Hard Savings vs Soft Savings—What’s The Difference?
One of the key strategies for lean organizations is getting an accurate read on the return on investment (ROI) that their operations are generating. Understanding which activities are generating hard savings and which ones are driving soft savings is a crucial part of this process.
In this article, we’ll look at the main differences between hard savings and soft savings to better understand how to calculate your ROI. We’ll also take a deep dive into some of the Lean principles behind calculating this vital metric, and discuss how both hard and soft savings can contribute to long-term success. By understanding both categories of savings, you’ll be able to make more informed decisions about what actually counts when it comes to making profit.
Hard Savings vs Soft Savings—What Can Be Counted?
When it comes to savings, it’s important to understand the difference between hard savings and soft savings. Hard savings are tangible and can be easily measured in terms of dollars saved, whereas soft savings are less tangible and often involve non-monetary benefits. In a lean process, hard savings tend to be prioritized over soft savings, as they are more easily quantifiable. Some examples of hard savings include reducing material costs or increasing efficiency, while soft savings might include improving customer satisfaction or reducing employee turnover. It’s essential to recognize the value of both hard and soft savings, as they both contribute to overall success. As the saying goes, “What gets measured gets managed.” However, it’s important to remember that not everything that counts can be counted. An organization must strike a balance between measuring and acknowledging both hard and soft savings.
To make things easier, let’s break down hard savings vs soft savings further:
Hard Savings
– Tangible and easily measurable
– Consist of real, direct cost savings
– Impact the financial statements
Soft Savings
– Less intangible and harder to quantify
– Consist of indirect cost savings or benefits
– Focus on improving non-financial metrics
💡 key Takeaway: In conclusion, both hard savings and soft savings are essential for an organization’s success. While hard savings tend to be prioritized due to their tangible nature, it’s crucial to recognize the value of soft savings in terms of non-monetary benefits. By measuring both hard and soft savings, an organization can manage and maximize its resources effectively.
What is the Difference Between Hard Savings and Soft Savings?
When it comes to measuring savings, it’s important to understand the difference between hard savings and soft savings. Hard savings are quantifiable, measurable, and easy to tie to the bottom line. Examples of hard savings include reducing labor costs, reducing material costs, or increasing productivity in a way that can be measured tangibly.
Soft savings, on the other hand, are more difficult to quantify and may not have an immediate impact on the bottom line. Examples of soft savings include improving employee morale, enhancing customer satisfaction, or improving product quality. While these may not contribute directly to the bottom line, they are still important to measure and track as they can ultimately influence the overall health of the business.
It’s important to note that some soft savings can eventually morph into hard savings with sustained effort. For example, reducing employee turnover (a soft saving) can eventually lead to tangible savings through the reduced need for recruitment and training of new employees (a hard saving). Therefore, it’s crucial to monitor soft savings closely and leverage them to achieve hard savings.
💡 key Takeaway: Hard savings and soft savings are two different ways to measure savings. While hard savings are quantifiable and easy to measure, soft savings can be more difficult to measure as they are not directly tied to the bottom line. It’s important to monitor both types of savings as some soft savings can eventually turn into hard savings, and are therefore important to track carefully.
How Can We Measure Hard Savings and Soft Savings?
One of the challenges of measuring savings is determining whether they are hard savings or soft savings. Hard savings are tangible cost reductions, often resulting from process improvements, that can be measured accurately and quantifiably. Soft savings, on the other hand, refer to improvements in efficiency, quality, or customer satisfaction that are more challenging to quantify. Identifying the difference between hard and soft savings is critical, as it helps organizations allocate resources and prioritize continuous improvement initiatives. For instance, process improvements that lead to hard savings may be prioritized over initiatives that may result in soft savings. However, soft savings can be just as valuable, if not more so, than hard savings, as they can lead to improved employee morale, customer loyalty, and brand reputation.
To determine whether a saving opportunity is a hard saving or a soft saving, organizations need to establish clear parameters for savings measurement. This can be done by defining metrics and key performance indicators (KPIs) at the outset of the initiative. Hard savings can be measured by collecting data on the current cost of specific processes or activities and then tracking any reduction in those costs after improvements have been made. Soft savings, on the other hand, require a more nuanced measurement approach that might involve gathering qualitative data such as customer feedback, employee satisfaction surveys, or focus group results.
💡 key Takeaway: Understanding the difference between hard savings and soft savings is critical to prioritizing improvement initiatives and allocating resources effectively. While hard savings are tangible and quantifiable, soft savings can be equally valuable in terms of driving employee engagement, customer loyalty, and brand reputation. By establishing clear metrics and KPIs, organizations can accurately measure and track savings over time.
Why is it Important to Measure Both Hard and Soft Savings?
Measuring savings is a crucial aspect of determining the success of a business and its processes. Traditionally, savings have been classified as hard savings or soft savings. Hard savings are those that can be quantified and measured in monetary terms, such as cost reductions in materials, labour, or energy that can be tracked and included in financial statements. Soft savings, on the other hand, are intangible and harder to quantify. They may include improvements in customer satisfaction, employee morale, or increased efficiency that can result in long-term benefits for the company.
While hard savings may be easier to quantify, it is important to measure both hard and soft savings. Hard savings can provide short-term financial benefits to organizations, while soft savings can provide long-term benefits that allow a business to maintain growth and success over time. In fact, many soft savings can ultimately translate into hard savings over time.
Measuring both hard and soft savings also allows for a more comprehensive understanding of organizational performance. It can provide insight into areas of inefficiency or waste that can be improved upon, as well as areas of success that can be replicated in other parts of the business.
Using key performance indicators (KPIs) can help businesses track both hard and soft savings. Examples of KPIs for hard savings include cost per unit, labor productivity, and energy usage per unit of output. Examples of KPIs for soft savings include employee satisfaction, customer satisfaction, and time saved through process improvements.
Measuring both hard and soft savings is crucial for determining the success of a business and its processes. While hard savings may be easier to quantify, soft savings can provide long-term benefits that translate to overall growth and improved performance. By using KPIs to track both hard and soft savings, businesses can gain a more complete understanding of their organizational performance.
💡 key Takeaway: Measuring both hard and soft savings is crucial for a business’s success, and using KPIs to track both can provide a comprehensive understanding of organizational performance.
Lean is All About What Can Be Quantified and Measured
When it comes to measuring savings, it’s important to understand the difference between hard savings and soft savings. Hard savings refer to direct cost reductions that can be quantified and measured with real numbers. Soft savings, on the other hand, are more difficult to quantify and may not result in immediate monetary benefits. As Lean principles focus on what can be quantified and measured, hard savings are often prioritized over soft savings. However, soft savings can still bring valuable benefits to an organization. For example, improving employee morale or reducing waste may not result in immediate cost savings, but can lead to long-term benefits like increased productivity and better customer satisfaction. It’s important to keep both types of savings in mind when evaluating the success of a Lean program.
To differentiate between the two types of savings, it may be helpful to use specific examples. Hard savings could include reducing expenses on supplies or materials, while soft savings could include improving communication between departments. Another example of a soft savings opportunity could be optimizing a process, which may not lead to immediate monetary savings, but can lead to better quality and fewer mistakes, thus indirectly reducing costs.
It’s important to note that just because some savings are more difficult to quantify, that doesn’t mean they should be ignored. In fact, focusing solely on hard savings could lead to overlooking valuable opportunities for improvement. A comprehensive Lean program should prioritize both hard and soft savings to fully optimize an organization’s potential.
💡 key Takeaway: While hard savings can be quantified and measured with real numbers, soft savings may not result in immediate monetary benefits but can still bring valuable improvements to an organization. It’s important to prioritize both types of savings to create a comprehensive Lean program.
How Can Hard Savings Be Quantified and Measured?
When measuring savings, it’s essential to distinguish between two types: hard savings and soft savings. Hard savings come in the form of actual reductions in costs, while soft savings are more difficult to quantify because they represent indirect improvements in productivity or efficiency. Some examples of hard savings include reductions in material costs, energy consumption, or labor costs. On the other hand, soft savings might come from improvements in employee satisfaction, better customer service, or reduced waste. A study conducted by Deloitte found that out of surveyed companies, only 28% focused on measuring both hard and soft savings, while 35% only measured hard savings, and 29% didn’t measure any savings at all. It’s important to measure both hard and soft savings to accurately determine the total value of the lean initiatives being implemented.
To calculate hard savings, companies can use a variety of metrics such as:
1. Cost reduction percentages: measures the percentage of cost savings achieved compared to the baseline.
2. Total cost reduction: tracks the total costs saved through the implementation of a program or initiative.
3. Return on investment (ROI): calculates the financial benefit of a project based on the amount invested and the returns generated.
Soft savings, on the other hand, measure productivity and efficiency enhancements that aren’t directly tied to cost savings. While soft savings may be more challenging to measure, companies can still track and evaluate their success by using metrics such as:
1. Employee retention, satisfaction, and engagement: tracking these metrics can help assess how much soft savings a company is achieving in relation to employee productivity.
3. Reduction in waste and non-value added activities.
💡 key Takeaway: Measuring both hard and soft savings is essential to understand the total value of the lean initiatives being implemented. Hard savings are quantifiable and measured through metrics such as cost reduction percentages, total cost reduction, or ROI analysis. Soft savings are more challenging to quantify but can be measured through enhanced productivity, employee retention, waste reduction, and customer satisfaction scores.
How Can Soft Savings Be Quantified and Measured?
Soft savings refer to intangible benefits that are not easily quantified but are still valuable for businesses. These types of savings could include improvements in employee morale, increased customer satisfaction, and enhanced company reputation. While these benefits may not have a direct monetary value attached to them, they can still have a substantial impact on a company’s bottom line in the long run. So how can businesses quantify and measure these soft savings? One way is by conducting surveys and receiving feedback from employees and customers regarding their satisfaction levels. In addition, tracking social media mentions and engagement can be helpful in gauging a company’s reputation. Utilizing software that measures employee engagement, such as pulse surveys, can also provide insight into the soft savings a company is experiencing. By placing a value on intangible benefits, businesses can better understand the overall impact of their decisions and investments.
💡 key Takeaway: While soft savings may not be easily quantifiable, measuring and tracking them can provide valuable insights for a company’s long term success.
How Can We Measure the Impact of Hard and Soft Savings?
When it comes to measuring the impact of savings, it’s important to consider both hard and soft savings. Hard savings are those that can be measured in financial terms, such as actual cost reductions or increased revenue. Soft savings, on the other hand, are more intangible, such as improved customer satisfaction or increased employee productivity. As Lean methodology emphasizes the importance of quantifiable measurements, it’s easy to see why hard savings are usually given more weight. However, the reality is that both hard and soft savings are crucial for the overall success of a business.
Measuring Hard Savings
To measure hard savings, it’s essential to identify a baseline cost or revenue figure and then track the impact of the savings initiative over time. This can be done using various performance metrics such as ROI, net present value, and payback period.
Measuring Soft Savings
Measuring soft savings is somewhat trickier since they are more challenging to quantify. One way to approach this is to conduct surveys or gather feedback from customers, employees, or other stakeholders to track the impact of the initiative on their satisfaction, engagement, or productivity levels.
Ultimately, both hard and soft savings are essential for a business’s growth and success. Hard savings may be more tangible and easier to measure, but it’s crucial not to underestimate the impact of soft savings on the overall business. A balanced approach to measuring savings, including both hard and soft savings, can provide a more comprehensive view of the effectiveness of a savings initiative.
💡 key Takeaway: In measuring savings in a business, it’s critical to consider both hard and soft savings. While hard savings can be quantified using various performance metrics, measuring soft savings may require gathering feedback from stakeholders. A balanced approach to measuring savings can provide a more comprehensive view of a savings initiative’s effectiveness.
What Are the Challenges Associated With Measuring Hard and Soft Savings?
Measuring the success of a lean implementation relies heavily on the ability to quantify and measure savings. However, savings can be categorized into two types: hard savings and soft savings. Understanding the difference between the two is crucial. Hard savings are tangible and quantifiable cost reductions, such as reduced expenses or decreased labour costs. Soft savings, on the other hand, are intangible cost savings that might not directly reduce costs but increase efficiency or productivity, such as reduced cycle time or improved product quality.
Measuring hard savings is relatively straightforward since they can be easily identified and measured. However, the challenge with soft savings lies in its subjectivity, which makes it difficult to measure accurately. That being said, to track soft saving initiatives, it’s essential to establish performance KPIs for each initiative that offers insight into tangible areas of process improvement, as well as the associated soft savings.
Another issue when measuring savings is the risk of “gaming the system.” A company’s leadership might be tempted to manipulate metrics to produce favorable outcomes, which could lead to inaccurate data and ultimately impact the perception of the savings’ value. To avoid this, it’s necessary to establish metrics that provide accurate measurement while remaining unambiguous and immune to manipulation.
The last challenge associated with measuring savings is accountability. Even though management is responsible for ensuring the success of savings initiatives, actual implementation occurs at the operational level. To foster a culture of accountability at this level, it’s necessary to incentivize performance beyond completing tasks efficiently. Cross-functional collaboration and communication, as well as a common understanding of savings goals, help to foster accountability.
💡 key Takeaway: Understanding the difference between hard savings and soft savings, establishing accurate metrics, avoiding gaming metrics, and fostering an environment of accountability are essential for measuring savings accurately.
Conclusion
The post offers an in-depth look at how to set up and use performance indicators to measure the effectiveness of your savings programs. In order to make the most efficient use of your resources, it is essential to track and measure your progress. This information can be used to determine which savings programs are working best and how you can improve them. Setting and measuring performance indicators is an essential part of any savings program. By tracking and measuring your progress, you can ensure that you are making the most efficient use of your resources.