13 Cost Benefit Analysis
-
Upload
jimmy-cane -
Category
Documents
-
view
219 -
download
0
Transcript of 13 Cost Benefit Analysis
-
8/3/2019 13 Cost Benefit Analysis
1/13
08/09/02
Groups on Lknw08\Data (K:) \ Corporate Admin \ Green Belt \ Week 2 \ 13 Cost Benefit Analysis 080902 Cost Benefit Analysis Page 1
Business
Results
h Q * AE
Section 13
COST BENEFIT
ANALYSIS
-
8/3/2019 13 Cost Benefit Analysis
2/13
08/09/02
Groups on Lknw08\Data (K:) \ Corporate Admin \ Green Belt \ Week 2 \ 13 Cost Benefit Analysis 080902 Cost Benefit Analysis Page 2
Business
Results
h Q * AE
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
-
8/3/2019 13 Cost Benefit Analysis
3/13
08/09/02
Groups on Lknw08\Data (K:) \ Corporate Admin \ Green Belt \ Week 2 \ 13 Cost Benefit Analysis 080902 Cost Benefit Analysis Page 3
Business
Results
h Q * AE
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
-
8/3/2019 13 Cost Benefit Analysis
4/13
08/09/02
Groups on Lknw08\Data (K:) \ Corporate Admin \ Green Belt \ Week 2 \ 13 Cost Benefit Analysis 080902 Cost Benefit Analysis Page 4
Business
Results
h Q * AE
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
-
8/3/2019 13 Cost Benefit Analysis
5/13
08/09/02
Groups on Lknw08\Data (K:) \ Corporate Admin \ Green Belt \ Week 2 \ 13 Cost Benefit Analysis 080902 Cost Benefit Analysis Page 5
Business
Results
h Q * AE
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
-
8/3/2019 13 Cost Benefit Analysis
6/13
08/09/02
Groups on Lknw08\Data (K:) \ Corporate Admin \ Green Belt \ Week 2 \ 13 Cost Benefit Analysis 080902 Cost Benefit Analysis Page 6
Business
Results
h Q * AE
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
-
8/3/2019 13 Cost Benefit Analysis
7/13
08/09/02
Groups on Lknw08\Data (K:) \ Corporate Admin \ Green Belt \ Week 2 \ 13 Cost Benefit Analysis 080902 Cost Benefit Analysis Page 7
Business
Results
h Q * AE
Costs Benefits
What Are YourConsiderations?
-
8/3/2019 13 Cost Benefit Analysis
8/13
08/09/02
Groups on Lknw08\Data (K:) \ Corporate Admin \ Green Belt \ Week 2 \ 13 Cost Benefit Analysis 080902 Cost Benefit Analysis Page 8
Business
Results
h Q * AE
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
-
8/3/2019 13 Cost Benefit Analysis
9/13
08/09/02
Groups on Lknw08\Data (K:) \ Corporate Admin \ Green Belt \ Week 2 \ 13 Cost Benefit Analysis 080902 Cost Benefit Analysis Page 9
Business
Results
h Q * AE
Project Solution: Do Labs In House at XYZ Hospital
Purchase Glass bottlesin Lab < $1000
Save $250,000 paid tooutside lab to do assays
Utilize expertise of lab staff
Fully utilize lab equipment
Sample Analysis
Costs Benefits
-
8/3/2019 13 Cost Benefit Analysis
10/13
08/09/02
Groups on Lknw08\Data (K:) \ Corporate Admin \ Green Belt \ Week 2 \ 13 Cost Benefit Analysis 080902 Cost Benefit Analysis Page 10
Business
Results
h Q * AEBreeds CAR Form
BREED TECHNOLOGIES, INC.
APPROPRIATION REQUEST($ 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 ($) = REMAINING FY CAPITAL BUDGET
12
Airbags
Lakeland
5000
210
0
0
SYSTEMS & IS
NEW CAPACITY
0
0
PROJECT TITLE:TPS / Safety
0
2159.1%
0.1
0
-
8/3/2019 13 Cost Benefit Analysis
11/13
08/09/02
Groups on Lknw08\Data (K:) \ Corporate Admin \ Green Belt \ Week 2 \ 13 Cost Benefit Analysis 080902 Cost Benefit Analysis Page 11
Business
Results
h Q * AEBreeds CAR
Form (Continued)INVESTMENT DETAIL
PROJECT TITLE:
Item # Description of Item Qty Unit Cost Total Cost
PERMANENT CAPITAL INVESTMENT (000s)
1 Shield Gas Manifolds 2 3.5 7.0
2 Pressure Regulator & Flow Meter Combo. 18 0.3 5.0
3 -
4 -
5 -
TPS / Safety
0
-
Sales Tax -
Freight -
Less: Trade-In or Salvage (old equip) -
Total Permanent Capital Investment 12.0$
NONCAPITAL INITIAL EXPENSE Account # Qty Unit Cost Total Cost
1 -
2 -
3 -
4 -
5 -
6 -
7 -
8 -
Total Supporting Expenses -$
-
8/3/2019 13 Cost Benefit Analysis
12/13
08/09/02
Groups on Lknw08\Data (K:) \ Corporate Admin \ Green Belt \ Week 2 \ 13 Cost Benefit Analysis 080902 Cost Benefit Analysis Page 12
Business
Results
h Q * AEBreeds CAR Form
(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 -
Year 3 - Year 8 - Year 13 -
Year 4 - Year 9 - Year 14 -
Year 5 - Year 10 - Year 15 -
PLANNED STARTING DATE: 3/1/02
PLANNED COMPLETION DATE: 3/2/02
-
8/3/2019 13 Cost Benefit Analysis
13/13
08/09/02
Groups on Lknw08\Data (K:) \ Corporate Admin \ Green Belt \ Week 2 \ 13 Cost Benefit Analysis 080902 Cost Benefit Analysis Page 13
Business
Results
h Q * AE
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