Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 1 Background Information – Why Are You Working On This Project? Why work on this project? Resolves a difficult business problem for the last time and This business problem has clear linkage to the strategy of the business This is the link between Project Selection and Project Definition. We need to know for whom we are doing the project and why we are doing the project, i.e., what is important. Then we may proceed to define the project in detail.

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 2 Project Charter Purpose Assures that the team understands the scope and goals of the projects Importance Team is clear on the problem to be solved Team is clear on the project objective Team understands the benefits, metric, and defect definition Results Well understood team charter Appropriate resource and organizational support

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 3 Contracting With Your Black Belt The Project Charter is established by the Project Sponsor and signed by the Project Sponsor and Black Belt. This Project Charter establishes (partial list): -Problem statement -Scope -Team resources -Objective With a written charter, the expectations of both parties are known and by their joint signatures, the Black Belt and Sponsor have: -Validated the importance of the project -Committed themselves to the project’s success Agree with the Process Owner/Black Belt before the project starts.

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 4 Project Charter Territory What is our process goal? Who is our key customer? In what areas are results required? In what other areas may we get results? What is off limits? Resources What are our budgets – Time, money, support resources Values and practices What are our team values? What behaviors will we practice? Not practice? Roles and responsibilities Do we have a Project Sponsor? Have we agreed on how to work together? Have agreed on how to work with the Process Owner? Are other roles filled? Operating agreements How will we make decisions? How will we set acceptable levels of involvement? When, where, how often, how long will we meet? Using the tool in the team: The team develops answers to these questions and records them:

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 5 Project Charter Problem Statement Describe the problem using data General Project Information title, number, team Project Objective What is success Project Benefits What are the financial benefits Problem Metric “Y” How do I measure the output Defect Definition What is a failure

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 6 Project Charter Problem Statement Describe the problem using data General Project Information title, number, team Project Objective What is success Project Benefits What are the financial benefits Problem Metric “Y” How do I measure the output Defect Definition What is a failure

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 7 General Project Information Project Name Project Numbering convention - (to be established) Function – Business function Location – Geographic location Cluster – Defined project functional area Charter Creation Date Project Start Date – When BB assigned project Project Completion Date – When Steering committee signs off Team - Enter information about team members

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 8 Project Charter Problem Statement Describe the problem using data General Project Information title, number, team Project Objective What is success Project Benefits What are the financial benefits Problem Metric “Y” How do I measure the output Defect Definition What is a failure

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 9 Problem Statement Guidelines Purpose and function of Problem Statements -To provide Black Belts with a well defined issue upon which to apply the 12 Step Problem Solving Approach -To quantify current performance relative to customer expectations -To identify the financial impact of current performance

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 10 Problem Statements should include: Description of the defect - What is perceived as the problem? - How will the problem be measured (measurement of performance)? Time Frame - When does the problem occur? - How long does the problem persist? Extent - How much does actual performance differ from expectations? - How frequently does problematic performance occur? Conditions - Under what situations does the problem occur? - Where does the problem occur (some locations more than others, everywhere)? Impact - What is the financial impact of the problem? Problem Statement – Elements

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 11 Problem Statement Guidelines Characteristics of a good Problem Statement -It should be a concise but complete description of the issue -It should focus on a specific problem aligned to high-level business objectives -It should be as detailed as possible including quantifiable performance characteristics (a metric that includes units) -It should identify a gap in performance (States current state – Likely an estimate at the start; Best in class OR where we wish to be) -It should include reference to time period -It should include source of data where appropriate -It should have only one DPMO (may be a combined DPMO) -It should not include any presumed causes or pre-determined solutions -It should not include financial measures Spend the required time to develop an accurate problem statement!

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 12 Typical Issues With Problem Statements Measurement of the problem does not link to Voice Of the Customer data Anecdotal information is cited as quantification of the problem Method of measuring performance is not valid A predetermined solution is included in the description of the problem Scope of problem too large/too small Problem poorly defined or not quantifiable - vague Includes $ as the defect - Save $250k in Bakery… Stated as predetermined solution instead of as problem - Save $250k in Bakery by replacing old equipment...

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 13 Problem Statement Drill Down (Example 1) Customers take too long to pay us (95 days on the average) Of those who do not pay on time, 68% claim it is due to a discrepancy between the work order and the invoice Data was gathered over the last three quarters ending Dec 03 Problem Statement: Over the last three quarters ending Dec 03, of the 45% of our XYZ customers that take more than 65 days to pay, 68% of them delay due to a discrepancy between the work order and the invoice 45% of our XYZ customers take more than 65 days from the final billing date to pay us

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 14 Problem Statement Drill Down (Example 2) We are receiving customer complaints over late shipments The average XYZ order shipped during this period was 6.5 days late with a standard deviation of 4.5 days Our internal benchmark/allowance is 5% late Problem Statement: Product XYZ orders for the past 6 months (first and second quarter 04), have shipped an average of 6.5 days late with a StDev of 4.5 days = 925,700 DPMO vs. standard of 50,000 DPMO Most of the complaints about late shipments over the last six months have involved Product XYZ

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 15 Problem Statement – Scope Discussion Note that this defect is an amalgamation of three separate defects We may consider this one project or three If we cannot collect data on the defects by characteristic, we have only one project - This implies a less than perfect relationship between a root cause and the measured output (defect) - Example: If a fix is put in that eliminated the Corporate Brand defects entirely, but one of the causes for National Brand defects creates the majority of defects, the improvement to Corporate Brand will not be seen Problem Statement: Product XYZ orders for the past 6 months (first and second quarter 04), have shipped an average of 6.5 days late with a StDev of 4.5 days = 925,700 DPMO vs. standard of 50,000 DPMO based on inspection of the three key product lines (National Brand, Corporate Brand, Generic Brand )

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 16 Problem Statement – Scope Discussion If the list of potential Xs for each of the three key outputs are essentially the same, it may be beneficial to consider this as one project, e.g., -Ordering Process -Invoicing Process -Transportation Even if we consider this as one project and therefore have only one project DPMO, it is still highly advisable to collect defect data by characteristic Problem Statement: Product XYZ orders for the past 6 months (first and second quarter 04), have shipped an average of 6.5 days late with a StDev of 4.5 days = 925,700 DPMO vs. standard of 50,000 DPMO based on inspection of the three key product lines (National Brand, Corporate Brand, Generic Brand )

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 17 Project Charter Problem Statement Describe the problem using data General Project Information title, number, team Project Objective What is success Project Benefits What are the financial benefits Problem Metric “Y” How do I measure the output Defect Definition What is a failure

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 18 Project Objective The Project Objective should be based on SMART principles -S = Specific -M= Measurable -A = Attainable -R = Reasonable -T = Time-based An average Six Sigma project will yield a 70% improvement in process performance. Therefore, it is typically appropriate to set the Project Objective for a 70% reduction in defects. Objectives should -Agree with validated measurements of performance (same units as measurement system) -Be based on clear project boundaries -Be attainable by the scheduled project completion date -Be consistent with VOC (Voice Of the Customer) requirements -Be perfectly aligned with problem statement -Have an end goal or target

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 19 Example Project Objective Problem statement: -Over the last three quarters ending Dec 03, of the 45% of our XYZ customers that take more than 65 days to pay, 68% of them delay due to a discrepancy between the work order and the invoice An appropriate Project Objective would be: -Of the 45% of our XYZ customers that take more than 65 days to pay, our objective is to reduce the number of delays due to a discrepancy between the work order and the invoice to pay from 68% to 10% by April 2004

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 20 Project Charter Problem Statement Describe the problem using data General Project Information title, number, team Project Objective What is success Project Benefits What are the financial benefits Problem Metric “Y” How do I measure the output Defect Definition What is a failure

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 21 Projected Benefits This is where the language of defects is turned into the language of money The Project Benefits should: -Cite a minimum of $250,000 in hard dollar savings -Be achievable in four to five months -Have P&L Impact Project Benefits are characterized as: -Margin improvements that can be directly attributed to the Six Sigma project -A reduction of operating expenses -Lower carrying costs related to Working Capital (Inv/AR) reduction -Operating Income contribution resulting from revenue enhancement projects Include all potential savings in an abbreviated form Have detailed back up to support numbers

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 22 Project Charter Problem Statement Describe the problem using data General Project Information title, number, team Project Objective What is success Project Benefits What are the financial benefits Problem Metric “Y” How do I measure the output Defect Definition What is a failure

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 23 Project Metrics Include units of measure If appropriate indicate where collected MUST BE DIRECTLY RELATED TO THE PROJECT DEFECT Remember that the measurement system capability will be verified as part of the project Recall, our process outputs are our customers inputs Ask the customer to provide an “operational definition” for their metrics -A Common understanding of when and how metrics are measured is often needed to eliminate ambiguities -Example: Delivery of product to customers We measure when the product leaves shipping Customer measures - When it arrives on their dock or - They may not measure delivery until product is in their inventory

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 24 Project Charter Problem Statement Describe the problem using data General Project Information title, number, team Project Objective What is success Project Benefits What are the financial benefits Problem Metric “Y” How do I measure the output Defect Definition What is a failure

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 25 The CTSs And The Defect Definitions CTS The Problem Definition needs to include the CTS(s) that you are addressing (Providing a CT Tree or matrix as an attached reference is generally of value) Defect Definition The project needs to have its Defect Definition CLEARLY established -It must be aligned to the CTS(s) -It must be CONCISE -It must clearly establish what makes the result good or bad -It is what will define our DPMO DMAIC is a FIND and FIX approach If you do not have defects (DPMO), you cannot reduce them If you do not have a Defect Definition, you don’t have defects

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 26 Project Charter Project Leveragability Describe possible areas to leverage project results Approval Signatures to Start Approval Signatures to Close Financial Summary Forecast of OI benefits from revenue, cost reduction, cash flow Project implementation costs Information entered automatically

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 27 Project Charter Project Leveragability Describe possible areas to leverage project results Approval Signatures to Start Approval Signatures to Close Financial Summary Forecast of OI benefits from revenue, cost reduction, cash flow Project implementation costs

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 28 Project Leveragability ALWAYS consider the potential LEVERAGABILITY of the project, to identify additional financial opportunities including: -Upstream savings -Downstream impact -Replication opportunities -Cross-sales potential -Etc. After documenting the leveragability potential, estimate the value in dollars Essential for incremental step improvements

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 29 Project Charter Project Leveragability Describe possible areas to leverage project results Approval Signatures to Start Approval Signatures to Close Financial Summary Forecast of OI benefits from revenue, cost reduction, cash flow Project implementation costs

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 30 Project Charter Benefits Forecast to Actual details of OI benefits: Cost savings Revenue Cash flow ROI Forecast to Actual Summary Non financial benefits

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 31 The “Benefits” tab is used to characterize the cost savings opportunity represented by the Project. During the Project Selection process, the Financial Analyst will forecast the project’s potential. As the Black Belt conducts the project, original benefit forecasts should be validated at the end of each of the 12 Step Problem Solving Approach Phases. Project “Benefits” Tab

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 32 Project Benefits Enter Baseline Period (preferably a Fiscal Year) Enter Baseline Amounts (in this category, enter the entire amount to be realized during the Baseline Period – Doing so ensures that benefits will tie back to an amount on the General Ledger) Enter an estimate (Forecast) of the portion of the benefit to be realized each month – Add “Comments” to these cells to explain calculations NOTE: DO NOT ENTER data into white cells – White cells automatically tally information from monthly details to the right

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 33 Project Charter Benefits Forecast to Actual details of OI benefits: Cost savings Revenue Cash flow ROI Forecast to Actual Summary Non financial benefits

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 34 The “ROI” Tab is used to analyze the benefits of the project relative to the incremental costs of implementing the solution. The “ROI” Tab should be updated by the Black Belt and Financial Analyst while making improvements – Approximately Step 8 in the 12 Step approach. Project “ROI” Tab

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 35 Project ROI Header Information will automatically populate “Benefits” information will automatically populate form the Benefits tab Enter estimates (Forecast) of project costs for each month. Add “Comments” to cells to help explain calculations. -ONLY record “incremental” costs of the project. -Do NOT include the costs of Black Belts, salaried associates, etc. NOTE: DO NOT ENTER data into white cells – White cells automatically tally information from monthly details to the right

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 36 During the course of a 12 Step Problem Solving Approach project, some of the initial assumptions might require revision as new details are learned If aspects of the project change, especially forecasted benefits, the “Amendment” tab should be used to document the revisions All changes to the project are subject to review and approval by the Steering Committee The “Amendment” tab can duplicated in the workbook if more than one “Amendment” is required Project “Amendment” Tab Note: Duplicate the “Amendment” worksheet in the workbook if multiple amendments are required

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 37 Project Charter ROI Revisions Required when Benefits change >10% Project Scope and Timing Revisions Approval to Amend Signatures

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 38 Amended Project Scope and Timing Provide an explanation of the reason for this amendment to the Project Charter. Consider and include as appropriate: -Changes to Business Conditions -Requested Changes to Measurement basis -Project Scope Changes -Adjustments in Expected Benefits -Revisions to Implementation Costs -Etc.

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 39 Project Charter ROI Revisions Required when Benefits change >10% Project Scope and Timing Revisions Approval to Amend Signatures

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 40 Project ROI Indicate any changes to the financial benefits as a result of this amendment -In the “Most Recent” column indicate the expected benefits prior to this amendment request -In the “Amended” column, indicate the expected financial benefit if and after this amendment is approved. Amendment is required if Financial Benefits change >10%

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 41 Project Charter ROI Revisions Required when Benefits change >10% Project Scope and Timing Revisions Approval to Amend Signatures

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 42 Trademarks And Service Marks Trademarks of Six Sigma Academy: Breakthrough Design Breakthrough Software Design Breakthrough Diagnosis Breakthrough Execution Breakthrough Lean ® Breakthrough Sigma Lean Breakthrough Six Sigma Breakthrough Strategy ® Breakthrough Value Services ® FASTART INTELLEQ METREQ WE WEAVE EXCELLENCE INTO THE FABRIC OF BUSINESS Six Sigma is a federally registered trademark of Motorola, Inc. SigmaFlow is a trademark of Compass Partners, Inc. MINITAB is a trademark of Minitab, Inc. VarTran is a trademark of Taylor Enterprises

Copyright © Six Sigma Academy International LLC All Rights Reserved Project Charter Pg 43 Six Sigma Academy US Tel: (480) US Fax: (480) International Tel: International Fax: E. Pinnacle Peak Road, Suite 100 Scottsdale, AZ 85255