Free tool
Kaizen savings calculator
A kaizen savings calculation turns what an improvement changes on the floor, such as minutes saved, scrap avoided and other costs cut, into money per year, and sets that against what the change cost. Net annual savings are the yearly savings minus any running cost, and the payback period is the one-time cost ÷ net annual savings × 12 months.
Labour savingsequalsMinutes saved × Times per year divided by 60 × Labour cost per hour
Net annual savingsequalsLabour + Scrap avoided × Cost per unit + Other − Running cost
Payback (months)equalsOne-time cost divided by Net annual savings × 12
First-year ROIequalsNet annual savings − One-time cost divided by One-time cost
All people together, per unit, order or changeover
Units, orders or changeovers a year
Loaded: with benefits and taxes
Scrapped or reworked units no longer made
Material and work lost on each one
Material, energy, overtime, freight
Parts, fixtures and the team's hours
What it costs each year to keep going
Pre-filled with the worked example. Enter 0 for anything that does not apply. Use figures Finance would sign off.
Net savings per year
$16,000
$16,500 saved a year, less $500 running cost.
Payback
4.5 months
One-time cost ÷ net savings × 12
First-year ROI
166.7%
(Net savings − one-time cost) ÷ one-time cost
First-year net
$10,000
Net savings − one-time cost
Labour hours freed
300 h
Per year
Where the yearly savings come from
Next step
Want to track this every week?
Bring this result to a 45-minute demo and we will show where it fits in LeanSuite's Continuous Improvement Software.
How to calculate it
Measure before and after, then price it
Labour time saved comes from timing the task before and after the change. Multiply by how often the task happens in a year: units made, orders picked, changeovers run. Count everyone involved, so two people each saving a minute is two minutes.
Scrap avoided is the drop in scrapped or reworked units per year, priced at what each one cost in material and work. The COPQ calculator puts a total on poor quality if you need the bigger picture.
Other savings cover anything else that costs less each year, such as material, energy, overtime or freight. One-time cost is what it took to make the change, including the team's hours, and running cost is what it costs every year after.
Keep hard and soft savings apart when you report them. Hours freed are capacity, and only become cash when they cut overtime, avoid a hire or make output you can sell.
Worked example
Illustrative numbers, not a benchmarkA kaizen on a packing line takes 1.5 minutes of labour off each of 12,000 orders a year, at a loaded labour cost of $35 an hour. It also stops 400 parts a year being scrapped, at $12 each, and saves $1,200 a year in packing material. It cost $6,000 to make and costs $500 a year to keep going.
- 1Labour = 1.5 × 12,000 ÷ 60 = 300 h × $35 = $10,500 a year.
- 2Scrap = 400 × $12 = $4,800 a year. Other = $1,200.
- 3Net annual savings = $10,500 + $4,800 + $1,200 − $500 = $16,000.
- 4Payback = $6,000 ÷ $16,000 × 12 = 4.5 months.
- 5First-year ROI = ($16,000 − $6,000) ÷ $6,000 = 166.7%.
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<p style="font:13px/1.4 sans-serif"><a href="https://www.theleansuite.com/tools/kaizen-savings-calculator">Kaizen savings calculator</a> by LeanSuite</p>How LeanSuite helps
LeanSuite's Continuous Improvement Software records hard and soft savings next to each project's costs, sets yearly targets per department and shows closed and projected savings against target on a glide path.
See Continuous Improvement SoftwareRead more
- Free template: Cost savings tracker
- Free template: Kaizen event preparation checklist
- Kaizen in the lean glossary
- Kaizen: The Complete Beginner’s Guide to Continuous Improvement
- Payback period in the lean glossary
- Hard and soft savings in the lean glossary
- Benefits of Kaizen: 6 Advantages in Manufacturing
- Ditch Spreadsheets: Track Your Kaizen Wins with Real-Time Metrics
FAQ
Kaizen savings calculator: common questions
Price each thing the change improves for a year and add them up. Labour: minutes saved each time × times per year ÷ 60 × the loaded hourly cost. Scrap: units no longer scrapped × cost per unit. Then add any other yearly savings and take off what it costs each year to keep the change going. Saving 1.5 minutes on 12,000 orders at $35 an hour is 300 hours, or $10,500 a year.
Payback in months = one-time cost ÷ net annual savings × 12. A change that cost $6,000 and saves $16,000 a year net pays back in 6,000 ÷ 16,000 × 12 = 4.5 months. If the running cost is as large as the savings, it never pays back.
This calculator uses first-year ROI = (net annual savings − one-time cost) ÷ one-time cost, so 0% means the change has just paid for itself in its first year. With $16,000 of net savings and a $6,000 cost it is (16,000 − 6,000) ÷ 6,000 = 166.7%. Some teams divide the full year's savings by the cost instead, which gives a higher figure, so say which one you report.
Hard savings show up in the accounts as money not spent: less material, less scrap, less overtime, a temp not hired. Soft savings are real gains that do not cut spending on their own, such as hours freed or a cost avoided. Labour time saved is a soft saving unless it removes overtime or extra staff, or the freed hours make output you can sell, so many finance teams list it separately.
Because small changes add up. A few minutes saved on a task done thousands of times a year is often worth more than one large project, and a running total of savings is what keeps support for continuous improvement when budgets get tight. Agree the rules with Finance first, such as how long a saving is counted and which savings count as hard, so the totals are trusted.
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