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March 2006
Improvement efforts lose credibility with leadership
teams when project teams report savings, but the P&L does
not change. For effective communication to leadership, project
teams need to clearly define their results in several savings
categories: Future Revenues; Hard Dollar; Soft Dollar and
Cost Avoidance. Soft Savings is usually problematic, so let’s
discuss it first.
Soft savings come from projects that are not
directly traceable to the bottom line, but that over time
should yield a business benefit. These savings typically come
from faster cycle times, capacity improvements (where the
increased outputs cannot immediately be sold, faster transaction
processing, reductions in rework (without a reduction in inputs),
improvements to a process that is not the bottleneck operation,
etc. It’s important for leadership teams to be aware
of “soft dollar” savings. They will most likely
require actions from leadership if they are ever to be converted
into “hard dollar” savings.
So the initial question on the table
is: How does your organization handle “soft savings”
and what actions, if any, are taken inside your organization
to turn soft dollars into “hard savings?”
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