Executive management support fosters project success. Providing management with the economic opportunity (potential) of a project helps get management's attention. One calculation of economic opportunity shows the result of reducing the gap between average performance and exemplary performance in a given work group. One calculation method is to:

• Quantify performance e.g., units per hour (UPH)
• Qunatify cost e.g., dollars per unit (including benefits, overhead, and material costs)
• Quantify profit e.g., dollars per unit
• Show the difference between the current profit and potential profit on an annual basis

EXAMPLE

• The average performers in this department produce shippable product at a rate of 95 UPH. The exemplary performers produce at a rate of 145 UPH.
• Wages and benefits, etc. = $17 per hour. The materials used cost $2 per unit. The price per shipped unit = $3.
• There are 75 average performers and 2 exemplars.

The economic potential calculation follows.

Current Annual Profit	Potential Annual Profit
Cost	Cost
	90% of 145 UPH = 131 UPH
Average Performer $17/95 UPH = $.18 labor cost per unit $.18 labor + $2.00 materials = $2.18 unit cost Exemplar $17/145 UPH = $.12 labor cost per unit $.12 labor + $2.00 materials = $2.12 unit cost	Average Performer $17/131 UPH = $.13 labor cost per unit $.13 + $2.00 materials = $2.13 unit cost Exemplar (remains the same) $17/145 UPH = $.12 labor cost per unit $.12 labor + $2.00 materials = $2.12 unit cost
Profit Per Unit	Profit Per Unit
Average Performer $3 price - $2.18 cost = $.82 unit profit Exemplar $3 price - $2.12 cost = $.88 unit profit	Average Performer $3 price - $2.13 cost = $.87 unit profit Exemplar (remains the same) $3 price - $2.12 cost = $.88 unit profit
Annual Units	Annual Units
Average Performer 75 avg perfs x 95 UPH = 7125 UPH 7125 x 2000 Hrs/Yr = 14,250,000 units Exemplar 2 exemplars x 145 UPH = 290 UPH 290 x 2000 Hrs/Yr = 580,000 units	Average Performer 75 avg perfs x 131 UPH = 9825 UPH 9825 x 2000 Hrs/Yr = 19,650,000 units Exemplar (remains the same) 2 exemplars x 145 UPH = 290 UPH 290 x 2000 Hrs/Yr = 580,000 units
Annualized Profit	Annualized Profit
Average 14,250,000 units x $.82 = $11,685,000 profit Exemplar 580,000 units x $.88 = $510,400 profit	Average 19,650,000 units x $.87 = $17,095,500 profit Exemplar (remains the same) 580,000 units x $.88 = $510,400 profit
$11,685,000 510,400 ----------- $12,195,400	$17,095,500 510,400 ----------- $17,605,900

Potential Profit Increase

$17,605,500 - $12,195,400 = $5,410,500 potential increase in profits by creating interventions that improve average performance to 90% of exemplary performance.

Note that any increase realized will be less the project implementation costs and any ongoing costs. This also assumes that the company has the sales to absorb the increased production.

Performance improvement initiatives in flat or declining markets are covered in another paper, Handling Improvement