Manufacturing performance management tools are an excellent investment in any economy. It is proven in many companies that performance and operational management tools can be used in concert with lean, TPM, Six Sigma and other initiatives to drive the business of manufacturing to better profitability and business goal achievement. However, this is a difficult time to get capital for any project. Organizations have a limited amount of capital available and may have even stated that all “capital is on hold”. However, somewhere in the company is a businessman that is looking to apply capital investments wisely to achieve strategic goals. Sometimes money is available if you have a demonstrate a direct link between the project and the business strategy. The purpose of this article is to help sales people and internal managers increase the odds of winning when asking for capital appropriations for operational excellence tools

Some managers may have trouble asking for funding of a performance management solution because they themselves have a fear that the system will not be fully used and managed to bring about the results desired. OPEX tools are different than buying a new dump truck or tank. Certainly, the new truck provides no value if it is not being used either – but everyone that has been part of the process in industry knows that buying more assets allows higher production even with higher waste. This is the opposite of LEAN – but it shows that justification is about proving value and not just showing a financial return.

This article uses a decision to buy exercise equipment as a way to illustrate the justification of operational excellence tools. I use this example because exercise equipment not really what the user wants. The user really wants a benefit the equipment – plus activity changes and oversight – will bring.

My intent is to produce a helpful article for guiding fully justifying tools that are part of a solution and too often this is attempted by talking about the tool. What the buyer may need is a total solution built around the tool.

So you or your client wants to get in shape – get LEAN? Any method will get you there for a moment – butt this time you really need a way to sustain and remain LEAN. You need to get healthy systems in place. You need to be able to perform at a higher level – not work harder – eliminate waste and accomplish more. Great goals – and you feel that getting some new tools will be the path to getting you in shape. Maybe. Before we spend the vacation money let’s go through a few steps.

Step 1: State your program goals that the equipment will help you achieve.

I am going to use the equipment to:

  • lose 20 pounds in 15 weeks. I will do that by losing 10 pounds in the first five weeks and 10 pounds over the next 10 weeks.
  • lower my resting heart-rate from 80 to 60 beats per minute in three months
  • get off blood pressure medicine
  • run a 10k in 60 minutes on January 1

These are good goals.

Step 2: State specifically how you will integrate the tools into standard work.

What if the specific use of the tool is something like, “I am going to run on the treadmill at night after work.” Then I have to say that I couldn’t invest until I see a better, more specific use of the tools.

What about these uses:

  • I am going to set a target to follow a 24 week Marathon training schedule running on the treadmill come rain or shine.
  • I am going to walk on the treadmill every night from 6:00 – 6:30 PM while watching the news.
  • I am going to weigh myself every morning when I first wake up. Forever!
  • I am going to take my blood pressure every morning just before breakfast until my blood pressure is well in the normal range for a year.
  • I will record my running mileage per day in Excel along with my time for the run and the planned distance for the day.
  • I will record my actual weight daily in Excel along with my goal plan weight.
  • I will record my blood pressure and heart rate every day in Excel.
  • I will create trend plots for all of my KPIs above and post them on Facebook for all my friends to see how I’m doing until I hit my goals.

Not bad on being specific – what if you don’t get the results expected?

Step 3: State how the tools will help you track and ensure success based on KPIs.

If you say something like, “I’ll be motivated by feeling better, then I’m not sold you will have staying power.

How about these steps and progress reports?

  • I will use track key performance indicators such as Calorie intake, Weight, Blood Pressure, Heart Rate, running distance, mile/minute against my target over time. I will evaluate my progress on a daily, weekly and monthly basis and adjust my standard work to ensure that I meet my goals.

This sounds like something that I might be able to support.

Step 4: State why investing in the project is the way to achieve the goals.

Why can’t you use the old bathroom scales?
You can go to Wal-Mart and use their blood pressure and heart rate machines.
Forget about a treadmill – just go run around the neighborhood.

These items have to be answered. Why is it better to own these new tools? This is the area where the more the merrier. Brainstorm.

1) The old scales are inconsistent and inaccurate at the low differences I need to detect while losing weight. I have tested them for several days and found the following:

  • Placing the scale in different area of the floor gives a difference of five pounds.
  • Standing on the old scale will give a different weight by up to 4 pounds if you step on the scale hard or easy or if you lean forward or backward.
  • The old analog scale is hard to read to see a one pound difference in weight.
  • The new digital scale measures accurately to the 10th of a pound. Just what I need for charting my weight daily.

2) I can’t go to Wal-Mart and get consistent “at rest” readings on their machine

  • My blood pressure goes up at Walmart just being there.
  • My clothes interfere with the machine.
  • I can’t be at Walmart at the same time every day.

3) I can’t run in the neighborhood safely and consistently.

  • I don’t have to be scared of the neighbor’s dog or when it is dark early
  • I will enjoy running when it is raining or very cold outside.
  • I have the ability to control the distance and speed I am running.
  • I can walk while watching the news.
  • I will be embarrassed to run in public

4)I have consistently shown that current tools for measuring LEAN key performance indicators are not consistent and sustainable.

It is good to list all of the reasons without being too critical. You will edit these in the justification document. The bottom line – you have to KNOW, and be able to explain to others, that the path you are advocating, buying the tools, is a good way to achieve the goals.

Step 5: Identify benefits for the new equipment and meeting the target goals.

How can you justify spending money for this equipment? What are the benefits?

Savings:

  • Food costs. Difference of eating 4,500 Calories per day to eating 2,500 Calories per day is a 44% lower calorie intake. Therefore if you estimate that you spend $10/day on food at 4500 Calories then you can save $4.44/day during your weight loss time of 15 weeks. This means a savings on food of $466.20. The caloric intake should continue to be less than the starting point.
  • Blood Pressure Medicine: $15/year with Co-pay
  • Sleep Apnea: Condition improves greatly with weight loss. Hard to quantify direct savings unless you have had a sleep study or surgery to correct.
  • Missed work: Not enough evidence to quantify – excess weight bringing on sleep apnea and low energy likely make this a potential savings.
  • Insurance Costs: Not quantified
  • Injury: Likelihood of injury during exercise or sports goes up when the adult participant is overweight. Getrichslowly.org, The High Cost of Being Fat, 18th October 2006 (by J.D. Roth)
  • Blood Pressure Home Monitoring: Savings $60.00/year based on study in Medical Care, Vol. 30, No.9, Sept 1992
  • Cost of Clothing: Expected to be 15% lower.

We have identified $541.20 in annual savings from getting in shape, losing weight, and monitoring blood pressure at home. We also identified some very likely additional savings that have not been quantified and some potential cost risks for not making the changes.

Earnings:

  • Healthy/Energetic People Earn More
  • Longer Life
  • More Energy = More Accomplished

The George Washington University study on September 21, 2010, stated that the individual cost of being obese is $4,879 and $2,646 for women and men respectively, and adding the value of lost life to these annual costs produces even more dramatic results: $8,365 and $6,518 annually for women and men, respectively.

Potential earnings and savings could be $7, 059.20 based on $6,518.00 identified in the study plus the $541.20 in personally identified savings.

Non-Financially Quantifiable Benefits:
There are recognized benefits to improvement that the return is subjective, difficult or even impossible to quantify. However, the benefit is real and it should be in the justification – even if it is not in the Financial Justification.

Here are few we might include:

  • Happier
  • Look better
  • Inspire others
  • Higher Self-worth
  • Higher Motivation
  • Higher Confidence

Step 6: Discuss benefits with Owners and Project Champions

Meet with everyone that has a care or concern about your success. These are the people that will approve the program, benefit from your success, and those that fund the equipment purchases.

You have two objectives:

  1. Review the program goals and get others to tell you the benefits they see from meeting your goals. Use your benefits and costs to generate discussion. Learn where others can benefit from your success and how they could justify the cost.
  2. Lean how to meet the minimum financial justification for project approval. You have to meet all “Go/No GO” requirements in the right format. Do they want to see Net Present Cost justification, ROI, or IRR? What is their minimum return to fund a project? Learn where you might need to expand or contract the scope of the project to get the funding.

In our personal lean example you might interview your spouse, kids, parents and coworkers. Alleviating fear for your health from your spouse or getting the kids to be more proud of your athletic ability can be huge factors. It is an easier sell if others are glad that you have a plan in place for sustained results – even if it costs capital.

Sometimes we just can’t get capital even if the payback is huge. This is far less common than companies want to tell their employees – but it happens. Expanding the project to expand the benefits or distribute the cost is often an option. Sometimes scaling back on the project is acceptable too. But be careful not to jeopardize the outcome just to lower the cost. Failure of the tools to help you achieve the goal is worse than putting off the start date.

Agreeing to get everything except the treadmill to get started and then get the treadmill next year if the program is successful may be enough to ensure that whole program fails if you cannot run at night or in bad weather.

The object is to understand what is needed to achieve the benefits with the program you are presenting.

Step 7: Write justification emphasizing benefits supported by owners and champions.

The tools will have the best chance of being funded if:

  • the benefits of achieving the goals are persuasive to those approving the project
  • if the people that need to approve the project KNOW that you need to get the results and are pleased that you have a well conceived plan.
  • the tools are shown to be crucial to achieving and sustaining results
  • the methods to use the tools include KPIs that are clear, easily audited, and believable by those funding the project.
  • the tools can meet the minimum payback required for capital expenditure

Include all of the information we discussed in the Justification Document. Make if flow well and tell a story of ensured success based on the input from those that must approve the project.

Make sure that you hit all “Go/No Go” steps. Particularly, present the financial return in the right form ROI. IRR, etc. at the right level so that it is not questioned over and over.

Summary:

Solution selling is not more difficult than product selling – it is just different because many people that will approve the project do not understand how it will be used to achieve business goals or exactly what business goal is supposed to be achieved.  The justification should layout the whole story – to guide those that will approve the expenditure to show them the capital will provide identifiable, auditable results and meet their financial justification thresholds.

A recommended 7 step method for justification of OPEX tools is as follows:

Step 1: State your program goals that the equipment will help you achieve.
Step 2: State specifically how you will integrate the tools into standard work.
Step 3: State how the tools will help you track and ensure success based on KPIs.
Step 4: State why investing in the project is the preferred way to achieve the goals.
Step 5: Identify benefits for the new equipment and for meeting the target goals.
Step 6: Discuss benefits with owners and champions.
Step 7: Write justification emphasizing benefits supported by owners and champions.

 

Kevin Totherow

Kevin Totherow is a Business Development Manager of MES/MOM solutions for Schneider Electric and a consultant for helping manufacturing clients manage their operations better. Kevin has been a controls engineer, consultant and president of Sylution Incorporated. He can be reached at (864) 252-6819 or by email at kevin.totherow@schneider-electric.com.

 

 

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