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Financial performance stands as a fundamental cornerstone within an organization's framework. Evaluating the success of a Six Sigma project revolves around gauging the extent to which the organization reaps tangible value from the deliverables of the project.

Different financial measures

Here are several significant financial metrics that organizations utilize to evaluate or predict their financial performance:

• Revenue growth
• Margin
• Market share
• Net present value (NPV)
• Cost of quality (COQ)
• Return on investment (ROI)

Revenue growth pertains to the projected increase in earnings resulting from project implementation. This calculation involves subtracting costs from gross income. The growth can be expressed as a percentage per annum or as a dollar amount per annum.

Market share denotes the portion of an organization's total sales within a specific market for a particular product or service, relative to the sales of all other organizations in that market. These metric gains prominence, especially during economic downturns, as it aids the organization in predicting its near-term and future advancement. For example, if an organization maintains a significant market share for a product during a market slowdown despite lower sales, it can confidently anticipate future sales growth.

Margin is computed as the variance between revenues and expenses.

Cost of Quality encompasses appraisal, prevention, external failure, and internal failure costs.

• Appraisal cost arises from process inspection.
• Prevention cost results from proactive failure prevention activities.
• External failure cost arises from customer-use product failures.
• Internal failure cost originates from organizational failures.

Investing in prevention is typically seen to reduce overall quality cost, as failure and appraisal expenses diminish.

Net Present Value (NPV) The formula for calculating the net present value (NPV) of a future amount involves utilizing the concept of time value of money to evaluate long-term projects.
                P = A (1 + i)- n; where:

P represents the net present value (NPV),

A signifies the future amount to be received in "n" years from the present time, and

i represents the annual interest rate expressed as a decimal.

Return on Investment (ROI) is primarily employed to assess an organization's ability to leverage
its resources for generating revenues. It stands as one of the most prevalent financial metrics.

The computation of ROI follows this formula:
ROI = (Net Income / Total Investment) x 100%.

Here, net income encompasses both the earnings anticipated or already earned from the project, along with cost savings achieved by averting certain expenses. Investment pertains to the capital required for project execution.

Another approach to ROI involves determining the "amortization" period, indicating the duration within which the organization can recoup the invested capital from the project. Consequently, this concept is also recognized as the "payback period."

Payback Period represents the time needed for an organization to recover its initial investment. When choosing a project, prioritize those with a shorter payback period.

Financial (hard) and non-financial (soft) benefits

Hard benefits refer to quantifiable financial gains, such as cost savings or avoidance. Soft benefits encompass non-financial gains that are challenging to quantify, like customer satisfaction, reduced delivery times, enhanced employee morale, and organizational prestige.
The categorization of hard and soft benefits can differ across organizations. For instance, cost avoidance may fall under either category based on the organization's nature. Some entities prioritize soft benefits over hard benefits, perceiving them to hold substantial future value.

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