“6.7 million, we don’t have that in the budget!”.
Louise was worried. They had worked hard to arrive at the improved situation they wanted. They were really looking forward to being able to work in this way, but now the cold shower came and the enthusiasm withered away.
It would cost a lot of money to get there. Money that does not exist!
The amount of 6.7 million included own time at cost, hired help from us in Clean Stream, acquisition of a new business system, and some minor system integrations. And then a few more minor items on it.
I suggested that we need to look first at what the value is in making the improvements. Louise and her group thought it was a good proposal, so we set about doing a benefit-value analysis.
After the work was done, I put it all together, and it was time for the next shock.
– “87 million, that’s unbelievable!”, Louise was stunned by the figure she saw in front of her.
-“Yes, those are your numbers,” I said, “but we’ll go through them again to make sure they’re right.”
9.2 million on reduced overheads due to clearer investigation reports.
11.3 million in corrective work saved by getting it right the first time.
10.8 million thanks to improved prioritisation of the project portfolio, which allowed the right projects to be launched at the right time at a later stage.
2.3 million in reduced recruitment and hiring needs due to lower staff turnover.
And so on.
Yes, the numbers were right. It was more that the amount was so difficult to understand. It’s not every day that you see so clearly that by making improvements you can get benefits worth 87 million SEK, every year!
All this can be possible by just thinking differently and controlling how and in what order things are done. More focus on doing the right things at the right time, and being clear in internal communication.
“But,” I said, “let’s say we take away half. It’s only 43.5 million. How does that sound?”
“Well, it’s a lot of money,” Louise said.
“Sure it is,” I said. “But it’s the amounts you’ve given to all the detailed questions about what each improvement would contribute. Do you still think you’ve miscalculated?”
“No, it’s not that. It’s probably just that it was so much in the end,” she said.
“As I said, we can halve it, and halve it again, and it will still be a considerable sum,” I suggested. She and the rest of the working group agreed.
If we compare that with the investment they need to make to achieve the improved state of the business, we see that it’s clearly worth investing in what Louise and the team have come up with.
They were amazed that it would only take about a month to recover those costs once the new process was up and running. And then we had included all the costs from mapping the business, designing the new improved process and then implementing it. In other words, from start to finish, and a collection time of one month!
And if Louise and her group wanted to play it safe, they could always have split it in half, and maybe in half again. There is still a return on investment in four months. That’s okay too.
The answer to the question of who will pay for the improvement you want to make is simple: it will pay for itself!
By reducing the so-called quality gap costs you have, you will quickly recoup the investment.
The tip is to do this for yourself and your business.
You need to know
- What the situation is today,
- how you want it to work,
- and also what it will cost to implement the desired improvement.
Then you need to do a benefit analysis to demonstrate the benefits of introducing the improvement you want. It’s the best argument you can have to really make your good thoughts a reality.
The question to discuss in the business will not be whether to implement the improvement, but rather how quickly can we implement it.
The money is just sitting on the table waiting for you.
Money that you can do so much better with, such as educating yourselves, increasing staffing where needed, providing those you serve with an even better service, and so on. And, to pay for the development of the improvement you want to make.
Want to know more about how to do a benefit analysis, like Louise did? Please contact me. I’d be happy to show you.
Good luck with your improvements,
PS. The above example is taken from real life, and is just one of many where multi-million dollar sums have been lying around waiting to be disposed of.