Show me the Money!

Created on 2017-12-11 22:30

Published on 2017-12-13 15:31

In my prior article, I showed how to measure engineering output. Another article showed how to use this metric to quickly and accurately estimate costs for future projects. My first article explored reasons to apply continuous improvement to the product development process.

Now, I will show how to use this to reveal cost savings opportunities and set a timetable for when to deliver the savings.

Using EQUs to determine Benchmark performance

Gap Reports help us see variation in performance and to quantify the gap between today’s performance and our potential performance. They can be used for analyze Cost, Quality, Timing, and other metrics. The examples will focus on Hours/EQU, but this could apply as well to Cycle Time in Days/EQU or speed of work output.

The blue curve is the distribution of performance in Hr/EQU.  The red curve shows the best 20% performers. The average of the best 20% is the Benchmark. The difference between the Baseline and Benchmark is the Gap. With this information, and number of EQUs, we can quantify the Gap in financial terms.

Below is the data-table and calculations.

The Baseline is 7,118.

The Benchmark is 5,319.

The Gap is 1,799 Hr/EQU. 

The Gap is 80,347 Hours or $8M of $28M total that could have been saved if all projects performed at the Benchmark. 

Caution #1: Confirming Benchmarks

It’s important to confirm the data. Were #7 and #1 really “good” projects? Was the data correct for Hours and EQUs? Were the projects good in other metrics? Were we on-time with the project? Were our customers happy? 

Caution #2: Balanced Scorecard

This article is focused on money, but we must recognize the need for a balanced scorecard with cost, time, quality, people and customers. It's easy to cut costs by cutting corners, but if this degrades quality or the other key metrics, it will ruin any organization.

When can I cash the check?

Before you get too excited, these gaps will not be closed overnight, especially when we're dealing with projects spanning years. The good news is that we can set a reasonable time-table to challenge ourselves to make the necessary changes. If your projects run 2-3 years in duration, which is typical for many automotive projects, then it will take a few years to identify Best Practices, share them, and implement them fully (more on this in my next article).

With longer projects, We need a 1 year head start for the three tasks above. If we recently finished our fiscal year 2017 projects and analyzed the gap, then our FY19 projects will be the first to use our new best practices.

With shorter projects, we could have some impact on the next wave immediately.

Depending on the appetite for change in your organization, we may also need to recognize time for the changes to sink in and to mature.

Please connect with me if you'd like more information at:

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The series continues...

This is part of a series of articles about applying continuous improvement processes to measure and improve the performance of product development projects. Here is the complete list in recommended reading order.

  1. Are you still "negotiating" your project budgets? is a true story about a journey from budget hell to using EQUs to accurately estimate costs of engineering projects.
  2. Engineering Productivity Measures shows how engineering EQUs can be measured and applied to a wide variety of products, globally.
  3. Show me the Money! shares how to leverage engineering EQUs to benchmark performance and set targets to close gaps over time with significant savings.
  4. A fast, accurate way to create project budgets on a large scale, demonstrates a powerful web-based software tool to calculate EQUs and program budgets in just a few minutes.
  5. Applying Continuous Improvement to Product Development explores reasons why more organizations should take this path, but may need help to get started.
  6. Seeing productivity in 3D shows how EQUs can be used to unpack the value of experience, true cost-savings from off-shoring work, and how to better balance resources on a global basis.
  7. "True" Key Performance Indicators vs metrics shows how the right metrics can enable a long-term Continuous Improvement process.
  8. Does Six Sigma = Continuous Improvement? explores how Six Sigma contributes to Continuous Improvement, but does not guarantee it, and may actually harm it if done improperly.
  9. Connecting the Dots shows how to create reliable roadmaps with multiple impacts from multiple initiatives on a complex process used by multiple groups.

Copyright 2018 Richard Crayne