01 · Purpose
Why and when to use it
Why?
It helps compare the likely value of the project with the effort and expense required, while making the assumptions visible.
When?
Estimate benefits in Define; update them after Measure and solution selection, and verify realised benefits after implementation.
Who takes part? The team estimates operational effects; finance validates financial treatment; the process owner owns benefit realisation.
02 · Application
How to apply it
Start with: Baseline volume, current loss or effort per unit, a realistic improvement scenario, relevant unit costs and implementation costs.
- Define the benefit and the measure that will demonstrate it.
- Calculate the expected operational change using explicit volume and reduction assumptions.
- Separate cash savings from capacity release and non-financial effects.
- Subtract incremental recurring costs and identify one-off investment.
- Check for overlap with other benefits and build a conservative scenario.
- Assign an owner, verification method and review date for each benefit.
03 · Example
A warehouse dispatch project
Original illustrative example. All quantities, targets, roles and timings below are fictional teaching assumptions, not findings from a real project.
| Calculation | Illustrative result |
|---|---|
| Annual errors reduced | 20,000 orders × (6% − 2%) = 800 fewer errors. |
| Rework capacity released | 800 × 15 minutes ÷ 60 = 200 hours/year. |
| Capacity value | 200 hours × €30/hour = €6,000/year; this is not automatically a payroll saving. |
| Consumables saved | 800 × €4 = €3,200/year if purchases actually fall. |
| Net recurring cash benefit | €3,200 − €500 recurring cost = €2,700/year. |
| Simple cash payback | €1,350 one-off investment ÷ €2,700/year = 0.5 years under these assumptions. |
04 · Interpretation
What the result tells you
The project releases 200 hours and may save €2,700 annually in cash. Report these separately. Payback uses the cash benefit, excludes discounting and assumes steady annual benefit; a phased rollout would change its timing.
Completion check: A benefits register with assumptions, categories, estimated values, owners and verification measures.
05 · Judgement
Mistakes and limitations
Common mistakes
- Adding saved labour cost and released capacity as two separate benefits.
- Calling theoretical time savings cash savings without a spending change.
- Annualising a short period without checking demand and seasonality.
Limits of the tool
Estimates depend on improvement feasibility and how released capacity is used. Simple payback does not capture all investment consequences; use the organisation’s financial appraisal method for investment decisions.
07 · Reading
Sources and further reading
Toolset backbone: Six Sigma+Lean Toolset: Mindset for Successful Implementation of Improvement Projects, second edition, edited by Stephan Lunau, with Renata Meran, Alexander John, Olin Roenpage and Christian Staudter (Springer, 2013). This reference identifies the toolset; the book text was not available for a chapter-level comparison in this development pass. The explanations, application sequence and fictional examples here are original LeanTrainingLab teaching material. Linked readings provide background; they do not prescribe every example or target.