Tag Archives: quantifying opportunities

Quantifying Waste

Why & How

Bill Conway always said that at least 50% of improvement is working on the right things. Organizations that are able to engage people in making good, fact-based decisions about what to work on and then execute with laser focus reap huge gains. An opportunity search is key.

That means that we must identify and act upon the opportunities for improvement that will potentially yield the greatest results. In other words, we must identify and quantify waste.

Quantifying the waste helps in three significant ways. First, it helps distinguish between the big‐hitters and the nice‐to‐have improvements so you focus on the most important opportunities first.

Second, it makes the organization aware of the cost of a delay in tackling a ‘big‐hitter’. If a problem is wasting $5 million a year, every week of delay is wasting nearly $100,000, so the organization wants to make sure nothing slows this improvement effort.

And third, quantifying the waste enables you to have more meaningful discussions with other parts of the organization whose support you need to change the processes that cause the waste.

Here are a few guidelines for “how” you might go about the quantification step:

  1. Identify if and how the problem affects the four forms of waste: lost sales, material costs, time, and capital costs. If the problem causes delays, think through and estimate the form of waste that the delay results in. Does it increase capital such as inventory or receivables? Does it delay sales and revenue? Does it cost you customers and future business? Does it require additional people time? Many problems will affect more than one of the four forms — lost sales, material, time, and/or capital. For example, excess inventory not only ties up capital, but may increase the number of people who need to manage it, the warehouse costs to store it, and the probability of scrapping it. All these factors can be reasonably estimated with some historical data and getting close enough to the work.
  2. Quantify the impact, recognizing that assumptions and estimates will probably have to be made. If you have or can gather data, use the data and document where you got it. If you must use assumptions or estimates, document how you came up with that — who did you talk to? Perhaps document a range that you are pretty confident about. The Conway Waste Calculator can help with the documentation.
  3. Do the math to roll it up into annual dollars.

Lots of Ideas Can Be a Surprising Barrier to Innovation & Continuous Improvement!

People readily agree that we cannot innovate with too few ideas. Fortunately there are numerous methods for surfacing “innovative thought,” such as brain-storming, checklists, or the five W’s and 1 H.

But can’t get anywhere with too many ideas either!

toomanychoicesWhen too many ideas are generated by the above-listed methods, the risks of choosing the wrong idea or the complications associated with choosing the best idea can get in the way of deeds, and effective innovation requires both.  To be effectively innovative an organization must have a process for pivoting from idea creation to sifting, sorting, choosing, and doing.

It is no surprise that one of Bill Conway’s favorite sayings has always been, “The most important business decision people make every day, is deciding what to work on.”

Quantifying Engagement Over the Long-Term

roi2Quantifying waste has been the subject of recent posts,  but the concept can (and should!) also be applied to an engagement effort.

In an April post we shared data from the Enterprise Engagement Alliance  (EEA) Rewards & Recognition Expo indicating organizations with highly-engaged employees consistently outperform those with less engaged people.

Along the lines of more specific quantification,  we might look at the Engaged Company Stock Index (ECSI). An article published by the EEA indicates that  from Oct. 1, 2012, through Dec. 31, 2014, the ECSI outperformed all of the companies comprising the Standard & Poor’s 500 stock index by more than 22 %!

The 45 companies with high engagement scores represent numerous industries and include Delta Air Lines, Nike, Hershey, General Electric and pharmaceutical giant Eli Lilly.

Yet, many companies have no engagement policies at all.

“Many companies aren’t aware that investing in employees and the community pays off in terms of value,” says Alex Edmans, Professor of Finance at the London Business School. “People still have the zero-sum mentality that a dollar given to employees is a dollar taken away from shareholders. So they try to invest as little as possible.”

Even managers who are aware of the benefits of investing in employees may not do so, because it only pays off in the long run, according to Edmans, who is currently on leave from the University of Pennsylvania’s renowned Wharton School. “Many managers are pressured to meet short-term earnings targets.”

The Most Important Business Decisions…

decisionsThere are many tools-of-the-trade associated with continuous improvement, ten of which we identified in a previous post.

However, in addition to tools and methodology, it’s important to remember that Continuous Improvement is “all about the work” and the most important questions that must be answered before putting implements and implementations in play are “What you choose to work on and how you choose to accomplish that work.”

As Bill Conway has always said, these are the most important business decisions we make every day.

Get the Best Results: Work on the Right Things

Working on the right thingsIn a recent discussion, Continuous Improvement specialists identified five “best practices” for getting the best results from their continuous improvement efforts, which are:

  1. Listen to the people involved before making any determinations… we often have a tendency to think we know the issues or problems; ask more questions and try to listen more than talk!
  2. Communicate frequently and with an open mind, and communicate honestly
  3. Identify opportunities
  4. Analyze and quantify the opportunities
  5. Prioritize, re-assess and then begin to fix problems or improve processes

Sounds like a well-stated plan for making sure we’re “working on the right things,” which was a mantra that Bill Conway promoted every day.