13 Cost Benefit Analysis

8/3/2019 13 Cost Benefit Analysis

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Groups on Lknw08\Data (K:) \ Corporate Admin \ Green Belt \ Week 2 \ 13 Cost Benefit Analysis 080902 Cost Benefit Analysis Page 1

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Section 13

COST BENEFIT

ANALYSIS


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Close &Handoff

DefineDefine

1a

SelectProcess to

Improve

1b

SelectSponsor &

TeamMembers

3a

Document or

Map the

Process

4a

Collect DataHard/Soft

4b

Display Data& Analyze

Variation

Measure &Measure &AnalyzeAnalyze ControlControl

7a

Plan Implementation

7b

PILOT

8a

Evaluate & EstablishMeasures

10a

Celebrate

Improvements &Recognize Team

10b

Continuously Improve

5c

PerformRoot Cause

Analysis

5d

GeneratePossible

Solutions

6aEvaluate

Alternatives

6c

Select aSolution

2

IdentifyCustomers

& Require-ments

1c

Start Up the

Project Team &

Write Problem

Statement

ImproveImprove

9

Transfer Knowledge&

Align Practices

3b

Tollgate

5a

Calculate

Process

Sigma

DMAIC Process MapDMAIC Process Map

8b

Monitor forConsistency

6b

Tollgate

8c

Tollgate

11

Tollgate

5b

Tollgate


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Include all costs direct and indirect

Use data to calculate expected cost andexpected benefit

Consider cost-benefit over varying timescales

Establish a pay back period

In conducting a cost benefit analysis, the teamshould:

Cost Benefit Analysis


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Communicates in financial terms why it makesbusiness sense to implement your solution

Concentrate on direct costs

Project implementation cost

Systems costs

Material cost

Benefits may include

Reduction in defects

Cost reduction Cost avoidance

Quality improvements

Typically, benefits outweigh costs.

Cost Benefit Analysis


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Direct Costs

Material Scrap Costs

Direct Labor Costs

Cost of Capital

Cost of Equipment

Indirect Costs

Management Review Time

Time to Resolve Problems

Cost Examples


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Cost savings MUST reach the bottom line.

Cost transfers to other departments or areas ofBreed are NOT savings.

Costs cannot be deferred.

Savings MUST be sustainable.

Savings must be REAL, and be quantifiable and

measurable.

Savings ideas MUST be implemented in lessthan 2 years from end of implementation.

Cost Savings Rulesfor Six Sigma


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Costs Benefits

What Are YourConsiderations?


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Start with As-Is process analyzed inquantifying the opportunity

Cost out the Should Be process

improvement

As-Is minus Should Be represents thecost saving associated with the proposedsolution

Determine cost of implementing theproposed solution

Cost Benefit Approach


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Project Solution: Do Labs In House at XYZ Hospital

Purchase Glass bottlesin Lab < $1000

Save $250,000 paid tooutside lab to do assays

Utilize expertise of lab staff

Fully utilize lab equipment

Sample Analysis

Costs Benefits


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h Q * AEBreeds CAR Form

BREED TECHNOLOGIES, INC.

APPROPRIATION REQUEST($ 000) Project #:

PROJECT CATEGORY: (select one)

REPORTING DIV: 1

LOCATION: 2 ADDITIONAL CAPACITY

DEPT # : 3 COST SAVING X

CCN #: 4 HEALTH, SAFETY & ENVIRONMENT

LOCAL ACCT #: 5 RESEARCH & DEVELOPMENT

6 MAINTENANCE

SPENDING TIMING: 7

Current FY Q1 8 MISCELLANEOUS

Current FY Q2 FINANCIAL RETURN 0.14

Current FY Q3 12.0 NET PRESENT VALUE (NPV) $ 226.6

Current FY Q4 INTERNAL RATE OF RETURN (IRR)

FUTURE YEARS DISCOUNTED PAYBACK (YEARS)TOTAL CAPITAL 12.0 OK

FOR FINANCE USE ONLY

AMT BUDGETED 400.0 CURRENT YEAR CAPITAL BUDGET

BUDGET #: LKL PL-01--006 MINUS PRIOR APPROVED CAR's.

PIF # (if applicable) = UNCOMMITTED CAPITAL BUDGET

Total Capex Required MINUS THIS CAR

Prior AR's ($) = REMAINING FY CAPITAL BUDGET

12

Airbags

Lakeland

5000

210

0

0

SYSTEMS & IS

NEW CAPACITY

0

0

PROJECT TITLE:TPS / Safety

0

2159.1%

0.1

0


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Form (Continued)INVESTMENT DETAIL

PROJECT TITLE:

Item # Description of Item Qty Unit Cost Total Cost

PERMANENT CAPITAL INVESTMENT (000s)

1 Shield Gas Manifolds 2 3.5 7.0

2 Pressure Regulator & Flow Meter Combo. 18 0.3 5.0

3 -

4 -

5 -

TPS / Safety

0

-

Sales Tax -

Freight -

Less: Trade-In or Salvage (old equip) -

Total Permanent Capital Investment 12.0$

NONCAPITAL INITIAL EXPENSE Account # Qty Unit Cost Total Cost

1 -

2 -

3 -

4 -

5 -

6 -

7 -

8 -

Total Supporting Expenses -$


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(Continued)PROJECT JUSTIFICATION

PROJECT TITLE: TPS / Safety

LOCATION: Lakeland

PRODUCT LINE: HSI Inflator

CURRENT CAPABILITY:

Current Annual Expense for Shield Gas is $187K

Current Scrap cost on TIG welder is $30- 45K per month ($360 to $540K per year)

PROPOSED CAPABILITY:

Expected Annual Expense for Shield Gas should be $47K per year

A PLC change will reduce the shield gas expense to $94K per year.

The regulators will allow us to further reduce the shield gas expense from $94 to $47K per year

Expected Scrap Cost on TIG welder should be $7.5 - $11K per month ($90 to 135K per year) - 75% decrease

SOURCE OF SAVINGS:

Reduced gas expense: $47K per year

Reduced Scrap on TIG welder: $225K per year

ANNUAL INCREMENTAL CASH FLOWS:

Year 1 272.0 Year 6 - Year 11 -

Year 2 - Year 7 - Year 12 -




PLANNED STARTING DATE: 3/1/02

PLANNED COMPLETION DATE: 3/2/02


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AGENDA:

Assign team roles and prepare an agenda.

Select one persons project to do a costbenefit analysis on the potential solution.

Define the costs of implementing the solutionestimate the dollar value.

Categorize the costs as indirect or direct

Define the benefits of the potential solution.

Report out on the key elements of yourcost benefit analysis

TIME: 30 minutes

OBJECTIVE: Prepare a Cost Benefit Analysison one project

Activity:Cost Benefit Analysis

13 Cost Benefit Analysis

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