| Project
Cost Justification
You've
identifed a system that will improve quality.
Here's how to gain support for your proposal.
Is
quality really free?
Why,
then, is management sometimes reluctant to approve
acquiring systems that can lead to world-class
quality? One reason is payout vs. payback. Up-front
cost is real, while return on investment is
speculative. Another reason may be inadequate
knowledge. People with decision-making power
are not necessarily expert in statistics, automation
or production. Maybe they're suspicious, disappointed
by earlier strategies and technologies that
fell short of expectations.
Some
people simply resist change. Why inflict something
different on those who are content with what
is familiar? Well, here's why. Nearly 70 percent
of part defects originate in design. About 30
percent of defects remain subject to production
process control. If world-class quality is your
objective, you must become able to detect inherent
flaws and to control the process. Because quality
begins with design and flows all the way through
to shipment, it is necessary to involve people
at many levels.
So, those intending to champion a new system
that will cost money and change accustomed practices
must present a convincing case to management
and the corporate bean counters, as well as
the people operating the new system and everyone
using the information it generates.
Scope magnifies the challenge. A quality system
that focuses only on one set of tools may be
relatively easy to "sell" and implement.
Compare this with an enterprisewide system operating
in multiple areas of multiple plants and generating
an information cross-flow bridging boundaries
of geography, personal responsibilities and
objectives. A quality system of this scope will
have a network of stakeholders stretching from
machine operators and supervisors to quality
directors, cost analysts, the corporate information
technology staff and those toiling in the executive
suite.
The
following example shows how to document a case
for management approval and peer support. The
example used in this article is an advanced
enterprisewide statistical process control and
automated data-collection system.
First
step: Select an application.
You may see many excellent applications for
a new SPC/ADC system. Select one or a combination
of applications that will appeal strongly to
your audiences. Does your selection promise
a significant, positive financial impact? Will
its benefits dovetail with other corporate initiatives?
You're likely to do best at detailing, costing,
explaining, defending and implementing processes
you are familiar with.
Next,
design the solution. Begin by carefully
defining the problem, then completely describe
the proposed operational and technical solution
to the problem. Remember, you are trying to
change your organization, especially the way
people work and the way they think. Specify
cost savings, especially as they relate to process
or change factors, even if these savings won't
be immediate. Point to the beneficial effects
on people, productivity and quality. Anticipate
objections and address them up-front; those
that arise later will be more difficult to counter.
Enlist
highly regarded people from other functional
areas who can help identify key issues and lend
credibility to your arguments. You may need
support from finance, management information
systems or IT, research, business planning and
analysis, human resources and administration,
as well as from operations.
Estimate
the project's cost. Be realistic and
be comprehensive. In addition to hardware and
software costs, include costs for anticipated
equipment upgrades, spares, service contracts,
interfaces, initial training, internal resources,
internal labor, implementation, integration
and outside consulting.
Find
out what book values your company puts on employees
and other internal resources. Estimate the labor,
skill levels and other resources you'll need.
This will help you solidify your model, plot
a proper timeline and establish expectations
for participation by your enlisted experts and
others.
Analyze
the financial aspects. Your company's
goal is productivity. Quality is requisite to
productivity. But management is likely to focus
first on the anticipated financial ROI, i.e.,
cost savings and income improvements. So, paint
the big picture, structure the outline, and
then detail it. Here's what you need to create:
Project income statement. This
looks forward--typically five years--at assumptions
affecting income for your company (or subsidiary,
division or department).
The income statement follows an accrual process;
that is, each anticipated expense is recorded
in the period when it will be incurred. There
are no secret methods involved here, simply
carefully detailed research.
Assumptions
affecting this income statement include:
-
Depreciation
-
Service cost
- Supplies
cost
- Installation
cost
- Labor
savings
- Inventory
savings
- Scrap
savings
- Supply
chain savings
- Operating
income
- Interest
savings
- Pre-tax
income
- Income
tax
- Net
income
ROI
ROI is average yearly income as a percentage
of the project's cost. This is a "cut to
the chase" benchmark favored in boardrooms.
Find out your organization's ROI goal. Often,
it's about 25 percent.
Now,
quantify the savings. You and your team members
who are most familiar with production and quality
assurance must analyze the kinds of quantifiable
savings ("hard" benefits) and intuitive
savings ("soft" benefits) your proposed
SPC/ADC system can deliver. Your arguments should
be dramatic and convincing. In describing the
need for the new system, be factual, thorough
and conservative.
Finally,
write the proposal. Here's how to proceed:
Know
your audiences. The MIS or IT director,
the floor supervisor, the board of directors
and others whose support you seek have different
interests. Avoid drafting a generic proposal
and simply retitling it for each audience. Instead,
list the key factors each audience will look
for and focus on those. Minimize discussions
of extraneous issues. Talk with other managers
at your level--perhaps they can provide you
with proposals that ave worked for them. But
make your proposal reflect your objectives.
Be willing to explain and defend your proposal
to anyone who steps forward. You will learn
from this, and it will make you more confident.
Describe
the implementation. This section separates
action from financial analysis. Include levels
of detail suitable for each audience--enough
to prove your forethought and planning without
smothering the reader's interest. Providing
for contingencies and projected costs of possible
complications in your implementation plan can
prove that you are prepared to do whatever it
takes to make your project succeed. Show that
you have planned well and will be able to execute
the plan. Later, use this section to benchmark
your progress.Draft the bulk of your proposal.
Start by defining the document, its audience(s)
and what you expect to achieve. Then describe
the project, its proposed costs and its benefits.
Finally, summarize how your proposal has delivered
what you outlined at the start. Ask your project
team members to review your work for accuracy,
clarity and purpose.
Build
the supporting documents. These should
develop your arguments and detail how you reached
your conclusions. Relatively few people may
read these documents thoroughly, but those who
do can be important to you. Supporting documents
should include:
Financials. Base them on your
company's accounting rules. Have your financial
team member verify them. Financial analysts
focus on details. Be sure you satisfy them.Project
plan. While a basic cost justification may not
require a project plan, it will be needed if
it involves funding by other departments or
commitment to the process. You need to develop
a project plan in order to appreciate the relationships
between tasks, activities and resources. Ask
other successful project leaders in your company
to advise you about how much detail to present
in your cost-justification proposal.
Assumptions. Compile all assumptions
made while developing your documentation. Include
the sources for facts, statistics or rules of
calculation. This can be highly valuable for
defending your plan and resolving disagreements
or misunderstandings.
Execute.
Gaining approval for a capital project like
a new SPC/ADC system requires demonstrating
significant productivity gains and cost savings.
These issues make your proposal important to
management. Your proposal sets expectations
and the tone for your project. Everything hinges
on its acceptance. If the new system is really
important to your company, then it's worth the
time and care it will take to prepare a factual,
convincing, bulletproof proposal.
|
November
2003 • Special
Edition •
US Food Processors
