The Perils of Not Having Business Continuity Management Plans
This module has covered the need for business continuity management as a paradigm to be followed by corporates. This article looks at the pitfalls of not having adequate business continuity management plans in place. First, let us consider the case of Sony where the customer data from its website was hacked. This incident was to […]
Inventory Management Concepts
Inventory management and supply chain management are the backbone of any business operations. With the development of technology and availability of process driven software applications, inventory management has undergone revolutionary changes. In the last decade or so we have seen adaptation of enhanced customer service concept on the part of the manufacturers agreeing to manage […]
COVID 19 and Its Impact on the Technology Sector
In the past few years, technology companies have been driving the boom in the financial markets. The FAANG companies (Facebook, Amazon, Apple, Netflix, and Google) have seen their valuations increase by leaps and bounds. However, COVID-19 is causing a worldwide stock market collapse. It would be fair to say that the pandemic is not affecting […]
Car as a Service (CaaS)
The rapid advancements in technology have changed the fundamentals of many industries. The increase in connectivity, as well as digitalization, is also affecting the automobile industry. Just like other industries, car customers also want to be spoiled for choice. This is the reason that the industry is being forced to rethink its traditional business models. […]
Risks Faced by International Businesses in Developing Countries
Political Instability The recent case involving GMR Group in Maldives wherein the new government cancelled the license of the company for the Male Airport illustrates the biggest risk that international businesses face when they operate in developing countries. It is often the case that the change in government leads to a reevaluation of the contracts […]
The final step in the metrics is to measure the financial benefits that are accruing to the firm because of the Six Sigma project being undertaken. This is important and is also an area of concern. Most criticisms of Six Sigma say that the benefits that are presented in such analysis are incorrect and actually do not accrue to the firm. They claim that the true picture of the projects is often different.
However, to get the resources sanctioned from the finance department, it is essential that the Net Present Value (NPV) of the project be presented to them. The most common category of gains that accrue to an organization because of six sigma projects is as follows:
Increased Revenue: The most obvious benefits of the six sigma project would be an increase in revenue. This could be driven by many factors.
With more efficient processes, the firm may be able to produce goods more cheaply than others and hence sell more increasing revenues. Or with the help of six sigma projects, the firm could increase the quality of its products increasing customer loyalty and adding to revenues.
Avoided Costs: The firm can avoid many costs in the form of regulatory penalties, expansion costs etc, if its processes are efficient.
Let’s assume that a factory manufactures 100 cars. If by efficiently redesigning the processes, the factory can now manufacture 120 cars, then the fixed costs of manufacturing those 20 cars have been avoided. Governments sometimes penalise inefficient behaviour in companies.
For instance if the company does not pay its taxes on time, it has to pay penalties. Six sigma projects can make these processes efficient and avoid such costs for the management.
Reduced Costs: The operational costs of the firm can be drastically reduced with the help of six sigma projects. With the help of Six Sigma, Motorola was able to offer pagers which were much better in features than the competitors at a price which was much less than that of the competitors.
Non-Monetary Benefits: There are several non-monetary benefits that accrue to the firms as well. In many cases these translate into indirect monetary benefits. However since they cannot be precisely measured they must be called non-monetary. Common examples of such benefits are as follows:
Critics of six sigma say that analysts use fuzzy numbers and double counting to increase the NPV of the projects in question. However there is no doubt about the fact that efficiency has never harmed an organization.
Undertaking six sigma projects and completing them efficiently will only make the organization better off.
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