/benefits 45
Avg. cost/hr for
salary/benefits 90
Avg. cost/hr for
salary/benefits

Out of pocket External Consulting Costs

 Training Materials

Avg. cost/hr for

salary/benefits
Internal Instructor/Facilitator Costs
Administrative/Overhead Costs
Travel/Lodging costs
Supplies used for Improvements
Other: list all that apply

Step 4: Identify intangible benefits

Define Conversion
assumptions
Intangible benefit 1
Intangible benefit 2
Intangible benefit 3
Intangible benefit 4
Intangible benefit 5
Grand Total Intangible

Step 5: Compare monetary benefits to costs using the ROI calculation

Benefits

Grand Total Benefits

Grand Total Costs

ROI on Continuous Improvement

or Continuous Improvement Programs
Date Prepared:

Improvement -100.00%
ement programs. This projection
ed Continuous Improvement programs

ntify Program Benefits

vert benefits to money
ulate fully loaded costs
tify intangible benefits
nefits to costs using the ROI calculation

Amount of Change Units % Change

0 Dollars #DIV/0!
0 #DIV/0!
0 #DIV/0!
0 #DIV/0!
0 #DIV/0!
0 Total Revenue #DIV/0!

0 #DIV/0!
0 #DIV/0!
0 War cst/Sales #DIV/0!
0 #DIV/0!
0 Op Inc/Sales #DIV/0!
0 #DIV/0!
0 #DIV/0!
0 #DIV/0!
0 #DIV/0!
0 #DIV/0!
0 #DIV/0!
0 #DIV/0!
0 #DIV/0!

*expressed as the
dollars each unit of
change is worth to
the organization
Total Monetary
Monetary Value of 1 Value of the
unit of the Benefit* Benefit* Mike-check for comment boxes in this column. Thanks, Pat
 $ -

$ -
$ -
$ -

$ -
$ -

$ -
$ -

$ -

$ -
$ -
$ -

$ -
$ -
$ -
Grand Total Tangible $ -

Total hours in
training/projects

0
Total Employee Training
Costs 0
 1000
Total hours
instructing/facilitating
projects Leave this blank
0
1000
0
5000

Grand Total Costs $ 7,000

Monetary value of
Amount of Change change

Grand Total Intangible 0

Tangible total $ -
Intangible total $ -
Grand Total Benefits $ -
Grand Total Costs $ 7,000

on Continuous Improvement -100.00%

Thanks, Pat
Pro Forma ROI. The dictionary defines Pro Forma as:

“Provided in advance so as to prescribe form or describe items.”

Company: XYZ Company Date Prepared: 1-Sep-08
ROI = {(Total Benefits - Program Costs)/Program Costs} x 100%

Expected ROI on Continuous Improvement 332.23%

When properly implemented, high ROI values can be achieved for Continuous Improvement programs. This tool
is provided to assist you in capturing the benefits and costs associated with your Continuous Improvement programs
and helps to translate them into an actual or projected return on investment for the organization.

Step 1: Identify Program Benefits

Step 2: Convert Benefits to Money
Step 3: Calculate Fully Loaded Costs
Step 4: Identify Intangible Benefits
Step 5: Compare Monetary Benefits to Costs using the ROI Calculation

CI Start Date Status As of

Step 1: Identify Program Benefits 1/15/08 12/20/08 Amount of Change Units % Change
Inventory 5000000 4500000 500000 dollars 10%
Cost 48 46 2 percent 4%
Lead-time 15 10 5 days 33%
Quality 2 1 1 50%
Grievances 0 0 #DIV/0!
Revenue 25000000 27000000 -2000000 dollars -8%
*Define how measured
below.
Shipment $ per direct labor
hours Productivity* 150 225 -75 dollars -50%
Energy 0 #DIV/0!
Rework 5 2.5 2.5 percent 50%
Recycling 0 #DIV/0!
 Net Profit 2.5 5 -2.5 percent -100%
Market Share 30 50 -20 -67%
Time to Market 24 6 18 75%
Employee Turnover 15 2 13 87%
Other: list all that apply 0 #DIV/0!
0 #DIV/0!
0 #DIV/0!
0 #DIV/0!
0 #DIV/0!

*expressed as
the dollars each
unit of change is
worth to the
Step 2: Convert Program Benefits to Money organization

Define Total Monetary

Conversion Amount of Monetary Value of 1 Value of the
assumptions Change unit of the Benefit* Benefit*
dollars
reduced are
1:1 direct
benefit to
Inventory company 500000 $ 1.00 $ 500,000

1% cost
reduction is
worth approx
2000 based
on last yrs
Cost costs 2 2000 $ 4,000
 Assume each
day of lead-
time reduced
= 1/4 day of
additional
revenue we
Lead-time can add 5 18750 $ 93,750
Quality 1 $ -
Grievances 0 $ -
Revenue -2000000 $ -
Productivity -75 $ -
Energy 0 $ -
Rework 2.5 $ -
Recycling 0 $ -
Net Profit -2.5 $ -
Market Share -20 $ -
Time to Market 18 $ -
Employee Turnover 13 $ -
Other: list all that apply 0 $ -
0 $ -
0 $ -
0 $ -
0 $ -
Grand Total Tangible $ 597,750

Step 3: Calculate Fully Loaded Costs

Employee training costs

Employee Cost Total hours in
Categories training/projects
Avg. cost/hr for
salary/benefits 42.5 650 27625
Avg. cost/hr for
salary/benefits 50 125 6250
 Avg. cost/hr for
salary/benefits 65 85 5525
Avg. cost/hr for
salary/benefits 95 65 6175
Total Employee Training
Costs 45575
Out of pocket External Consulting Costs 50000
Training Materials 15000
Total hours
Avg. cost/hr for instructing/facilitating
salary/benefits projects Leave this blank
Internal Instructor/Facilitator Costs 55 125 6875
Administrative/Overhead Costs 15000
Travel/Lodging costs 2000
Supplies used for Improvements 5000
Other: list all that apply

Grand Total Costs $ 139,450

Step 4: Identify Intangible Benefits

Define
Conversion Monetary value
assumptions Amount of Change of change

Assume less
lost time due to
Intangible benefit 1 Morale sick days, etc. 10% 5000
Intangible benefit 2
Intangible benefit 3
Intangible benefit 4
Intangible benefit 5
Grand Total Intangible 5000
Step 5: Compare Monetary Benefits to Costs using the ROI Calculation

Benefits Tangible total $ 597,750

Intangible total $ 5,000
Grand Total Benefits $ 602,750
Grand Total Costs $ 139,450

ROI on Continuous Improvement 332.23%

Before You Start
Before you begin gathering the data, pick a start date for the improvement program. It can be any date, but you need to define a starting point. You must now consider
all costs and savings from that date forward.

Program Benefits
Step 1: Identify Program Benefits. Begin by capturing the tangible benefits from your efforts. What are the real benefits derived from your Continuous Improvement
efforts, and how do you measure those benefits?

In this section look to include the more direct benefits you can measure from your efforts. These include items such as reductions in inventory, costs or lead-time, or
changes in energy or waste costs. This section also includes improvements in productivity, profits, market share, etc. Not every benefit shown will apply to every
company; pick and choose the benefit categories that make sense or are measured for your organization. Note that there is also a space to include "other" tangible
benefits that you wish to include.

You are expected to indicate a baseline value for a program benefit (the value at the start of the improvement program) as well as a value at a later status date. You
should also type in the unit of measure (dollars, percent, etc. that you are measuring in) for any benefit values you choose to include. The net change and percent
change values are calculated automatically for you by the spreadsheet once you add starting and ending values.

The spreadsheet will load the net change values calculated for each benefit into the corresponding "amount of change" column in Step 2: converting program benefits to
monetary values.
Step 2: Converting Program Benefits to Monetary Values. Now you must assign a dollar value to the tangible benefits your improvement efforts have provided. You
do this by loading a dollar amount into the column marked Monetary Value of 1 unit of the Benefit*. Think of the amount you load in as the dollars each unit of
change in the benefit measured is worth to the organization. This is easy for changes that were measured in dollars; just load the value "1" into the Monetary Value
column since each dollar change is worth a dollar of improvement. For non-dollar changes, a bit more thought is required. You will need to estimate the value of the
change. For example, how much is 1% reduction in cost worth to the company? Be sure to include an explanation of how you arrived at your estimates in the column
marked Define Conversion assumptions The key to your estimates is to be reasonable and err on the conservative side.

Cost Categories

Step 3: Calculate fully loaded costs: Now it is time to gather the costs of your improvement programs.
Employee Training Costs: pick an average fully loaded cost/hour for a group of employees who have been involved in the CI trainning and projects. This number should
reflect salary plus benefits for the employees. You'll use this to number to calculate the cost of the time spent on the training or improvement projects by this group of
employees. You can use up to 4 different categories of employee costs; just be sure to choose an average fully loaded cost for each category.

There are several more categories of cost that you may choose to include, as well as some blank spaces to include other costs categories that may be specific to your CI
journey. If you run through these categories in order and think about what real costs you have incurred during your CI journey, you're unlikely to miss anything. Keep in
mind that some costs are one time and others are recurring.

1. Out of Pocket External Consulting Expenses. This includes monies paid to trainers or consultants who have helped you during the time frame you are measuring
ROI over.
2. Training Materials. Include all of the costs paid out for training materials and supplies used during training sessions. Examples might include

3. Internal Instructor/Facilitator Costs . Calculate the number of hours of internal personnel time and multiply that by the fully loaded cost.

4. Administrative/Overhead Cost. If you incurred administrative costs such as printing training booklets using company paper or used company space for training, you
can add in these costs on this line.

5. Travel/Lodging Costs. If you incurred travel or lodging costs associated with your CI training or projects, you can capture that cost on this line.

6. Supplies used for Improvements. The category covers things like materials for signs, floor tape, video camera tapes, etc. that you purchased to complete
improvement projects.

6. Other. The catch-all category allows you to capture the cost of anything else that may not fit nicely into another cost category. Remember to write in the
specific cost you are documenting as "other".
Intangible Benefits
Step 4: Identify intangible benefits Here's where things get tougher. How do you measure less tangible savings? If an employee saves time or gains new skills what is it
worth to the company?

Examples of indirect savings include "improved morale", "reducing the time needed to test new software by 25%" or "the financial audit now takes 1 week rather than 3
weeks." Be careful here. If you expect the company to increase sales by 10% because of the improvements made, don't include both the profit on the increased sales and
the value of your salespeople becoming 10% more efficient. You should reasonably expect that the increased salesperson efficiency causes the increase in profit. It's
always better to count the more direct result (profit) rather than the indirect result (increased productivity). Unfortunately, in many cases, you need to look at this
indirect change.

Here are the steps to follow when you are faced with assessing the value of an indirect benefit:

Measure or estimate the expected change in time or productivity. For example, you estimate 1000 employees will save 10 minutes per year. That's 166.6 hours.

Correct this amount based on inefficient transfer of time. For example, if you save an hour, you probably work only an additional 1/2 hour. Pick a conservative
estimate that seems right for your company (0.5 is a good guess if you're not sure). Now 166.6 hours saved becomes 83.3 additional hours worked.

Multiply the gain by the appropriate fully loaded cost of an employee to calculate the value of the benefit. If you are using multiple loaded costs, do this calculation
for each category of employee.
 After the project is implemented, go back and look for a corroborating measurement. For example, if you estimated the quality department would save 10% of their
time: Are they 10% more productive? Did the department take on more work with the same or fewer employees or did the department grow at a rate slower than
other parts of the company that did not make improvements?

Calculating ROI and

Other Metrics
Step 5: Compare monetary benefits to costs using the ROI calculation. Once you've loaded data into the spreadsheet on the costs and benefit savings from your
improvement program, the model will automatically calculate totals and display a Return on Investment (ROI) result for you. It uses the following formula for
calculating the ROI value: ROI = {(Total Benefits - Program Costs)/Program Costs} x 100%

Be sure to sanity check your results. Are your assumptions realistic? Did you add or delete a zero or miss a decimal point somewhere that might be skewing your values?
Make sure you have not "double dipped". For example, if you showed a benefit such as increased gross profit, you should not also show a benefit from reduced product
costs.