Hard Savings

Hard savings are those that are directly linked to reducing to an actual expense. There should be no confusion about how much was actually saved, as there is an invoice, payroll stub, bill, receipt, or the like associated with the expense.

Even though there is a specific, quantifiable expense, there can still be some debate as to what the savings can be attributed to. Why does this matter? Well, in the big picture, it doesn’t. If the company is saving money, the whole organization benefits.

In the micro view, though, it matters when you assess the results of your activities. You want to do more of the things that deliver a big impact. If you don’t understand the results of projects, it can be hard to know if you are doing the right things.

Words of Warning About Hard Savings

• Don’t confuse hard and soft savings with cost avoidance. They are two different categories. You can have an actual hard savings, as in when you save enough space that you can stop renting a production facility, or a soft savings where you improve morale and get the resulting lower turnover costs. Contrast these actual reductions in spending with avoiding a hard cost by not having to rent a new facility to handle expansion.
• Be accurate when tallying hard savings. There is a tendency to inflate results when reporting on a project. Resist the urge to be overly aggressive in assigning credit.
• Be careful about counting on potential hard savings. Some teams project future gains when reporting hard savings. Those gains seldom come to fruition, especially when projected by kaizen
• Don’t double count the same savings. This is common when two kaizen teams both report that they saved the same money. For example, one team may project a savings by reducing the headcount for a process, and a second team may report the same reduction when the problem is followed up on down the road. There may also be some overlap in savings accounting if, for example, two kaizen teams working in adjacent areas both count the same space as saved. Accurate projections are very important for maintaining the credibility of a Lean program, especially if there are opponents in the executive ranks. Reported savings must make it to the bottom line to keep naysayers from having ammunition in resisting change.
• Don’t neglect soft savings at the expense of hard savings. Some soft savings, especially those linked to job satisfaction, can pay off much more than a hard savings. Be careful, though. Soft savings are extremely difficult to calculate.