How do I determine cost savings in Lean?

How do I determine cost savings in Lean?

Cost savings can be a tricky thing. It is especially challenging when we are talking about reporting cost savings after a kaizen event, or when consultants make claims in marketing information.

It is easy to get an inflated system of reporting, where people get more and more aggressive in claiming gains. Nobody wants pedestrian gains when most other teams (or competing consultants) are reporting monumental increases.

The truth is that there is a big difference between potential gains and realized gains.  Shaving 20% off the cycle time of a process seems like a big gain. It isn’t real, though, until the team is getting 20% more output, or has 20% fewer people assigned to it. Similarly, space saving isn’t real until it is consolidated and used for a new purpose.

This is the biggest culprit in cost savings inflation. People claim potential gains, and then changes down the road prevent that from actually hitting the bottom line. In the end, that is what matters, so be careful with how you report cost savings.