ROI Calculation for Lean Six Sigma
Calculate the return on your Lean Six Sigma project. See if process improvements justify the investment.
How the ROI Calculation for Lean Six Sigma works
Enter project costs, time savings, and quality improvements. Get your ROI and payback period to justify your initiative.
Lean Six Sigma projects require significant resources. This calculator proves the financial value to get stakeholder buy-in.
How it works
Tutorial
Lean Six Sigma ROI measures the financial return from process improvement projects. Good projects typically deliver 3:1 to 10:1 returns, meaning every dollar invested returns $3 to $10 in savings or increased revenue.
Use the calculator above for instant ROI analysis, or follow this guide to calculate manually.
The Formula
| Component | Formula |
|---|---|
| Total Project Costs | Training + Labor + Tools + Implementation |
| Annual Benefits | Cost Savings + Revenue Increase – Maintenance Costs |
| Net Annual Benefit | Annual Benefits – Ongoing Costs |
| ROI Percentage | ((Net Annual Benefit – Project Costs) ÷ Project Costs) × 100 |
| Payback Period | Project Costs ÷ Net Annual Benefit (in years) |
Step-by-Step Example
Let’s calculate ROI for a manufacturing defect reduction project.
Step 1: Calculate Project Costs
| Cost Item | Amount |
|---|---|
| Six Sigma Training (3 people) | $15,000 |
| Team Labor Hours (500 hrs × $65/hr) | $32,500 |
| Consulting Fees | $18,000 |
| Software & Tools | $8,500 |
| Implementation Costs | $12,000 |
| Total Project Costs | $86,000 |
Calculation:$15,000 + $32,500 + $18,000 + $8,500 + $12,000 =$86,000
Step 2: Calculate Annual Cost Savings
| Savings Category | Annual Amount |
|---|---|
| Reduced Scrap/Waste | $75,000 |
| Less Rework | $42,000 |
| Lower Warranty Claims | $28,000 |
| Reduced Inspection Time | $18,000 |
| Total Annual Savings | $163,000 |
Calculation:$75,000 + $42,000 + $28,000 + $18,000 =$163,000
Step 3: Account for Ongoing Costs
| Ongoing Cost | Annual Amount |
|---|---|
| Process Monitoring | $8,000 |
| Software Maintenance | $2,500 |
| Periodic Training Refresher | $3,500 |
| Total Ongoing Costs | $14,000 |
Calculation:$8,000 + $2,500 + $3,500 =$14,000
Step 4: Calculate Net Annual Benefit
| Component | Amount |
|---|---|
| Total Annual Savings | $163,000 |
| Total Ongoing Costs | -$14,000 |
| Net Annual Benefit | $149,000 |
Calculation:$163,000 – $14,000 =$149,000
Step 5: Calculate ROI Percentage
| Component | Value |
|---|---|
| Net Annual Benefit | $149,000 |
| Total Project Costs | -$86,000 |
| Net Gain (Year 1) | $63,000 |
| ROI Calculation | ($63,000 ÷ $86,000) × 100 |
| ROI Percentage | 73.3% |
Calculation:($63,000 ÷ $86,000) × 100 =73.3%
Step 6: Calculate Payback Period
| Component | Value |
|---|---|
| Total Project Costs | $86,000 |
| Net Annual Benefit | ÷ $149,000 |
| Payback Period | 0.58 years (7 months) |
Calculation:$86,000 ÷ $149,000 =0.58 years(about 7 months)
Bottom Line:This project delivers73.3% ROIin the first year and pays for itself in just7 months.
What This Means
A 73% first-year ROI is excellent – it means for every dollar spent, you get your dollar back plus $0.73 in profit. The 7-month payback period is also strong, as most companies require projects to pay back within 12-18 months. After the payback period, the $149,000 in annual savings continues year after year, making this a highly valuable improvement. Track results carefully to ensure projected savings materialize and adjust your calculations based on actual data.
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