Creating a systematic process for design is important for any business – whether it’s designing a new product, creating a new process or leading a new service proposition. Design projects need to be structured to reduce risk, in-build efficiencies from day one and to ensure optimal financial return. But once you have selected your DFSS project and learnt the tools, how do you make sure you can track its success and optimize the business results?

1. Delivering Better Financial and
Business ROI on DFSS Projects
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2. Agenda
What we will cover today:
- Performing financial analysis on DFSS projects
- Performing sensitivity analysis on financial analysis
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3. Performing Financial Analysis
on DFSS Projects
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4. The DFSS Process: DMADV
Define Measure Analyze Design Verify
Design satisfies VOC
Opportunities & Goals
Product/Service/
Process Options
Sub-systems, inputs,
processes
Voice of Customer
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5. The DFSS Process: Tollgate Reviews
Define Measure Analyze Design Verify
Review Customer CTxs (Requirements)
Review Financial Analysis
Review Project Risk
Review Resource Needs
Review Timeline
Approve Review Approve Approve
Charter Close Project
Charter Concept Investment
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6. Financial Analysis
Define Measure Analyze Design Verify
Validate
Initial Financial
Financial Performance
Analysis Update & Review
Financial
Analysis
Update & Review
Financial Financial Analysis
Sensitivity
Analysis
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7. Key Financial Metrics
There are a few key financial metrics to measure the financial
benefits of DFSS projects
The most popular are the following:
• Net Present Value (NPV)
• Internal Rate of Return (IRR)
• Payback Period
• Cost Income Ratio (CIR)
• Return on Investment (ROI)
• Return on Capital Employed (ROCE)
etc.
Make sure that you use metrics that are well
understood in your business
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8. The Basics
Profits = Revenue - Costs
Revenue = Price x Volume
Costs = Variable Costs + Fixed Costs
Variable Costs are costs that are directly proportional to the
number of units produced; this can be raw materials, utilities,
labor etc.
Fixed Costs are essentially constant and independent from
number of units produced; this can be depreciation, R&D costs,
advertising costs etc.
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9. True Product or Process Costs
True product or process costs are a function of Bill of
Material costs and:
Costs of defects and rework costs to correct defects
Inventory carrying costs
Scrap costs
Inspection and other appraisal costs
Warranty costs
Idle resources costs, etc.
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10. Most Popular Financial Metrics
NPV (net present value)
n
NCFt
NPV  
t 0 1  i 
t
NCF – Net Cash Flow, t – time period, i – cost of capital
IRR n
NCFt
0
t 0   i 
t
1
i – Internal Rate of Return
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11. Sensitivity Analysis
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12. Financial Analysis
Define Measure Analyze Design Verify
Validate
Initial Financial
Financial Performance
Analysis Update & Review
Financial
Analysis
!
Update & Review
Financial Financial Analysis
Sensitivity
Analysis
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13. Sensitivity Analysis - Basics
Sensitivity Analysis is the study of how the uncertainty in the
output of a model can be apportioned to different sources of
uncertainty in the model input
In our case the output of the model is selected financial metric
(i.e. NPV, IRR)
Potential sources of uncertainty in the model inputs are related
to volume, selling price, fixed costs, variable costs and cost of
capital
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14. Sensitivity Analysis - Example
Company ACME wants to launch product X
They believe that they are able to sell the product for 0.55 per
unit, they also believe that they are able to sell 120 units
They assume that fixed costs will be 20 and variable costs 0.35
per unit sold
Using these assumptions, the “most likely case” or “base case”
profit is:
120 x 0.55 – 20 – (120 x 0.35) = 66 – 20 – 42 = 4
But………..
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15. Sensitivity Analysis - Example
The volume of products can be between 50 and 200
Average selling price can be between 0.5 and 0.7
Estimated variable cost can be between 0.32 and 0.4 per unit
Estimated fixed costs can be between 15 and 25
In such a case we are not sure to have profit of 4
The potential profit is impacted by uncertainty in our
assumptions around inputs/errors
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16. Sensitivity Analysis - Example
25
20
15
10
Best
5
Worst
0
ASP Volume VC FS
-5
-10
-15
In this case we should first focus on volume of the products
sold
We need to take actions in the next stages of the DFSS project
to reduce uncertainty related to volume
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17. Sensitivity Analysis
1500
1000 Investment
Volume
FC
VC
500
Price
NPV (MM-$)
0
25% 75% 125% 175%
-500
-1000
-1500
In this case NPV is the most sensitive to price fluctuations
NPV is least sensitive to investment
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18. Financial Analysis – Summary
Develop cost and benefit model for the project that includes all
direct and indirect costs and all sources of benefits
Never present “Best Case” or “Most Likely Case” scenario only
Document all of your assumptions
Perform sensitivity analysis to determine which assumptions
have the most significant influence on the financial results of
the project
Make appropriate changes to the project objectives, project
plan and resource plan
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19. Learn more about DFSS
Classroom courses in Europe
• 25-29 June, Amsterdam: Full 5 Day Training Course
• 24 May, Brussels: One-Day Innovation Workshop
More information: http://www.bmgi.com/training
“I had hit a wall with DMAIC... with DFLSS I now have a new
arsenal of new tools for breakthrough.”
Master Black Belt, Siemens VDO Automotive
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20. Questions & Answers
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