Edition No. 11
Increasing the ROI of Your Ergonomics Program
Calculating return on investment (ROI) is often a complicated task, especially when ergonomics is the subject. Many companies begin investing in ergonomics only after an injury occurs. But risk-based companies understand that problems can lurk underneath the surface even if injuries haven't yet happened. And they are using real, practical ROI evaluations to determine the savings that ergonomic programs can have in their corporations.
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Optimizing Efficiencies
Manufacturing excellence programs, like LEAN or SixSigma, optimize manufacturing efficiencies by eliminating waste. Ergonomics that identify a "waste of motion" or motions that can increase risk of injury, can save time (and reduce costs) in a manufacturing process. Unfortunately, most ergonomic programs are purely consequential. The risk is not addressed until there is a consequence, typically an injury. Proactive companies look at the risks; they ask to see the site risk map to determine risks, not the medical log to determine injuries. Then they look at the ROI of eliminating them.
An actual case study may help to illustrate the point. Through repeated assessments of risks and ergonomic improvements, an East Coast manufacturer of scientific instruments reduced the cycle time in one section of their manufacturing process by 37% with only a $5,000 investment in ergonomics. That's an impressive improvement by any standard, but fairly misleading when discussing ROI without further explanation.
What does that 37% represent, really? Let's translate the percentage to hard, fast numbers. If the manufacturing process could produce 53 parts per hour before the ergonomic improvements, a 37% increase would hike that figure to 72 parts per hour after the improvements. If the parts generated revenues of $15 per part, that 37% increase would produce $498,000 of revenue per year, a substantial increase in productivity. Even with a rudimentary ROI calculation, it would be a terrific return on the original $5,000 investment.
Value-Added vs. Non-Value Added Tasks
One distinction to notice when calculating ROI is the difference between "value-added tasks" and" non-value-added tasks." Value added tasks in a manufacturing process change the end product so it sells better--it adds value to the product. For example, inserting an ink cartridge in a ballpoint pen affects the marketability of the end product; it wouldn't be of much value without it. Non-value added tasks do not affect the end product; they are just a part of the process to manufacture it. In this example, all of the preparation of the ink cartridges that didn't affect their performance before they were inserted into the pen could be an example of a non-value added task. It may or may not be a necessary part of the manufacturing process, but it adds no value to the product itself.
By reducing or eliminating non-value-added actions, the risk profile goes down and the time it takes to perform the task is reduced. Tapping into the "human efficiency" factor can capture time savings. Ergonomics can help produce the product faster, cheaper or with a higher quality--all keys to determining ROI.
Often times when calculating ROI, several factors are neglected. Items such as corporate overhead, sales and marketing expenses and some direct expenses (like maintenance costs, for example) should be factored into the equation. A good web site to help in ROI calculation is http://www.businesscase.com which can supply software and other tools to help make ROI practical and understandable. Also, if the payback on ROI is more than one year, you should calculate in the cost of money. For example, if we had taken the $5,000 mentioned above and invested it, say at a 10% return, and the improvements took more than a year to be realized, the cost of the improvements was actually more than $5,000. It cost the company the $5,000 and the unrealized gains that money would have made had it been invested elsewhere.
For More Information on Ergonomics
At EORM we use, among other things, three distinct tools to help determine ergonomic risk, solutions, and ROI. The first basic screening tool is called START, System To Assign Risk Threshold. The second, a more detailed assessment tool, is STEER, System To Evaluate Ergonomic Risk. And the third, PASS (Productivity Analysis Sequence Simplification), allows you to look at the impact of productivity solutions. For more information on these tools or to find out how EORM may help evaluate your ergonomic risks and ROI, please contact us.
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