What is return on investment? Its linkage with Six Sigma

 

Hi, Welcome to all of you once again On your own blog site. In today session we will know about What is return on investment? Its linkage with Six Sigma .IN this session we will cover brief description about the requirement of What is return on investment? Its linkage with Six Sigma  so that a basic platform can be set to access next step. So requesting to you if you want to learn about What is return on investment? Its linkage with Six Sigma  this so please read this article carefully from beginning to end and I am confident that your attention during reading surely enhance your skill about What is return on investment? Its linkage with Six Sigma and as we know we all carried out these things in routine basis. It means your knowledge will enhance and your competency will upgrade .

 

In this article you will be able to know about :

  • Six sigma and profit
  • Introduction to Return on investment
  • Type of investment
  • Calculation of return on investment
  • How to measure return on investment

 

Six sigma and profit:

As the word describe it self that six sigma and profit it means there is very strong relation between profit and six sigma .

As we all know about six sigma methodology is used for improvement in processes of organization so that finally organization improved its productivity and quality etc. It will depand on project selection during improvement . sigma is proven methodology for cost saving it means we can say that if we are going to start any project with six sigma it will surly give the profit to organization. Also with profit it also promote an culture for improvement in organization so that the people will more focus on projects which will leads to a improvement process in organization which will leads to zero PPM in manufacturing .So finally customer satisfaction will be enhanced brand image of company will be improved.

What is return on investment? Its linkage with Six Sigma  :

As the name describe the whenever any organization is going to invest some money on particular item or process /machine etc.

So he want to back that invested money with profit.

This process of adding money by considering the desire of getting profit on invested money named as return on investment .

In simple words if we are going to buy some product we considering that product will be useable for long time without so much repair and all.

Investment can be type of :

The investment based on which an organization want return.as we know investment is amount of money spent on an process by an organization. Here are few kind of investment which are mentioned below :

 

• New project investment .

• Investment for Improvement in running process performance.

• Investment for making nonconforming product ok

And if we talking about investment in respect of quality there is two type of investment

Cost invested for prevention and cost invested for detection.

Prevention cost:

It is defined as the cost which is invested to prevent the generation of defect in process called as prevention cost some of example prevention cost are mention below cost invested in installation poka yoke at generation point ,installation new machine with high technology etc.

Detection cost :

It is defined a s the cost which is invested to detect the non conformity into process we also can say that this is the cost which an organisation is investing on inspection facilities some of the example for detection cost are rework cost, Repair cost,Re inspection cost ,hundred percent inspection ,200% inspection etc.

In respect of return on investment the cost invested on prevention will give the the return but the cost invested on detection is just we can say wastage it will not give any return.

Cost invested in prevention makes the quality free after a certain period but the cost invested in detection increase the amount of cost quality because it is extra cost addition to process.

Six Sigma focus on investment in prevention not on detection so that project started by using Six Sigma approach always gives huge return as compare to other.

Calculation of Return on investment:

In this section you will be know about formaula for calculating the project.As we taking about return on investment in this topic with respect to six sigma. SO the return on investment is to be calculated in any project which his taken by six sigma enhancement. It is a true indicator of six sigma which his tell about how much gain or loss will be happen after selection of project .Return on investment is typically know about either the project will be beneficial or not

Here is the simple formula for calculating return on investment (ROI)

Project ROI = (Fina.loss or gain – Project Cost / Project Cost) X 100.

 

With the help of this formula we can easily calculate the return on investment of any project.

How to measure return on investment :

As we six sigma project are break through improvement in an organization so iit required some kind of investment .and this investment will give return over a period of time to that organization with the help of calculation you can estimates the amount of profit that will be earn by organization over a specific period of time .For this calculation we have to make categories for cost saving and finally after adding all such categories we can get final return on investment.

It also add value in sense of customer satisfaction ,employee satisfaction ,process improvement ,new business opportunities and market image of organization etc.

Thanks for your patience and concentration during reading the topic, Hope you like this topic and the explanation of topic ,wish it will add up values in your competency and enhance your confidence to impart this practice in your professional carrier. We will meet soon with another topic for enhance basic skill which is required to fulfil the professional requirement. In case of any query or suggestion you can write us in comment box .

Thanks again for reading this topic. Hope you enjoyed this and it added some value in your knowledge.

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