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Soft Savings

Soft savings are the intangible benefits of continuous improvement. Contrast this with hard savings which are those that can be pointed to as a line item on some sort of financial record such as a receipt or an invoice.

Soft savings tend to fall into two basic categories. The first is the intangibles. Lower frustration, improved job satisfaction, shorter lead times, greater trust, and the like are all extremely difficult to directly apply dollar values to. All of them, though, do impact the bottom line. For example, shorter lead times help sales but they also reduce the cost of customers calling to check on their orders. Greater trust means managers spend less time justifying things to employees, and less time following up to make sure things are being done. The problem is that it is extremely difficult to quantify precisely how much the savings are impacting the profit and loss statement.

The second category of soft savings are those that will likely result in a quantifiable savings, but rely upon so many projections and estimates that a hard value cannot be assigned. Consider the addition of a piece of safety equipment to machine. There will be intangible savings that come from the increased job satisfaction that employees will experience from feeling that their employer cares about them. But there is also a potential hard savings in medical or legal costs if an employee was injured. The problem is that even though this would ultimately be a quantifiable expense, there is simply too much speculation to apply an actual dollar value to it.

Soft savings are, in fact, real savings. Companies save money when employees are more satisfied. For example, acquisition costs go down because satisfied employees are more likely to land new business than disgruntled once. There are also more likely to appease upset customers. Both of these impact the bottom line.

Creating a continuous improvement culture also drives cost savings over time. Having a team of empowered employees that attacks problems can have a tremendous impact on profit.

So why worry about soft savings? Well, a big part of any continuous improvement effort is the application of the PDCA cycle. The “C” stands for check. If you make a change, you need to confirm that is actually a positive change. That means looking at its impact.

That said, soft savings, by their very nature, do require that they be taken a bit on faith. You should not avoid doing a project simply because the majority of the savings are soft. One common practice is to find a surrogate when measuring soft savings. You take on faith that the metric you use will fall through to the bottom line. Then you can track progress against that surrogate metric instead of using actual dollars.

Some of these metrics are in common use. Many companies track customer complaints and lead time.

Others, though, will require creativity. For example, if you believe that job satisfaction will impact the bottom line, you can create a survey that tracks progress in that area.

 

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