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How do I justify Lean Six Sigma training costs?
A perspective on investment and benefits
There is a saying that it takes money to make money. In Lean Six Sigma it is also true that it takes money to save money and an organisation can't expect to reduce costs and grow the business without investing money in people. So, how do you justify the investment?
The financial justification for implementing Lean Six Sigma is presented in the following article with typical costs and benefits based on actual cases taken from researched and experiential data.
Investing in Lean Six Sigma should not be seen as a "get rich quick" strategy but rather a systematic method of transforming every aspect of what you do and how you do it. Whilst quick wins are possible, to gain lasting benefits, investment must also be made in infrastructure to support the initiative.
This article aims to provide an insight in to the typical costs and time commitment required to undertake Lean Six Sigma and the returns that might be expected. Assumptions are made on salaries, overheads and timescales so please substitute your own figures if these are not representative of your own organisation. Costs and timescales can vary significantly and hence the figures provided are only indicative.
The Investment
So let's start with the investment required in training. There are cheap training courses on offer but like many other products and services, you get what you pay for. If you are serious about developing your skills to be able to undertake significant improvement projects then you need to invest with a reputable training provider who has real in depth experience in using Lean Six Sigma to transform organisation performance.
Senior management need to be made aware of what's involved in organising and running a Lean Six Sigma deployment. The basics can be achieved on a Champions training course over a 2-3 day period and typically cost between £750 and £1,000 per person.
A good quality yellow belt foundation course is typically 5 days in length and will cost between £1,000 and £1,500 per delegate. This will provide a basic understanding of Lean Six Sigma and sufficient knowledge to actively participate in projects.
A green belt course will typically be around double the number of training days spread over two months and cost around £3,000 to £3,500. A green belt will be expected to support larger projects and run smaller projects.
A black belt course takes around 16 to 20 days spread over four months and typically costs between £5,000 and £7,000 per delegate. Black belts are usually full time exponents and lead projects.
Certification for green and black belts involves successful completion of one project in the case of green belts and two projects for black belts plus the completion of an examination. Certification costs a few hundred pounds and one or two additional days time.
Including certification and assuming a cost of £1,500 per week for salaries and related costs and expenses while undertaking training, this equates to around £2,500, £3,000, £7,000 and £12,000 to train a champion, yellow, green and black belt respectively.
A good balance of black belts to total employees in an organisation is about 0.5%-1%, 3%-5% for green belts and 15%-25% for yellow belts. This will ensure that an organisation has enough capability to undertake projects and a critical mass to do so but is not so many that training is wasted because there is either not enough time to run projects or their aren't enough projects for them all.
Black belts normally work full time on improvement projects, whilst green belts typically will work on projects for 20% of their time and yellow belts around two to three hours per week, approximately 5% to 10%. A black belt would be expected to undertake around four projects per year and green belts one or two smaller projects per year as well as supporting black belts. Yellow belts would mainly support other projects.
From the above it is possible to work out the likely cost of rolling out Lean Six Sigma across your organisation. So, as an example, if we take a company of 100 employees on a single site, this would equate to 1 black belt, 5 green belts, 25 yellow belts and 1 champion. Of course you would not need to start at this level but could ramp up to this over time. One off training costs will be around £110,000.
On the basis of running eight to ten projects per year, the time commitment equates to around 3.5 full time equivalents, a further £200,000 including overheads of £50,000.
So assuming only 50% of the projects are undertaken in the 1st year and therefore only 50% of the labour costs incurred, the total spend in year one will be £210,000. In year two, assuming a full twelve months worth of projects, a further £200,000 of labour costs will be required.
Financial Benefits
In the above we have calculated the typical costs likely to be incurred for a Lean Six Sigma deployment per 100 employees. The costs will scale reasonably to larger or smaller organisations. So now what about the benefits?
Fortunately there is an abundance of substantive data to demonstrate project benefits. A recent benchmarking study, by the iSixSigma Magazine, of black belt project return-on-investment showed a median of £120,000 per project. This compares well to SigmaPro's own experience, which in addition to the median level of benefits, revealed a 1st quartile return of £65,000 and 10% of projects returned less than £35,000. This can be seen in the data below.
Fig 1. Lean Six Sigma Project Savings
Returning to our 100 employee company example. The savings in a full year, assuming 9 projects returning £120,000 each at the median level, will return £1m in benefits and at the 25% percentile project savings level, this figure will be £600k. In the first year 50% of these benefits are assumed.
It is now possible to calculate the return on investment and payback periods as shown in the table below:
Savings level |
Year 1 Payback |
Year 1 ROI |
Year 2 ROI |
Median £120k/project |
9mths |
150% |
400% |
25% percentile £65k/project |
12mths |
0% |
200% |
Table 1. Typical Return on Six Sigma Projects
Comparing this to other companies published figures, Charles Waxer in a study, reports that GE broke even in their first year of deploying Lean Six Sigma and in year 4 had an ROI of 233%. Later figures suggest that this has increased still further.
Other figures show that companies who have successfully deployed Lean Six Sigma have shown savings in the region of 1.2% to 4.5% of revenue. For a £100m company that is an eye catching amount of money and will translate in to high profit percentage addition.
In recent green belt certification projects SigmaPro have seen returns of £200k-£300k per project, and in a study in 2007 with 3 sites in different parts of Europe there was a 200% ROI in the first year.
Further research reveals that 80% of business leaders deploying Lean Six Sigma judged it successful or very successful, increasing profitability, job satisfaction and customer satisfaction. It is difficult to find other investments with these levels of returns, making Lean Six Sigma a serious investment proposition for businesses.
Lean Six Sigma requires significant investment in time, money and effort, but provides an impressive return for those willing to invest. The justification for the investment is based on data gathered from 1000's of real projects in 100's of real organisations across the world.
You should not expect to make a quick return due to the upfront investment required, but typically payback periods are 9 to 12 months, and in some cases individual project returns can happen much quicker than this.
Savings of between 1.2% to 4.5% of revenue have been possible for companies successfully deploying Lean Six Sigma and this has made a significant impact to the profitability of these businesses.
In justifying training investment, consider not only the costs but also the benefits to the organisation. If you would like further help with cost justification in your own organisation, please contact SigmaPro and ask to speak to one of our advisors, or attend one of our free Lean Six Sigma workshops.
For the full range of training programmes we offer see the web site www.sigmapro.co.uk.
SigmaPro work with companies in a 'skills transfer' style, helping them to solve business problems through training and coaching at all levels.
Author Biography
Dr David Cowburn - Lean Six Sigma Specialist
David has 25 years of running companies to Managing Director level and is experienced in utilising Lean Six Sigma in a wide variety of businesses including, manufacturing, process industry, service, and administrative.
In a people based hands-on style, he works and trains at all levels in an organisation from Board to shop floor to bring about rapid measurable step changes in performance.
David was originally trained in the Toyota Production System and has since developed a high level blend of Lean and Six Sigma philosophies and tools through working with businesses all around the World.
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