Chapter 6. Improve Your Analysis Skills

How Understanding Variation, Root Causes, and Factor Relationships Can Help You Cut Costs While Improving Quality

With Jeff Howard, John Smith, and Ken Feldman

A few years back, the transportation department of a modest-sized Midwest city began to wonder if there were ways to save money and gain greater flexibility around expenditures. Once funds from its budget—about $3 million at the time—were committed to a project, those funds were "locked up" and could not be spent other than on the project. The department created a team that studied the contracting process, and their data showed significant differences between the bid price and the actual price of most jobs: While some projects came in right on budget, many were below the bid price (by as much as 23 percent) and others came in way over the bid (by as much as 22 percent).

While the public would not benefit in a direct monetary sense from cost savings in this process, clearly the differences did carry a cost. If projects came in below the bid, funds that could be spent on increasing services were tied up and unavailable; if projects came in over the bid, the city had to scramble to find the extra money.

The team set to work and was able to significantly improve the bid-toactual costs. As a result of the team's data analysis, the city was able to free up nearly half a million dollars. In the public sector, that translated into additional service for residents. In the private sector, it would ...

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