Tools for Analyzing Soft Cost Reductions Part 1: Value-Added vs. Non-Value-Added

tools solar soft cost reduction

Soft costs. While analysts have been long on talk analyzing what they are and how they are impacting the industry, they have been short on solutions. Why? Because residential solar is, by nature of its need to interface with a varied landscape of regulatory and policy issues, a complex business. It is equal parts finance, construction, and high-tech.

Since there is no common formula to apply to reduce soft costs nor a single soft cost category that should be universally tackled first by all companies, installers should use a more individualized approach to evaluate their project delivery process for cost reduction areas. This is the first part of a three-part series on analyzing your business using tools and techniques from Lean.

Who is the Customer?

In order to begin categorizing waste activities, employees must identify and understand their internal customers and the final customer. These relationships are key to meeting customer expectations. For example, design staff drafting plan sets must meet the needs of the AHJ, Utility, installers, and the final customer. Without seeing the AHJ, Utility, and installers as customers of their product, the designer could overlook important safety or design requirements in order to meet a customer-specified design constraint, which could cause rework and delays if in conflict with AHJ or Utility requirements or real-world installation practices. When each employee frames the recipient of their work as a customer, they are more likely to see how their activities could be value-added or non-value added. When framed in this way, management can also work more intelligently together to streamline handoffs and minimize or remove re-work related to misalignment of goals.

What Defines “Non Value-Added?”

A value-added process is an activity that a customer is willing to pay for that contributes to the end product they expect. Non value-added processes, on the other hand, fall into two categories - business requirements and pure waste. Business requirements comprise the overhead of the company: your fleet of vehicles, HR activities, compliance-related activities (especially if you deal with finance or credit). Examples of pure waste are excessive coordination meetings, generating reports that are not read or acted upon, multiple layers of approval, and any kind of rework.

One can categorize and learn to see Non Value-Added activities by understanding the 7 Forms of Waste, which we will explore in greater detail in our next segment.

Posted on May 6, 2014 and filed under operations.