Quantifying Cost Benefits associated with a Particular Task

[Dave.]

Hi All

This, I know probably seems like a really dumb question, however everything that I thought I knew, I am starting to really question....causing a massive crash in the confidence of my own abilities.

Put simply, if you save someone in an office, 2 hours performing a particular task, how do you justify the benefit?

Having worked in Lean for a number of years, I have always used the principal that the cost benefit is associated to that particular task in terms of an hourly wage multiplied by the time saved. This also opens up into more qualitative savings (all be it harder to sometimes measure) in being able to spend more time doing more quality critical activities, or training, or maintenance, or 5S.....etc

Obviously, in most cases the person is paid whether or not they are performing that task or not, hence I have always calculated the before and after cost of the particular task I have improved and not the absolute cost of labour, because unless you physically remove someone off the payroll, there is no change.

New manager is telling me that this is completely wrong. That simply saving someone time does not add any value to the business (what they mean by value is money) and isn't a saving as they are still having their wages paid. It can only be a saving if they then spend that time......working on a project which saves money.

So, either I have actually done some worthwhile work, or I have been completely wasting my time as savings quantified (job specific) are not savings at all and I "haven't added any value at all to the business".

Thanks in advance.

 

[Jen Kirley]

This is a very good question - not dumb at all!

You and your manager both recognize the principle of calculating value in terms of what economists call "opportunity cost," which is basically the cost of missing an opportunity of creating value.

I think where you and he differ is his insisting that there is only value in adding new activities, not in shifting resources to current activities that it appears you consider are under-resourced. To prove him wrong you would need objective evidence to quantify a valuable result of shifting that person's time for those 2 hours of critical activity. What makes it critical? What is the effect on outcomes if the resource gets added? Remember these outcomes need to be something he's interested in.

The human resource aspect of Lean is to move away from the traditional method of defining tasks and finding a person to do them (manager's philosophy), and instead divvy up tasks among the people best able to perform them with desired outcomes, and make efficiency improvements so maximum possible time is spent on the most value-added activities (your philosophy). The difference between you and your manager's philosophies should not, I repeat NOT indicate there is something wrong with you. If you can prove your philosophy brings value, even through ROI study using a cost of quality calculator, you may be able to bring him around. I would take it slow, it seems he is pretty well entrenched.

There are a number of quality cost calculators available in the Post Attachments List - see the green button in the header.

I hope this helps!

 

[kgott]

Hi All

Put simply, if you save someone in an office, 2 hours performing a particular task, how do you justify the benefit?

Having worked in Lean for a number of years, I have always used the principal that the cost benefit is associated to that particular task in terms of an hourly wage multiplied by the time saved. This also opens up into more qualitative savings (all be it harder to sometimes measure) in being able to spend more time doing more quality critical activities, or training, or maintenance, or 5S.....etc

I may have the wrong end of the stick here but with these sorts of definitions, how would you caclulate the benefits of:

cooperation
collaboration
helping a co-worker avoid a failure instead of standing back and watching them fail?
helping a co-worker with ideas, suggestions, benefits of experience etc, etc.

It would appear to me that with this kind of approach rampant individualism is encouraged and in these kinds of competitive environments:

individuals hoard knowledge and expereince
withdraw collaboration
withdraw cooperation
refuse to share ideas that could help others
have a vested interest in seeing others fail
people withdraw to their foxholes and out come the grenades at meetings
distrust grows and the atmosphere becomes toxic

 

[Dave.]

Jen:

thanks for the feedback, its good to get a totally external perspective. Having not been in the position very long, I was wondering if there was something I was missing.

kgott:

Whilst there are some things which you would assume can only be qualitatively measured, I would assume, for most organisations, there has to be some kind of clear financial benefit attached, either direct or indirect. However, I think the problem now exists where Lean, 6 Sigma, TQM.....any of the "Quality" tools has developed into a byword for cost saving rather than simply improvement. This then gives rise to those less educated in such techniques understanding "Value Added" as something to be pertaining to the business in terms of cold hard cash, rather than the customer in terms of quality and delivery.

I may have the wrong end of the stick here but with these sorts of definitions, how would you caclulate the benefits of:

cooperation
collaboration
helping a co-worker avoid a failure instead of standing back and watching them fail?
helping a co-worker with ideas, suggestions, benefits of experience etc, etc.

It would appear to me that with this kind of approach rampant individualism is encouraged and in these kinds of competitive environments:

individuals hoard knowledge and expereince
withdraw collaboration
withdraw cooperation
refuse to share ideas that could help others
have a vested interest in seeing others fail
people withdraw to their foxholes and out come the grenades at meetings
distrust grows and the atmosphere becomes toxic

I don't particularly agree with the idea that attaching a cost benefit drives such behavior. However I do agree that if the only sought after benefit is cost reduction then other critical activities will be ignored....resulting in such behaviors.

All of the first points can be quantified financially.....if required, however for those managers that really understand lean, the fact that the improvement took place and improved quality is likely to be sufficient justification (my old boss was very much like that).

Cooperation/Collaboration
Perhaps resulting in quicker project completion

Helping a avoid a failure
Perhaps resulting in less DT, Scrap, Rework..etc

Helping a co-worker with ideas, suggestions, benefits of experience
Increasing their knowledge base so that they are better equipped to deal with issues on their own initiative.

It certainly is a tricky one. You could argue that some Health & Safety activities do not really yield any financial benefit, but we all bend over backwards to ensure that they are in place and that the systems are robust and efficient.