Presentation on theme: "Six Sigma for the CPA or CFO"— Presentation transcript:
1Six Sigma for the CPA or CFO November 30, 2007Peter J. ShermanASQ Certified Quality EngineerCertified Six Sigma Black Belt
2Agenda Six Sigma Action Plan Wrap Up Objectives Your Business Six Sigma OverviewThe BasicsDMAIIC Process (Case Study Approach)ControlDefineMeasureAnalyzeImproveImplementSix Sigma Action PlanWrap Up
3BiographyPeter J. Sherman is an ASQ Certified Quality Engineer and a Certified Six Sigma Black Belt. He has 20 years experience, including serving as Sr. Black Belt for AT&T’s Product Development Group. Mr. Sherman has led Six Sigma initiatives across Product Development, Sales, Fulfillment, Installation, Customer Support, and Billing. He began his career in quality management working in Japan as a visiting M.I.T. Scholar in There he worked with Dr. Edwards Deming, the noted American Quality expert and learned firsthand Japanese quality practices including the Toyota Production System, Quality Circles and Kaizen. Mr. Sherman is lead Instructor at Emory University's Six Sigma Certification Program in Atlanta, Georgia and has been published in various journals including iSixSigma, Hospitals & Health Networks, Solutions (Supplement to Journal of Financial Planning). Mr. Sherman received his Master's in Engineering from M.I.T. and has an MBA from Georgia State University. Mr. Sherman is a member of the ASQ and ISSSP.
4Objectives Discover the role and value of Six Sigma Learn how to conduct the Six Sigma process and interpret the results through a case studyDevelop and implement a 6σ Action Plan for your business
6Customers“Profit in business comes from repeat customers, customers that boast about your product or service, and that brings friends with them.”W. Edwards Deming
7Product / Service Development Your BusinessProduct / Service DevelopmentSales & MktgFulfillment DeliveryInventoryProductionSupportBilling
8Your Business Goals As a business owner you want to optimize: Accelerate new product / service launchesIncrease sales effectivenessReduce inventory to free up cash flowStreamline operations and improve profitabilityImprove accuracy of orders / on-time deliveryPrevent customer service callsReduce costs of billing mistakes / lower A/R to free-up cashIncrease customer loyalty / reduce churn
9Your Comparative Advantage Capital?Low-Cost Labor?Market shareTechnology?It’s how you manage your business processes!
10Why Should You Care? 30% for service companies Poor quality costs money!30% for service companies15% for manufacturing companiesCustomers have lots of optionsGlobal competitionYour company’s reputationPhilip Crosby, “Quality is Free”
12Evolution of Quality Customer Value Lean Six Sigma “Juran Trilogy” Joseph JuranBPRPhilip CrosbyCustomer ValueKaoru Ishikawa“4 Absolutes of Quality Management”Quality CirclesMichael HammerIshikawa DiagramTaiichi OhnoISO 9000W. Edwards DemingToyota Production SystemKaizenPDCALeanDeming’s 14 pointsTQMWalter Shewhart, Western ElectricJust-in-Time (JIT)Statistical Process ControlControl Charts1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s
13What is Six Sigma Level Quality? The reliability of getting a dial tone every time you pick up a telephone!
14What is Six Sigma Level Quality? Knowing your package will be delivered by 10am the next day, guaranteed!
15What is Six Sigma Level Quality? Whether you are in Athens, GA or Athens Greece, a Big Mac tastes the same!
16Six Sigma Defined It’s an approach to managing a business Six Sigma (σ) is a customer focused, well defined problem solving methodology supported by powerful analytical tools.It’s an approach to managing a businessFocus on customers, data and measurementIt’s a process improvement methodologyImprove existing processesBuild new processesIt’s ROI oriented
17Six Sigma Defined“Today's competitive environment leaves no room for error. This is why Six Sigma Quality has become a part of our culture. At its heart, Six Sigma is about understanding what your customers want and developing a game plan to deliver it.”Jack Welch Retired Chairman, CEO General ElectricRequirements are Six Standard Deviations on each side of the meanUpper Customer RequirementSix Sigma QualityLower Customer Requirement66 Sigma translates into 3.4 Defects per Million Opportunities…or % accuracy!
18Six Sigma Defined Six Sigma is a measure of quality. Sigma is a Greek letter used by statisticians to show the variation in a process.The higher the Sigma, the better.
19Sigma Level Comparisons 3 σ6 σ93.3% Error Free% Error FreeUnsafe drinking water for 10 minutes each dayOne unsafe minute every seven months!No electricity for 5 hours each monthOne hour with no electricity every 34 years!2.2M incorrect surgeries per year in the U.S.111 incorrect surgeries per year!150M wrong drug prescriptions a year in the U.S.10,200 wrong drug prescriptions a year!137,000 pieces of mail lost per hour in the U.S.7 pieces of mail lost per hour!Expect cold showers 2 days a monthCold showers are less than 2 min. a year!
20Calculating DPMO and Sigma Example: An Accounting firm completes 150 tax returns a year. Each tax return entails 500 specific activities / steps (1040 forms, Schedule A, Schedule B, Schedule D). Historically, your firm averages .5% defects (missing signature, transposed numbers, wrong tax rate, late filing, etc.). It costs $250 for each mistake including calls, faxes, meetings, new forms, mailings, etc.Calculate the DPMO, Sigma Level and cost of quality
21Calculating DPMO and Sigma Step 1) defects = .00575,000 opportunities(150 tax returns x 500 steps)Step 2) x 1,000,000 = 5,000 DPMOStep 3) Look up value in Sigma Table (see next page)Solution: DPMO (4.15 Sigma)Cost: 375 x $250 = $93,750
26Keys to Successful Six Sigma Implementation Top Management Support and Participation:Senior management must drive the process through the organization. Elements of this include careful selection of projects, allocation of resources, and decisions based on the measurements.Clearly Defined Projects: Well-defined scope with specific quantitative and measurable improvements.Strong Project Leadership: By Black Belts and Green Belts alike.
28Six Sigma Organization Roles Steering Committee: Identifies projects / black belts; allocates resources; monitors progress; manages project portfolio; establishes implementation strategy and policiesChampions: Provide support, resources and remove road-blocks. Champions have more in-depth understanding of the methods – measurements and interpretation of process measurements.
29Six Sigma Organization Roles Master Black Belt: Master Black Belts are Six Sigma Quality experts that are responsible for the strategic implementations within an organization. Master Black Belt main responsibilities include training and mentoring of Black Belts and Green Belts; helping to prioritize, select and charter high-impact projects.Black Belt: Are thoroughly trained individuals with expertise in all the analysis tools. Black Belts are expected to lead Six Sigma projects, identify opportunities, and coach / train Green Belts.Green Belt: Green Belts play a key role in the support / execution of Six Sigma projects. Green Belts are also expected to lead smaller projects. Green belts understand concepts of problem solving, data collection, data interpretation, variation, process capability, and cost analysis.
31The BasicsQA vs QCUnderstanding VariationStatistics 101
32Count the F’s ExerciseTHE NECESSITY OF TRAINING FARM HANDS FOR FIRST CLASS FARMS IN THE FATHERLY HANDLING OF FARM LIVESTOCK IS FOREMOST IN THE MINDS OF FARM OWNERS. SINCE THE FOREFATHERS OF THE FARM OWNERS TRAINED THE FARM HANDS FOR FIRST CLASS FARMS IN THE FATHERLY HANDLING OF FARM LIVESTOCK, THE FARM OWNERS FEEL THEY SHOULD CARRY ON WITH THE FAMILY TRADITION OF TRAINING FARM HANDS OF FIRST CLASS FARMS IN THE FATHERLY HANDLING OF FARM LIVESTOCK BECAUSE THEY BELIEVE IT FORMS THE BASIS OF GOOD FUNDAMENTAL FARM MANAGEMENT.
33What’s the Point?“You can’t inspect quality into your product or service…….you have to build / design quality into the process.”W. Edwards Deming
34Both forms of quality are needed for success! QA / QCQuality AssuranceQuality ControlProcessInputProcessOutputBuilding in quality throughout the process:Methods & ProceduresRoles & ResponsibilitiesTrainingRedundancy (i.e., power backup, auto-save on your PC)Ensuring output conforms to specifications:InspectionSamplingCustomer ComplaintsBoth forms of quality are needed for success!
36Understanding Variation No two things are exactly alikeVariation is the way things normally occurThe amount of variation in a process tells us what that process is actually capable of achieving. Shrinking variation reduces costs and creates a more predicable outcome (product or service)
37On this page sign your name as you normally would. Variation ExerciseOn this page sign your name as you normally would.___________________
38Stable processes are predictable and in control. Types of VariationCommon Cause variation is always present to some degree in the process (i.e., random, chance)Take action on the system or process.Special Cause variation means something different happened at a certain time or place (ie., non-random)Identify Special Causes and address them first.Deming felt 94% of all problems are due to common cause variation and 6% attributed to special causes.Stable processes are predictable and in control.
40Statistics RefresherMean: The sum of all the values in the sample divided by the number of values in the sample.Median: The mid-point of the data when the data is arranged from the largest to the smallest value.Mode: The value of the observation that appears most frequently.Range: The distance between the largest and smallest value.Normal Distribution (Symmetrical)Mean = Median = Mode
41Statistics RefresherExample:A bank generally takes a week to open and process a new account. A random sample of 9 new accounts indicates the following cycle times in days:5, 8, 6, 5, 10, 4, 7, 5, 12Find the mean, median, mode and range.
42St. Dev sample = ∑ (Xn – X)2 n - 1 Statistics RefresherStandard DeviationCommon Usage: A measure of volatility or dispersion.“I love the returns of the stock market, but hate the volatility.”Technical Description: Defined as the positive square root of the variance*.St. Dev sample = ∑ (Xn – X) n - 1Xn = Value in sampleX = Meann = Number of observations* Variance is a measure of dispersion. Defined as the mean of the squared deviations from the mean. The problem with using variance is interpreting it. it is in terms of units squared. How do you interpret square percents or square dollars? The answer is to take the square root….hence standard deviation.
43Statistics RefresherExample:Over the past 6 months, a CPA firm has averaged 40 hours to complete a business tax return, with a standard deviation of 2 hours. The CPA firm pledges it can complete returns within hours.What exactly does this mean? What Standard Deviation (Sigma Level) is the firm performing? How would you interpret this? Show your answer in a graphical form.
4444 hours - Upper Specification Limit Statistics RefresherNormal Distribution (Symmetrical)44 hours - Upper Specification Limit68%95.5%99.73%-334 hrs-236 hrs-138 hrs40 hrs+ 142 hrs+244 hrs+346 hrs- 68% of the time (1 std. dev), average returns fall within 38 and 42 hours.95.5% of the time (2 std. dev), average returns fall within 36 and 44 hours.99.73% of the time (3 std. dev), average returns fall within 34 and 46 hours.
48Define The most critical step in the DMAIIC journey. Define the scope. Identify the problem and how much you want to improve it.An Iterative ProcessAnalyzeDefineMeasureImproveImplementAnalyzeProjects that are not well defined and scoped generally lead to a waste of resources (time, management, capital).
49ControlDefineMeasureAnalyzeImproveImplementCharter – the key document used to identify and define the problem statement, project scope, team members & roles, and deliverables. The Charter is the contract between your team and senior management.Voice of the Customer (VOC): A tool used to describe customers’ needs, leading to specific Critical-to-Quality (CTQ) requirements.SIPOC – A high-level process map that includes Suppliers, Inputs, Process, Outputs, and Customers.Process Flow – A more detailed process map that documents key resources, activities, cycle times, and decision points in a process. It is used to identify dependencies, redundancies, gaps, and bottlenecks.
51VOC Example – Rotary Club EmployeesDefine Critical-to-Quality requirementsWho are your customers?What are their needs?Identify the driversBusiness ProfessionalsCommunity ServiceSchoolsDept. of WelfarePublic Parks20 hours community service per year for each memberProfessional NetworkingForum to gatherRegular weekly meetingsMeans to communicateMember Handbook24x7 web access
52SIPOC / Process Flow Example – Rotary Club SuppliersInputsProcessesOutputCustomersProspective RotarianApplicationBecoming a Rotary Club MemberApproval documentNew Rotarian MemberReferencesRejection DocumentRotarian ClubSponsor123456Pay DuesGather Biography / ReferencesMarketing / PromotionApply for MembershipEvaluate CandidateAccept / Reject
57Pizza Express VOC Customer Need / Drivers CTQs Primarily middle-income families with childrenGood tasting, quality Pizza100% guarantee for freshnessOnly source suppliers with proven track record and Quality Management System in-placeFast Service30 minute delivery from orderRegular 3 month vehicle maintenanceAll drivers given mapsConvenienceOpen 7 days a weekFlexible Hours of OperationMon – Thurs (11am – 10pm)Fri and Sat (11am – 2am)Sun (Noon – 11pm)Good Customer ServiceAnswer telephone by 2nd ringCustomer greeted by nameCustomer not interruptedAlways repeat order / address / phone number back to customerCompetitively PricedPrices will not exceed average of competition
61Measure your current performance: DefineAnalyzeMeasureImproveImplementControlMeasure your current performance:% or # defectsProcess “in-control” or “out-of-control”Sigma Level (capability of process)% YieldCost of Poor Quality
62DataData Collection Plan – Identify the type data (variable vs. discrete), source, the format. Collect as much as you can!Variable: Data that is continuous and can be measured (i.e., length, time). Typical types include cycle time, Average Handling Time.Attribute: Data that is discrete (i.e., yes or no response, pass or fail, go or no-go). Typical types include % Defective, # Defective, # Defects, Defects per Unit.
64ControlDefineMeasureAnalyzeImproveImplementHistogram – a graphical representation of data in a bar chart format. Used to observe the “shape” of data (i.e., normal, bell-shaped vs. skewed).Control Charts – The fundamental statistical tool used in Six Sigma. It shows the amount and type of variation present in the process. Stable processes are predictable and in (statistical) control.Process Capability – the capability of a process to consistently make a product / service that meets a customer specification range (tolerance). Used to predict the performance of a process by comparing the width of process variation to the width of the specified tolerance.XA Capable ProcessLower Specification LimitProcess WidthUpper Specification LimitDesign Width
65Example Histogram Histogram Collect data Arrange data attribute in ascending classes across the horizontal axisPopulate the specific data in the appropriate classExample Histogram
66Control ChartConsidered the foundation of Six Sigma statistical analysisShows the amount and type (special or common causes) of variation in a processIndicates if a process is“In-Control” stable, predictable“Out-of Control” not stable, special causes exist
67Control Chart Interpretation In-Control – All data points are within the upper and lower control limits.UCLCLLCL
68Control Chart Interpretation Out-of-Control (Special Causes) – any point touching or beyond the control limitsUCLCLLCL
69Control Chart Interpretation Trend – 6 successive points in an upward or downward directionUCLCLLCL
70Control Chart Interpretation Cycle – variation caused by regular changes in the process inputs or methods (i.e., time of day, seasonal)UCLCLLCL
71Control Chart Interpretation Jumps – distinct changes from low to high values attributed to a change (i.e., operator shifts, material)UCLCLLCL
72Control Chart Interpretation Repeats – a pattern where every nth item is different (i.e., one station out of alignment)UCLCLLCL
73Key Process Metrics DPMO – Defects Per Million Opportunities Sigma Level% YieldCost of Poor QualityUpper Specification LimitLower Specification LimitXDesign WidthProcess WidthA Capable Process
74Team Activities Construct a Histogram - use the data above You decided to take a random sampling of pizza delivery times:Construct a Histogram - use the data aboveInterpret results (normal or skewed)Develop a Control Chart (Xbar and R) – use the data aboveInterpret results (in control or out-of-control)Calculate the key Process MetricsInterpret results (capable or not capable)
80The primary purpose of the Analyze stage is to: ControlDefineMeasureAnalyzeImproveImplementThe primary purpose of the Analyze stage is to:Make sense out of the dataIdentify root causes of the problem.
81ControlDefineMeasureAnalyzeImproveImplementPareto Chart – focuses efforts on the problems that offer the greatest potential for improvement by showing their relative frequency in a descending bar graph.Cause-and-Effect Diagram – graphically displays potential causes of a problem.
82Pareto Chart Example – Rotary Club “Relocations” and “No time” account for 68% of the Rotary Club Drop-Out Rate
89DefineAnalyzeMeasureImproveImplementControlIn order to improve, possible improvements are developed and evaluated in a logical and planned fashionBrainstorm ideasRank, evaluate, prioritize ideas based on key criteria
91Brainstorm ideas for improvement Rank and evaluate Team ActivitiesBrainstorm ideas for improvementRank and evaluateSolution Prioritization Matrix (modify criteria / adjust weights)Select your improvement idea and present rationale
94ControlDefineMeasureAnalyzeImproveImplementImplementation can be accomplished by a Design of Experiment (DOE)…..aka pilot.DOE helps identify and validate those factors that have the most significant impact on a process, from which you will form your conclusions and recommendations to senior management.Business Definition:DOE is a methodology of varying a number of input factors simultaneously in a carefully planned manner, such that their individual and combined effects on the output can be identified.Technical Definition:
95DOE - Advantages Allows you to identify the critical factor(s) Allows many factors to be evaluated simultaneouslyEconomical and less disruptive to normal operationsProvides a fact-based approach to making conclusions in confidence
101Talk to your customers to understand their needs! Six Sigma Action PlanTalk to your customers to understand their needs!1Layout and understand your end-to-end business processIdentify gaps, bottlenecks, redundanciesMarketingFulfill & DeliverSalesSupportBilling
102Six Sigma Action Plan2Determine which parts of your service processes are the best candidates:CategoryDescriptionHighly CustomizedPoor candidates for 6 Sigma campaigns (low ROI), i.e., Complex IT systemsMass-CustomizedGood candidates for 6 Sigma campaigns if the volume of activity is high enough, i.e., Web-based marketing / customer accounts / fulfillment, customer supportStandardizedGreat candidates for 6 Sigma campaigns (high ROI); i.e., Account Processing / Maintenance, Billing, Accounts Payable, Payroll
103Six Sigma Action Plan Key Activities Application of Six Sigma Marketing• Increase pipeline of prospective customers• Reduce time-to-market for product and service launchesSales• Improve sales close rates• Reduce sales cycle timesFulfillment andDelivery• Improve on-time delivery of products• Improve accuracy of orders (i.e., reduce returns)• Reduce inventory levels to better manage cash flowSupport• Improve first-contact resolution• Lower handling time for contacts• Improve customer satisfactionBilling• Improve accuracy of invoice• Shorten accounts receivable days outstanding
104“If you don’t measure it, you can’t manage it.” Six Sigma Action Plan3Measure your key activities over time and determine your Sigma Level:New sales cycle times / sales close rateAccount processing cycle times / defect rateOther“If you don’t measure it, you can’t manage it.”W. Edwards Deming
105Preliminary Project Screener Sample TemplateFocus on specific, achievable process improvements!
108Six Sigma Resources Professional Organizations: American Society for Quality (http://www.asq.org)Int’l Society for Six Sigma Professionals (http://www.isssp.com)Key Books / Trade Journals / Websites:The Six Sigma Revolution, G. Eckes (2001)The Six Sigma Way, P. Pande, R. Neuman, R Cavanaugh (2000)The Six Sigma Handbook, T. Pyzdek (2000)iSixSigma Magazine (http://www.isixsigma.com)Six Sigma Forum Magazine (http://www.asq.org/sixsigma)General Electric (www.ge.com/sixsigma)