Define Phase Selecting Projects

Project Selection 2 Selecting Projects Refining & Defining Financial Evaluation Six Sigma Fundamentals Selecting Projects Elements of Waste Understanding Six Sigma Wrap Up & Action Items

3 Approaches to Project Selection Things that clearly occur on a repetitive basis and present problems in delivering our service(s) or product(s). “Brainstorming Approach” All three ways work…the Structured Approach is the most desirable. “Blatantly Obvious” “Structured Approach” Identifies projects based on individual’s “experience” and “tribal knowledge” of areas that may be creating problems in delivering our service(s) / product(s) and hopefully tie to bottom-line business impact. Identifies projects based on organizational data, provides a direct plan to effect core business metrics that have bottom-line impact. There are three basic approaches to Project Selection…

Project Selection – Core Components Business Case – The Business Case is a high level articulation of the area of concern. This case answers two primary questions; one, what is the business motivation for considering the project and two, what is our general area of focus for the improvement effort? Project Charter – The Project Charter is a more detailed version of the Business Case. This document further focuses the improvement effort. It can be characterized by two primary sections, one, basic project information and, two, simple project performance metrics. Benefits Analysis – The Benefits Analysis is a comprehensive financial evaluation of the project. This analysis is concerned with the detail of the benefits in regard to cost & revenue impact that we are expecting to realize as a result of the project. 4

Project Selection - Governance Responsible PartyResources Frequency of Update Business Case Champion (Process Owner) Business Unit Members N/A Project Charter Six Sigma Belt Champion (Process Owner) & Master Black Belt Ongoing Benefits Analysis Benefits Capture Manager or Unit Financial Rep Champion (Process Owner) & Six Sigma Belt Ongoing / D,M,A,I,C 5

A Structured Approach – A Starting Point 6 The Starting Point is defined by the Champion or Process Owner and the Business Case is the output. –These are some examples of business metrics or Key Performance Indicators commonly referred to as KPI’s. –The tree diagram is used to facilitate the process of breaking down the metric of interest. Level 1 Level 2  EBIT  Cycle time  Defects  Cost  Revenue  Complaints  Compliance  Safety

A Structured Approach - Snapshot The KPI’s need to broken down into actionable levels. 7 Business Measures Key Performance Indicators (KPIs) Actionable Level Level 1 Level 2 Level 3 Level 4 ActivitiesProcesses ActivitiesProcesses

Business Case Components – Level 1 8 Primary Business Measure or Key Performance Indicator (KPI) –Focus on one primary business measure or KPI. –Primary business measure should bear a direct line of site with the organizations strategic objective. –As the Champion narrows in on the greatest opportunity for improvement, this provides a clear focus for how the success will be measured. Level 1 Level 2 Level 3 Level 4 ActivitiesProcesses ActivitiesProcesses

Business Case Components – Business Measures 9 Post business measures (product/service) of the primary business measure are lower level metrics and must focus on the end product to avoid internal optimization at expense of total optimization. Primary Business Measure Business Measure ActivitiesProcesses ActivitiesProcesses

Business Case Components - Activities 10 Y = f (x 1, x 2, x 3 …x n ) First Call Resolution = f (Calls, Operators, Resolutions…x n ) Black Box Testing = f (Specifications, Simulation, Engineering…x n ) Primary Business Measure Business Measure ActivitiesProcesses ActivitiesProcesses

Business Case Components - Processes 11 Y = f (x 1, x 2, x 3 …x n ) Resolutions = f (New Customers, Existing Customers, Defective Products…x n ) Simulation = f (Design, Data, modeling…x n ) Primary Business Measure Business Measure ActivitiesProcesses ActivitiesProcesses

What is a Business Case? 12 The Business Case communicates the need for the project in terms of meeting business objectives. The components are: –Output unit (product/service) for external customer –Primary business measure of output unit for project –Baseline performance of primary business measure –Gap in baseline performance of primary business measure from business objective Let’s get down to business!

Business Case Example 13 During FY 2005, the 1st Time Call Resolution Efficiency for New Customer Hardware Setup was 89%. This represents a gap of 8% from the industry standard of 93% that amounts to US $2,000,000 of annualized cost impact.

The Business Case Template 14 Fill in the Blanks for Your Project: During ___________________________________, the ____________________ for (Period of time for baseline performance) (Primary business measure) ________________________ was _________________. (A key business process) (Baseline performance) This gap of ____________________________ (Business objective target vs. baseline) from ___________________ represents ____________________ of cost impact. (Business objective) (Cost impact of gap)

Business Case Exercise 15 Exercise objective: To understand how to create a “strong” Business Case. 1.Complete the Business Case template below to the best of your ability. During ________________________, the ____________________ for (Period of time for baseline performance) (Primary business measure) _______________________ was ___________________. (A key business process) (Baseline performance) This gap of __________________________ (Business objective target vs. baseline) from __________________ represents ____________ of cost impact. (Business objective) (Cost impact of gap)

What is a Project Charter? The Project Charter expands on the Business Case, it clarifies the projects focus and measures of project performance and is completed by the Six Sigma Belt. Components: 16 The Problem Project Scope Project Metrics Primary & Secondary Graphical Display of Project Metrics Primary & Secondary Standard project information Project, Belt & Process Owner names Start date & desired End date Division or Business Unit Supporting Master Black Belt (Mentor) Team Members

Project Charter - Definitions Problem Statement - Articulates the pain of the defect or error in the process. Objective Statement – States how much of an improvement is desired from the project. Scope – Articulates the boundaries of the project. Primary Metric – The actual measure of the defect or error in the process. Secondary Metric(s) – Measures of potential consequences (+ / -) as a result of changes in the process. Charts – Graphical displays of the Primary and Secondary Metrics over a period of time. 17

Project Charter - Problem Statement 18 Migrate the Business Case into Problem Statement…

Project Charter – Objective & Scope 19 Consider the following for constructing your Objective & Scope What represents a significant improvement? X amount of an increase in yield X amount of defect reduction Use Framing Tools to establish the initial scope

Pareto Analysis 20 Pareto Analysis: A bar graph used to arrange information in such a way that priorities for process improvement can be established. The theory was first developed in 1906, by Italian economist, Vilfredo Pareto, who observed an unequal distribution of wealth and power in a relatively small proportion of the total population. Joseph M. Juran is credited with adapting Pareto's economic observations to business applications.

The 80:20 Rule Examples 20% of the time expended produced 80% of the results 80% of your phone calls go to 20% of the names on your list 20% of the streets handle 80% of the traffic 80% of the meals in a restaurant come from 20% of the menu 20% of the paper has 80% of the news 80% of the news is in the first 20% of the article 20% of the people cause 80% of the problems 20% of the features of an application are used 80% of the time 21

Pareto Chart - Tool 22 Multi level Pareto Charts are used in a drill down fashion to get to Root Cause of the tallest bar. Level 1 Level 2 Level 3

Pareto Chart - Tool Interpretation: Level 1: –Incorrectly Routed Calls Makes up 64% of Total Calls Level 2: –Platinum - Bus Makes up 60% of Incorrectly Routed Calls 23 Level 2 Level 3

Pareto Chart - Example Use the “Call Center.mtw” worksheet to create a Pareto Chart 24

Pareto Chart - Example 25 What would you do with this Pareto?

Pareto Chart - Example 26 Let’s look at the problem at a deeper level now…

Pareto Chart - Example 27 This gives a deeper picture of which product category contributes to the highest defect count.

Pareto Chart - Example 28 Now that we have more of a focus area, drill down one more level. –This chart will only use the classifications within the first bar on the previous chart. –Create another Pareto which will drill down to the categories within the Card type from the previous Pareto.

Pareto Chart - Example 29 Now what? We’ve got ourselves another “Pareto”…

Project Charter – Primary Metric 30 Establishing the Primary Metric: –Quantified measure of the defect –Serves as the indicator of project success –Links to the KPI or Primary Business measure –Only one Primary Metric per project The Primary Metric is a very important measure in the Six Sigma project; this metric is a quantified measure of the defect or primary issue of the project. We can have only One Primary Metric. Recall the equation Y = f (X); well once your defect is located then Y will be your defect…your primary metric will measure it.

Project Charter – Secondary Metrics 31 Establishing Secondary Metric(s): –Measures positive & negative consequences as a result of changes in the process –Can have multiple Secondary Metrics Secondary Metrics are put in place to measure potential changes that may occur as a result of making changes to our Primary Metric. They will measure ancillary changes in the process, both positive and negative.

Project Charter – Metric Charts 32 Generating Charts: –Displays Primary and Secondary Metrics over time –Should be updated regularly throughout the life of the project –One for Primary Metric and one for each of the Secondary Metrics –Typically utilize Time Series Plots Primary and Secondary Metrics should be continually measured and frequently updated during the projects lifecycle. Use them as your gauge of Project Success and Status. This is where your Project’s progress will be apparent.

Project Charter Exercise Exercise objective: To begin planning the Project Charter deliverable. 1.Complete the Project Charter template to the best of your ability. 2.Be prepared to present your Stakeholder Analysis to your mentor. 33 Project Charter Template.xls

What is the Financial Evaluation? 34 The Financial Evaluation establishes the value of the project. The components are: –Impact Sustainable One-off –Allocations Cost Codes / Accounting System –Forecast Cash flow Realization schedule OK, let’s add it up! Typically a financial representative is responsible for evaluating the financial impact of the project. The Belt works in coordination to facilitate the proper information.

Benefits Capture - Calculation “Template” 35 Sustainable Impact“One-Off” Impact Reduced Costs Increased Revenue Costs Implemen- tation Capital COSTCODESCOSTCODES FORECASTFORECAST IMPACTIMPACT Realization Schedule (Cash Flow) By Period (i.e. Q1,Q2,Q3,Q4) There are two types of Impact: One Off & Sustainable Cost Codes allocate the impact to the appropriate area in the “Books” Forecasts allow for proper management of projects and resources

Benefits Capture – Basic Guidelines Benefits should be calculated on the baseline of key business process performance that relate to a business measure or KPI(s). The Project Measure (Primary Metric) has to have a direct link between the process and its KPI’s. Goals have to be defined realistically to avoid under or over setting. Benefits should be annualized. Benefits should be measured in accordance with Generally Accepted Accounting Principles (GAAP). 36

Benefits Capture - Categorization 37 Projects directly impact the Income Statement or Cash Flow Statement. Projects impact the Balance Sheet (working capital). Projects avoid expense or investment due to known or expected events in the future (cost avoidance). Projects are risk management, insurance, Safety, Health, Environment and Community related projects which prevent or reduce severity of unpredictable events. You don’t want to take this one home! D A B C

Benefits Calculation Involvement & Responsibility 38 Project SelectionD-M-A-I-CImplementation6 Month Audit Financial Representative Financial Representative Financial Representative Financial Representative Champion & Process Owner Black BeltChampion & Process Owner

Benefits Capture - Summary 39 Performance tracking for Six Sigma Projects should use the same discipline that would be used for tracking any other high-profile projects. The A-B-C-D categories can be used to illustrate the impact of your project or a “portfolio” of projects. Establish The Governess Grid for Responsibility & Involvement. It’s a wrap!

Benefits Calculation Template The Benefits Calculation Template facilitates and aligns with the aspects discussed for Project Accounting. 40

Summary At this point, you should be able to: Understand the various approaches to project selection Articulate the benefits of a “Structured Approach” Refine and Define the business problem into a Project Charter to display critical aspects of an improvement project Make initial financial impact estimate 41

The Certified Lean Six Sigma Yellow Belt (CLSSYB) tests are useful for assessing a Yellow Belt’s knowledge of Lean Six Sigma. The CLSSYB can be used in preparation for the ASQ or IASSC Certified Six Sigma Yellow Belt exam or for any number of other certifications, including private company certifications. The Certified Lean Six Sigma Yellow Belt Assessment The Lean Six Sigma Yellow Belt Course Manual Open Source Six Sigma Course Manuals are professionally designed and formatted manuals used by Belt’s during training and for reference guides afterwards. The OSSS manuals complement the OSSS Training Materials and consist of slide content, instructional notes data sets and templates. Get the latest products at…