How to get a process improvement project approved

I just posted this on LinkedIn in response to someone asking how to get a process improvement project justified and approved.  Hope it helps...

One of the challenges senior executives face is trying to chose where to deploy limited resources ($) in order to maximize the return to the stakeholders.  And it is not an easy task when every project proposal promises spectacular "results."  Your first step in trying to differentiate yourself from all of your peers who are competing for the same funding is to put yourself in the shoes of the person making the decision.  And the best way to do that is to ask them "what results are you looking for and how will you measure them?"  I will use a labor example as they typically involve the hardest decisions.  Your Decision Maker may tell you "our labor costs are too high for this process.  I want you to find ways to improve our efficiency." 

Once you understand what result they are looking for your next visit needs to be to Finance to have them show you exactly the line item(s) on the P&L that correspond to the labor your Decision Maker is talking about.  And you need them to fully explain to you what makes up the labor cost.  That is you need to know specifically who is being charged to that account, how much they earn (salary or hourly rate), and how many hours they work.  And you need to understand all other costs that go into the rate such as overtime, benefits, and so on.  In many cases the people in Finance will have trouble figuring this out for you because they are used to dealing with totals.  Most organizations leave the detailed labor calculations to complicated computer systems.  But you must persevere until you can exactly match the weekly payroll using your own spreadsheet model.  You would be amazed at how many opportunities for improvement you will find just by making sure everything is being charged to the right account.  I have found individuals still being charged to an account years after they moved on to other areas in the company.  Ideally you want to go back 3 - 5 years by month when collecting this information.

The next question you have to understand are any changes in workload for your process.  Again you want to look at 3 - 5 years history where you compare "total units produced" (wigits, POs, quality audits, employee evaluations, projects, earned hours, quotes, etc.).  And you want to find out from your Decision Maker whether or not they expect volumes to go up, go down, or stay the same.  Often when they complain about costs being too high it is because volumes have gone down but they are still paying the same wages for a particular process.

After you understand the volumes and the hours you are now ready to calculate the efficiency of your process.  Using the information above you want to graph out 3 - 5 years of historical "units/paid hour" as well as the "labor rate per hour."  Here again if you are not dealing with a traditional production environment you will be amazed at the opportunity that will present itself.  I once did this analysis for a computer data center where I looked at "transactions per paid hour."  My reasoning was that the gross number of transactions in and out of the data center more or less drove the level of work inside the data center.  The more transactions you have the more equipment you need.  The more equipment you have the more technical resources you need to maintain and upgrade the equipment. And so on.  I calculated that they averaged 99 transactions per paid hour.  But their efficiency spiked in the summer at 145 transactions per paid hour.  And dipped as low as 60 transactions per paid hour in the winter.  No factory manager in the world would accept that kind of process variability and neither should someone managing resources working in an office.

What you will more than likely see are huge (30 - 50%) fluctuations in efficiency.  Again the further away from Production you get the less likely the resources will be managed against volumes.  In fact it is always amazing to me how efficient departments get in the summer months when people take vacation.  Again these variations are huge opportunities to look for process improvements.  Start to ask yourself "how do they manage to get the work done in the summer with 20% fewer people?"  hmmm....

The last step is to try and figure out how people spend their time.  This is where the real process improvement comes in.  In the case of a Procurement department for example if their Key Volume Indicator is a Purchase Order you may calculate that it takes on average 4 paid hours per PO (or more).  As part of your project proposal you want to identify ways to reduce non value added time from that 4 hours.  You include some estimates for how many hours you plan to eliminate and when you plan to have them eliminated.  Then you back-calculate using your Decision Maker's forecast how many people will be eliminated and use that as your Measure for Success in your proposal.

Of course this is not as easy as it sounds.  Whether you are an internal or an external consultant you still have the challenge of getting the area manager on board.  And if they are dealing with a 'broken' process and all the associated issues they will likely not welcome the idea of downsizing staff.  How well you engineer the situation to ultimately generate results for your company or client will determine where you fall on the continuum between Report Writer and Implementation Expert.  I've often said that process improvement projects are 10% technical and 90% tactical.

Best of luck.