Robust Production Management (RPM) Module 13: Deriving Project Financial Value

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Every company holds a wealth of bankable cost savings & revenue generating opportunities to boost profitability. The challenge - as always - is knowing where to look. If you're a consultant, project or program manager, and you're having trouble realizing bottom-line benefits from your team's projects, check out Robust Production Management (RPM) Module 13: "Deriving Project Financial Value". From cost reduction projects to initiatives that invigorate marketing and sales, Module 13 provides the "what" and "how" to embark upon projects with financial "teeth" that deliver profitable results, in any every time. "Deriving Project Financial Value" is the thirteenth module in the Metrilogics Robust Production Management (RPM) training series - more on the way.

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Robust Production Management (RPM) Module 13: Deriving Project Financial Value

  1. 1. Copyright © 2005 Metrilogics, LLC. All rights reserved. Robust Production Management Metrilogics Front-line controls for bottom-line savings. TM SM Module 13: Deriving Project Financial Value By Lance Latham Senior Managing Partner
  2. 2. Copyright © 2005 Metrilogics, LLC. All rights reserved. Metrilogics TM Project Approaches by Operational Cost Category While for-profit companies differ from each other in many respects, their costs generally fall into 6 major categories*… Salaries / Benefits ≈ 45% Taxes / Regulatory ≈ 20% Energy / Utilities ≈ 10% Facilities ≈ 9% Materials ≈ 8% Equipment ≈ 8% 20% 40% 60% 80% 100% AnnualProportionofTotal (*Netafteramortization,taxdeductions,etc.) …each of which can form the basis of a successful cost savings project. 2 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/robust-production-management-rpm-module-13-deriving-project-financial-value-471
  3. 3. Copyright © 2005 Metrilogics, LLC. All rights reserved. Metrilogics TM Project Approaches by Operational Cost Category (cont.) Cost Reduction Category Project Candidates Suggested Project Approaches • Using OEM maintenance documentation, audit HVAC systems, boilers and production equipment to identify and fix air, water, steam, oil, fuel, coolant and other leaks Energy / Utilities Identify & eliminate energy waste • Identify plug-in devices (copiers, printers, PC’s, space heaters, etc.), and communicate need to users that applicable devices are to be turned “off” or placed in “sleep mode” outside of normal business hours or when not in use • If not already part of preventive maintenance (PM) procedures, build energy-savings repairs into PM schedule • If not already part of employee handbook, include energy-saving procedures in employee reference material and new employee training programs 5 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/robust-production-management-rpm-module-13-deriving-project-financial-value-471
  4. 4. Copyright © 2005 Metrilogics, LLC. All rights reserved. Metrilogics TM Project Approaches by Operational Cost Category (cont.) Materials Cost Reduction Category Project Candidates Suggested Project Approaches Reduce production scrap • Map operational processes, highlighting points where scrap occurs • Categorize scrap by type (e.g., by product, by production equipment, by operator, etc.) • Perform root cause analysis on category with the greatest dollar value • Work with subject matter experts (SME’s) and management to develop recommendations • Work with SME’s and management to implement corrective actions • Pareto scrap categories by dollar amount (greatest to least) 8 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/robust-production-management-rpm-module-13-deriving-project-financial-value-471
  5. 5. Copyright © 2005 Metrilogics, LLC. All rights reserved. Metrilogics TM Equipment Project Approaches by Operational Cost Category (cont.) Cost Reduction Category Project Candidates Suggested Project Approaches Schedule system & equipment maintenance to occur during non-production times • Develop maintenance activity tables by piece of equipment, activity, activity frequencies, activity durations and resource hours required • Publish maintenance activity tables (e.g., to a common corporate website) so that Maintenance, IT and Operations management can review them periodically • In daily or weekly Management meetings, Maintenance, IT and Operations management to coordinate on optimum off-hours times to perform maintenance on designated equipment • After maintenance activity date(s) and time(s) are established, Maintenance and IT management to designate team member(s) to carry out activities, so that overtime expenses are minimized or avoided 11 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/robust-production-management-rpm-module-13-deriving-project-financial-value-471
  6. 6. Copyright © 2005 Metrilogics, LLC. All rights reserved. Metrilogics TM Project Approaches by Revenue Growth Category (cont.) Increase Unit Sales of Existing Products or Services Revenue Growth Category Suggested Project Approaches • Investigate the benefits of offering quantity discounts to customers or clients • Investigate competitors’ pricing; ensure own pricing isn’t inhibiting sales • Investigate the benefits of optimizing current distribution, marketing and / or advertising venues • Investigate the benefits of using alternative distribution, marketing and / or advertising venues • Investigate the benefits of offering free samples to customers (for products) or free work to clients (for services) to stimulate additional unit sales • Investigate the benefits of extending limited time price discounts to stimulate additional unit sales • Investigate the benefits of offering bundled products or services to stimulate additional unit sales 14 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/robust-production-management-rpm-module-13-deriving-project-financial-value-471
  7. 7. Copyright © 2005 Metrilogics, LLC. All rights reserved. Metrilogics TM Project Approaches by Revenue Growth Category (cont.) Implement Sales Force Skills Training Revenue Growth Category Suggested Project Approaches • Reinforce / improve prospecting skills and techniques • Reinforce / improve cold calling skills and techniques • Reinforce / improve appointment setting skills and techniques • Reinforce / improve presentation skills and techniques • Reinforce / improve closing skills and techniques • Reinforce / improve repeat selling skills and techniques • Reinforce / improve upgrade selling skills and techniques • Reinforce / improve follow-up skills and techniques 17 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/robust-production-management-rpm-module-13-deriving-project-financial-value-471
  8. 8. Copyright © 2005 Metrilogics, LLC. All rights reserved. Metrilogics TM Calculating the Financial Value of Single-Benefit Projects Assume a project’s goal is to implement automation to reduce labor costs. How might this labor-reduction project deliver bottom-line results? New system / automation purchase and implementation $0 $3,500,000 ($3,500,000) Project management / admin. $0 $500,000 ($500,000) Straight-time salary / benefits $16,500,000 $12,100,000 $4,400,000 Project Category Current Annual $ Value 1st Year Net Annual $ (Cost) or Benefit Post-Project Annual $ Value Overtime salary / benefits $3,200,000 $1,400,000 $1,800,000 $2,200,000TOTAL 20 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/robust-production-management-rpm-module-13-deriving-project-financial-value-471
  9. 9. Copyright © 2005 Metrilogics, LLC. All rights reserved. Metrilogics TM Preview of Module 14: Labor as Key to Project Financial Results In Module 14 we will examine the advantages of labor optimization, along with project approaches that drive profitability: v Of all operational costs…why the focus on labor? v Labor cost savings v Labor cost avoidance v Labor re-deployment 23 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/robust-production-management-rpm-module-13-deriving-project-financial-value-471
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