When you think of increasing anything by tenfold, it can be overwhelming and intimidating. Maybe you were having one person over for dinner, but now you are having 10 people. It certainly changes things and can seem like a difficult task, however in Operational Excellence, a 10X Return on Investment may not be as difficult as you may think. In fact, in my experience 10X should always be the starting point. Also in my experience, this statement is followed by one question – “Ok, but how do you achieve that?”
It may be helpful to look at an example with some metrics to understand how you can easily get to a 10X Return on Investment. An organization is looking to train 10 people in Lean and each person will be heading up their own project. With the training costs and the addition of providing project coaching to each leader, this Lean Initiative will cost approximately $3,500 per person. If the starting point of 10X Return On Investment is used, this means the Lean Initiative will need to result in a benefit of $350,000.
Rule of 3rds
The first mistake many people make is to incorrectly deduce that 10 people with a Return On Investment of $350,000 means every project needs to have a benefit of $35,000 to be successful. However, this is not the correct way to look at an Operational Excellence Initiative. Remember the rule of 3rds – where projects typically fall into 3 evenly distributed categories.
- The first third are great projects but ones that didn’t have the expected financial Return on Investment that yielded hard dollar benefits. Maybe these projects improved the customer experience or had other soft benefits. Just because they didn’t have quantified hard dollar savings doesn’t mean they weren’t successful, it just means the benefits in an ROI matrix isn’t there. In our example 4 of our Lean projects fell into this category. While they were beneficial, the ROI is calculated at $0.
- The second third are projects that did have a hard benefit Return on Investment, but it wasn’t anything outstanding. The company still realized benefits and savings, and these projects are considered to be a success. In our example 3 of our Lean projects fell into this category and each one realized a $50,000 Return on Investment. When combined with the first set of projects, we are still falling short of our 10X goal.
- The final third are projects that have an impressive ROI. These projects were successful in every way, and far exceeded the expectations. In our example 3 of our Lean projects fell into this category and had an ROI of $250,000 each!
Let’s look at the math. 4 projects with no hard benefit ROI ($0) + 3 projects at $50,000 ROI ($150,000) + 3 projects with $250,000 ROI ($750,000) = Total ROI for 10 Lean projects was $900,000. As you can see from the example, while 7 of our projects only met or failed to meet expectations, 3 projects exceeded expectations. Our investment was $35,000 and this Lean Initiative resulted in a Return on Investment of 25X!
Remember data analytics instructs you to look at the population of data, not the individual data points. Don’t judge an initiative by each project’s success – instead look at all the projects collectively and use the rule of thirds. Just like in baseball, not every hit will be a home run. Some will be singles, some doubles and others may be walks, but every hit helps, and sometimes it’s the home runs that help put your team on top. Achieving a 10X ROI is a similar approach. Be sure to lay a strong foundation for your Operational Excellence Initiative, provide the necessary coaching and support, then set your minimum target goal at a 10X ROI. It’s not as hard to achieve as you may think when you work as a team to get there.