Value Added Percentage Question

This is a rare “lean geek” post so for those of you who read for entertainment or diversion, please feel free to surf on and enjoy your weekend. To those of you for whom “data box”, “change loop” and “future state map” are pleasing sounds, please read on.

Yesterday I came across an example of a value stream whose numbers left me puzzled. The value added percentage was greater than 100. This seemed impossible at first but I now understand how it can happen. The process, the numbers and the details in the illustration above have been changed to protect the client’s privacy but the essence of the situation is the same.

In this example a there are three processes, each staffed by a 5 person team of physicians. They work in a continuous flow fashion for 30 minutes per process before moving the patient on to the next process. For the sake of the example and to make it close to the actual example from this week we will say that 20 minutes of the 30 minute cycle time is value added time, and also that the time is divided evenly between the 5 physicians such that the elapsed process time for the patient is 6 minutes (30 min / 5 physicians = 6 minutes). The lead time through process #1 is 6 minutes, while the value added time is 20 minutes. Processes #1, #2 and #3 have identical staffing and times for the purpose of this example. There is a 1 minute patient transport time between processes 1 and 2 and also between 2 and 3 which adds a total of 2 minutes to the lead time.

Totaling the numbers we have 20 min + 20 min + 20 min value added time = 60 minutes value added, and 6 mins lead time + 1 minute waiting + 6 mins lead time + 1 mins waiting + 6 min lead time = 20 mins lead time. Dividing 60 minutes of value added time by 20 minutes of lead time gives us 3 or 300% value added percentage.
The question I would like to pose is, “Does the value added percentage has any meaning for processes which allow for multiple actors (such as people or machines) to add value simultaneously to a single work piece (in this example the patient), and if it not does the value added percentage itself have any validity as a measure foe effectiveness of discrete, single-actor processes?”

18 Comments

  1. Joe Molesky

    July 16, 2009 - 8:21 am

    “Does the value added percentage has any meaning for processes which allow for multiple actors (such as people or machines) to add value simultaneously to a single work piece (in this example the patient)”
    To answer this simply I would say YES. But, the cycle time is not 30 minutes, it is 6. Why? If you remove one operator and redistribute the work load the cycle time does not stay the same it goes up by 72 seconds per operator. The mistake here is measuring VA and Cycle time as a group and lead time as a process. That is not accurate and is not effective. If you measure both the same then the analysis can be accurate.

  2. Robert

    July 16, 2009 - 9:36 am

    It looks like you are mixing units. You are comparing man-minutes to elapsed time.
    60 man-minutes/20 minutes is not a percentage but some other unit entirely.
    Basic dimensional analysis 😉

  3. Bruce Baker

    July 16, 2009 - 9:40 am

    Good question. I discounted VA % several years ago. I generally believe that total lead time is better. That is because generally my VA % would start at about 1% or less (usually much less) on a first current state map. We would do great work and take out significant NVA time and then be at 2%. I taught it to others and still calculate it today but have always advised people that directional change in TLT is a great trailing metric (should show good year over year improvment)because days and hours seems more concrete to the VS participants where a percentage is kind of soft and abstract to a lot of the people involved. Also, as pointed out earlier our VA%’s were so small (sometime two significant digits to the right of the decimal point in % format – 0.004% = 0.00004 in really bad cases) that it was alomst meaningless. I think it might make more sense as the % increases, but I still feel that TLT is good because that is what the customer feels in your case.
    Your questions brings up a larger more abstract question though. Is VA time as measured on a VSM intended to measure actual clock time that the part (person) is undergoing VA activities or is it meant to measure the amount of VA work performed on the person / part in units of time? I have usually prefaced initial VSM training by telling people that a VSM should capture the ‘experience’ of a molecule of your materials as it makes its journey from nature though to consumption and perhaps back in the case of reverse logistics (or patient in your case). If I have not mislead people then I would have to suggest that VA time is clock time spent while value is added to the material or patient regardless of how much value is added simultaneously by multiple actors or agents. I think that I come to this conclusion based on the fact that my experience is exclusively manufacturing and related support process (including HR, finance, IT, etc) where I have considered the VA time as a terrible indicator of any kind of cost. Therefore my approach has always been to move stuff faster by doing smaller more frequently transported batch throughout the extended VS – this means reduce TLT.
    I would note that I have always used elapsed time between parts to for cycle time and that was what I try to match to TAKT in order to get sync’d in order to allow flow. I have seen cycle time defined differently in different so that is probably just a difference in terminology.
    I anxiously await other comments on this posts and criticisms of my comment. This is a good mental excersize.

  4. Tim McMahon

    July 16, 2009 - 9:57 am

    No the percentage does not add value. What improvement would you make if you believe you are 300% value add to non-vlaue add.
    It doesn’t seem like the lead time is factured right. How can you have a lead time 6 min, value add 20 min, and a cycle time of 30 min. Doesn’t the lead time include the cycle time of hte process. It appear the patient experiences 30 minute cycle time from reading this not 6 minutes. If you look at is this way. The lead time is 92 minutes and the value add is 60 minutes. Recently in 65% value added percentage. The 6 min elapsed time does not make sense since ” They work in a continuous flow fashion for 30 minutes per process before moving the patient on to the next process”.
    This would drive improvement to get closer to the value added time which would be a result of eliminatin the non-value added waste.

  5. Dwane Lay

    July 16, 2009 - 11:12 am

    Isn’t there a flaw in the data here? If you have five people working for 30 minutes, wouldn’t you calculate that as 150 minutes of work time? Even working in parallel, it’s still man-hours that add up.
    Either that, or the map is combining six flows of work, but only reflecting a time measure for one of them. Either way, the numbers are wonky at best. Unless I have misunderstood the question, which is always a viable option.

  6. Bryan Lund

    July 16, 2009 - 2:08 pm

    Hi Jon,
    Interesting post. And yes, I’m not embarassed to say this post is entertaining reading for me!
    Value Stream Mapping is a very adaptable analysis tool, is it not? I’m trying to understand this example from the perspective of the customer while against the backdrop of the “classic” (if I may use that word regarding lean things) method of value stream mapping.
    For one, I don’t beleive the customer would say that he experienced 62 minutes of value added time, since the whole experience only lasted a total of 20 minutes. Sure, his bill will reflect the work of five doctors for six minutes each, plus two minutes of transport, or, 92 minutes total. Given this way of thinking, we can begin to understand now why hospital experiences are expensive.
    Since there is not a sum of “real” inventory lags in this example, which gives us the lead time in classic VS mapping, we must find an equivalent to determine the effectiveness of the VA time. The problem is we are comparing the speed at which services are rendered against the resources required to provide those services in a safe and timely manner. It’s kind of a meaningless ratio. Its kind of like dividing the average speed of a vehicle by the gas tank capacity. So, dividing up the cycle time may not be helpful as a point of comparison. It may be more useful to divide the total value added time + transport by the total cycle time. (62 min/92 min) x 100%, or, 67% of the work was Value Added if we assume getting the patient to the next step in a timely manner is value added. This gives us a percentage of VA time vs. Cycle Time, which I’m assuming is the VA time plus NVA. Is this true? If so, we can reduce the waste and the lead time will also shorten, which should be monitored closely for improvement.
    For example a 50% reduction in NVA work would be (62/77)*100 = 80%VA, up 13%. The new leadtime would be (77/3)/6= 3.4 minutes per process or a total lead time of 12.2 minutes or a reduction of ~40%. Would this method provide a better indicator of improvement in this scenario?

  7. Matt

    July 16, 2009 - 2:45 pm

    I would say no. Your example is changing the definition of time. You can’t get 20 minutes of VAT out of 6 min of processing (lead) time. Said another way, you can’t do 30 minutes of work in 6 minutes (unless you’re approaching the speed of light). The benefit of reducing cycle time from 30 min to 6 min by having 5 people process simultaneously has effectively reset the baseline. So, now 5 people are required to have 5 min of VAT during a 6 minute lead time. The value add percentage is 83%.

  8. Jon Miller

    July 16, 2009 - 5:54 pm

    Terrific thoughtful responses by everyone, but I am not sure my faith in the value added ratio has been increased yet.
    Joe – Cycle time is measured here from the point of view of the workpiece – the patient. The lead time is also measured from the same point of view, and the value added time like wise. Cycle time is not measured “as a group” but rather as the sum of all process inputs, or manual times. If that is the wrong approach, then how would we measure cycle time for an assembly process in which there were many people doing assembly work on a single large unit at the same station? We would definitely need to sum those manual cycle times and VA times, not just say that the elapsed time (lead time) equals cycle time.
    Robert – yes, I am comparing elapsed time (lead time) to manual time. That is the correct way to calculate value added ratio when making a value stream map: value added time / lead time. The units are the same, i.e. “time” or minutes in this case. Your point about dimensional analysis is well taken, and suggests that the value added ratio is not a meaningful number mathematically the way it is traditionally calculated.
    Bruce – you have captured the essence of the question. Lead time is “clock time” or elapsed time. Cycle time and VA time in this example are both “experience times” or the total time required to transform the workpiece (patient). We can collapse time (value added) in effect by stacking multiple people on the same process. That results in a seemingly nonsense value added ratio. But to say that value added is only 6 minutes per station seems absolutely wrong somehow, and if you had to start costing things that way… my head hurts.
    Tim – the lead time is not 92 minutes. That is the sum of all manual time plus waiting time plus moving time, but in fact the clocked lead time is 20 minutes. The “order to fulfillment” definition of lead time is used here rather than “total cycle time” because that is more useful in measuring the effectiveness of customer experience. My wording was not clear on the “They work in a continuous flow fasion for 30 min” because in fact there is 30 minutes of work done, but it only takes 6 minutes with 5 people.
    Dwane – again, my wording was not clear. The 5 people are spending 6 minutes each for a total manual cycle time (work content) of 30 minutes per station. The map is NOT combining six flows, since there is one flow from the point of view of the workpiece (patient) with 5 people acting in parallel at each stage of the flow.
    Bryan – “It’s kind of a meaningless ratio” gets to the heart of my question.
    Matt – I know it seems like we can’t get 20 minutes of VA time out of 6 minutes of lead time, but what if you went to a salon in a hurry and asked for a 10 minute manicure and a 10 minute haircut and shampoo at the same time, rather than wait and do them in sequence? Would you not have gotten 20 minutes of value add in 10 min? What if you went to get the oil changed in your car, and they were also able to repair a dent on your car and some chipped paint at the same time, using different people resources and tools? Your lead time is fixed, but the value is flexible? I know it seems like we are mixing value streams in these cases, but in the “service” world this is reality. If the patient in the example above had 5 surgeons on different parts of the body, it would still be one surgery with 20 minutes of doctoring packed into 6 minutes of clock time, would it not?

  9. Joe Molesky

    July 17, 2009 - 5:22 am

    Jon, thanks for the response to everyones post. I must say that as you describe the situation further it raises one question. If a doctor works on someone for 6 minutes, how can that all be value added? Beyoned that, if we maintain the pure defenition then the answer to your initial post is pretty clear and I agree with Bryan, “Meaningless”.

  10. Martin

    July 17, 2009 - 7:07 am

    It seems to me that the value lost is 10 minutes per proces, this goes for the 6 phycisians. So that is 60 minutes x3= 3 hours of time when there is no value added. So probably from a customer perspective the time taken to go through the processes seems to be customerfriendly, but like Jon mentioned is 1. dependable of what activities need to take place in the process and how many physicians are needed, and 2. is it acceptable to calculate 3 hours of non-added value to the customer?

  11. Jon Miller

    July 17, 2009 - 8:48 am

    Hi Joe – the assumption was that 20 of the 30 minutes were value added, so it would be 5 minutes not 6. Even if we said only 2 minutes or third of the 6 minutes were value added, 2 x 5 physicians/ station x 3 stations = 30 minutes so the value added ratio would be 150% (30 min value added time / 20 minutes lead time). If we suppose that 5 surgeons are each working on a leg, arm body or head injury, 5 minutes of hands-on time seems reasonable, if grim.
    Martin – not sure I follow you. There are 5 physicians per station and 3 stations. The non value added time would be 30 minutes cycle time – 20 minutes value added per station x 3 workstations (30 min) plus the 2 minutes of time between workstations.

  12. Robert

    July 17, 2009 - 12:21 pm

    Jon,
    The point I was getting at was the units you are calculating do not match the units of what you claim to be calculating. I don’t think the lack of meaning is just an artifact it’s built in to the calculation. You are not comparing elapsed time to manual time you are comparing elapsed time to effort. The manual time is only 4 mins per cell.
    Value added percentage strikes me as being one of two things
    either
    – the percentage of effort that is value add. A reasonable measure but would not include the time between processes. You could take a hybrid approach and assign the delay time as being equivalent to man time.
    or
    – the time spent on value added activities. This is simple and seems like an useful measure as well and would include time between process’s.
    Using the second I get 4 min out of 6 are value added in each cell and get total value added time of 12 min/ total time of 20 min for a 60% value added percentage. As an aside that time in the cell which you have called lead time I’ve always called cycle time. What you call cycle time I would have called effort.
    Robert

  13. Yildiz Biner

    July 17, 2009 - 3:56 pm

    This is basic, simple, trivial math. I don’t care whether you call it cycle time, lead time, experiential time, real time, or whatever other label you want to use; the elapsed time for the medical procedure is 20 minutes (6+1+6+1+6). Of the elapsed time, 15 minutes is value added (5+5+5). That gives a value added percentage of 75%.
    You don’t sum together the simultaneous times used by each separate doctor. Your confusion seems to stem primarily from not seeing the group of physicians as a unified operating system. You are calculating time expended by each part of the system separately and totaling them together, instead of calculating the amount of time expended by the system itself (with its parts working simultaneously) to complete its work.
    Suppose I run a mile in four minutes. I have two legs. Each expended four minutes during that run (all value added time). Does that mean that the value added time to run the race was eight minutes (as your logic would imply), calculated by summing the time run by each leg? Of course not. The system (me) expended four minutes. Period. Another source of your confusion comes from your concept that the patient would “have gotten 20 minutes of value add in 10 min.” So suppose Superman came into the process and took care of the patient through all 3 stages of the process, in 3 minutes total, all value added.
    Would you really see that as 20 minutes value added in 3 minutes and use that to calculate the percentage of value added time? I hope not. By replacing the 5 doctors with Superman, you have significantly changed the process and the standard value added time for that process (assuming repeatability and stability) is now 3 minutes. Analogous arguments apply to all the other examples you gave as well.
    Also, it is not possible to have 300% of something. By definition, the most you can have is 100% of something, and both the numerator and denominator used in calculating the percentage must use the same measuring units from the same measuring system. If something has a temperature of 100 degrees Fahrenheit, and part of that is caused by an agent that contributed 50 degrees Centigrade, it would be fallacious to say it contributed 50% of the temperature.
    It is possible to say something represents a 300% increase over something. For example, if I start with $100 and accrue another $300, that is a 300% increase. If a process went from 20 minutes to 60 minutes, that would be a 200% increase in time, not a 300% increase.
    Respectfully, Yildiz Biner

  14. Jon Miller

    July 17, 2009 - 8:03 pm

    Robert – I disagree that the manual time is 4 minutes per cell. The total surgery if performed by one person would take 90 minutes, of which 60 minutes is value added time, actually transforming the condition of the patient. There are 5 operators (physicians) but the manual time to complete the process is 20 minutes. By having multiple people working at the same process and dividing the tasks the time it takes to pass through the process is reduced, but skilled physician the actual time needed to complete the work is still 20 minutes.
    Imagine an assembly line for automobiles, to take a classic example. The total time to assemble a vehicle is about 20 hours of touch labor. The is the manual cycle time. The assembly line has multiple stations with multiple people, and the line may be paced at 60 seconds. We would never say that the cycle time is the 60 seconds it takes to complete one process step.
    I recognize that many people refer to “lead time” as “cycle time”. I should clarify that cycle time here is “process cycle time” and lead time is “total cycle time” from beginning to end. Value added time a measure o how much time the physicians spend actually adding value instead of preparing, searching or waiting. In this case I set the number arbitrarily at 20 min out of 30 min.
    In terms of the units not matching, the value added time is minutes/piece and the lead time is minutes/piece so I believe they do cancel out. I am not making up this calculation. It is a standard formula used in calculating the value added percentage. It may be a nonsense formula, and from a strictly mathematical point of view it may be invalid. That question is the point of this article.
    Yildiz – I suppose we could view the 5 physicians as one “machine” with separate components working together, and consider the shortest time – 5 minutes – as the value added time. However, running requires two legs at a minimum so I am not sure that example works. A value added process transforms the product or workpiece somehow, in the case of running it moves it through space. One leg cannot do that. One physician can do the entire 20 minutes of value added work. A proper example would be for one person to run a mile pulling a rickshaw in 10 minutes, and two people pulling it in 5 minutes.
    The assumption in the article above is that the surgical process in total takes 90 minutes of hands-on time if performed by one surgeon, of which 60 minutes is value added time in which the patient is being cut open, cleaned, closed up, etc. It is not possible to say that the value added time is 15 minutes because 60 minutes of value added labor content is required to operate on the patient, not 15 minutes.
    In the Superman example, you are correct, the value added time is now 3 minutes due to process improvement – a faster “machine” being implemented. This is exactly one of the problems with value added percentage. When the value increases (is delivered faster) the percentage actually gets worse!
    I agree with your point about 100% versus 300%. This is another beef I have with value added percentage. It should really be a ratio and not a percentage. To say for the example above “the value added time to lead time ratio is 3:1” is still highly unlikely but mathematically possible. I suspect the authors of the value added percentage chose “percentage” versus “ratio” because of the psychological impact and ease of understanding a very small number such as 5% instead of a 1:20 ratio.

  15. Yildiz Biner

    July 17, 2009 - 9:22 pm

    Jon: With regard to running—you say a value added process transforms the product or workplace in some way, whereas running just moves it through space. I respectfully disagree. If you are running for exercise, the movement transforms the body (the product). And the process of movement over a mile to exercise the body does not require two legs. But if this still doesn’t work for you, then consider this alternative instead: Imagine some value added process requiring the use of your hands, which can be done in 10 minutes if you use one hand, and 5 minutes if you use two hands simultaneously. I think we would obviously count the value added time in the two-handed version as 5 minutes, not as 5 (for one hand) + 5 (for the other hand) = 10 minutes. Now consider instead two one-handed people working together simultaneously side-by-side who can also complete the process in 5 minutes with their combined two hands. Just because the hands are now on two people instead of one person, I would not see it as logical to count the value added time as 5+5 = 10 minutes. It is still 5 minutes, even though there is, as you call it, 10 minutes of “value added labor content” being used. By analogy, this is what is happening in the case with the 5 doctors (see them as 5 “hands”). The fact that 5 doctors are being used to do sixty minutes of value added labor content is an efficiency or productivity issue, and not an issue with what portion of the time consumed in the process is value added.
    Yildiz

  16. Simon Ellberger

    July 19, 2009 - 4:03 pm

    Yildiz is absolutely correct in her calculation of the percentage of lead time that is value added. Your addressing the amount of labor added content leads to a separate evaluation. If you want to measure the percentage of labor content that is value added, then you must use the following method. Assuming that the 1 minute transportation between each process uses 1 person, then total work content is 30+1+30+1+30=92 minutes. The value added portion of the work content is 20+20+20=60 minutes. Thus, the percentage of value added work content 60/92 X 100 = 65% (rounding off). But the percentage of value added lead time is calculated as Yildiz did: 15/20 X 100 = 75%. Both of these percentages have validity; but they measure different things. In answer to your original question: The method you initially used, dividing total work content by total lead time, which as has been pointed out is not a percentage, has use as well, if expressed (as you mention) as a ratio.

  17. Jon Miller

    July 19, 2009 - 4:04 pm

    Point taken Yildiz. You can certainly hop a mile and get some good exercise.
    I guess it comes down to whether we define value added work as the value added portion of the total cycle time inputs (work) or whether we define it by some arbitrary process unit like a gurney with 5 doctors standing around it. The former has the simplicity of always using the single workpiece, patient or customer experience as the denominator, while the latter can grow or shrink as much as we want. That seems inconsistent with the measure of lead time, which is based on workpiece, patient or customer unit.

  18. Bryan Lund

    July 23, 2009 - 8:07 am

    Jon,
    I mean to say that the VA ratio you calculated was meaningless. Despite that we all came up with different values for VA ratios (which are highly dependent on how we understand your example problem and classify VA work)I beleive the underlying thinking behind the respondents VA ratios is highly valid. We are comparing VA work to NVA work. The confusion comes in when because we all cannot agree in your example what is VA or NVA.