Chartering Module

Pg 2 Defining Value … Canvas$ 5.75 Oils $ 8.50 Frame$75.00 Nail$.05 String$.02 Value =$89.32 Like $15 Million Man

Pg 3 Chartering Module Content Roles and Responsibilities Charter Flow Charter Components Good and Bad Charter Example Intro to Benefits Calculator Charter Troubleshooting Examples, Examples, Examples Charter Exercises

Pg 4 Chartering Roles and Responsibilities Champion MBB Black Belt Process Owner Steering Committee Identifies areas of opportunity within span of control Works with Champion to write charter Used as needed on a limited basis supports Champion in charter writing (data collection & analysis) Handed finalized charter Directs Company project focus Approves final charters Supports Champion with the technical aspects of the charter Helps validate assumptions Writes charters based upon business needs Works with Process Owners and MBB to identify projects Financial Analyst Works with Champion on financial metrics Validates first pass financial benefits of projects Finance Champion Works with Financial Analysts to ensure consistency of approach 6Sigma Exec Team Manages Project Pipeline Encourages Champions to fulfill deployment goals

Pg 5 Charter Flow Champion MBB Process Owners Business Leaders Finance Development of Project Ideas Focus on Best Charter Opportunities Steering Committee Approval Write the Formal Charter Handoff to Blackbelt Charter ideas developed from assessment activities with process owners, business leaders and finance Filter the list of possibilities based upon agreed project guidelines: Financials Business Priorities Data Speed … Champion pulls together required elements to write charter Involves MBB, Process Owners and Financial Analysts where needed Steering committee reviews charters for proper business focus and completeness Cancels or sends back for rework charters which are inadequate Charters handed to Blackbelts based upon agreed criteria Project officially kicks off into the Define Phase Champion MBB Process Owners Financial Analysts Champion MBB 6Sigma Exec Team Champion Steering Committee 6Sigma Exec Team Champion MBB BB Process Owners

Pg 6 Charter Components Charter Template Charter Header Information Problem Statement Metric Defect Definition Project Objective Project Benefits Calculation Amendments

Pg 7 Charter Template

Pg 8 Charter Header Information

Pg 9 Problem Statement Purpose and Function of the Problem Statement: To provide Black Belts with a well defined issue upon which to apply the DMAIC method To quantify current performance relative to customer expectations To identify the financial impact of current performance

Pg 10 Problem Statement 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 It should not include any presumed causes or pre-determined solutions

Pg 11 Example – Needs Improvement What Changes Need to Be Made? No baseline period indicated No baseline data, only speculation of uncharged fees No calculation of baseline financial impact of the problem

Pg 12 Example - Good

Pg 13 Metric The Project Metric should be Measurable Indicate a source for the measurement data Same units as Baseline and Objective

Pg 14 Example – Needs Improvement What Changes Need to Be Made? Metric is not normalized such that volume changes will impact project benefit How often will measurement take place?

Pg 15 Example - Good

Pg 16 Defect Definition The Defect Definition should be Specific to the issues described in the Problem Statement and Objective Consistent with the metric

Pg 17 Example – Needs Improvement What Changes Need to Be Made? What if, on a given day, 98% of the audit confirmation fees are charged? Is the day a “defect”?

Pg 18 Example - Good

Pg 19 Project Objective Objectives should Agree with validated measurements of performance Be based on clear project boundaries Be attainable by the scheduled project completion date Be consistent with VOC (Voice Of the Customer) requirements

Pg 20 Project Objective The objective should be based on accurate baseline data versus entitlement. When no entitlement can be determined, an average Six Sigma project will yield a 70% improvement in process performance; in those cases, it is typically appropriate to set the Project Objective for a 70% reduction in defects.

Pg 21 Example – Needs Improvement What Changes Need to Be Made? The Objective statement should not assume a solution The Objective should begin by stating from [baseline data] to [objective] The anticipated completion date should be indicated

Pg 22 Example - Good

Pg 23 Project Benefits Project Benefits are generally characterized as Margin improvements that can be directly attributed to the Six Sigma project A reduction of operating expenses Operating Income contribution resulting from revenue enhancement projects

Pg 24 Project Benefits The Project Benefits should Cite a minimum of $250,000 in hard dollar savings (Black Belts) Cite a minimum of $40,000 in hard dollar savings (Green Belts) Be achievable in 4 to 6 months Have P&L Impact

Pg 25 Example – Needs Improvement What Changes Need to Be Made? Given baseline data and a stated objective, the specific calculation of anticipated benefits should be on the face of the charter or attached

Pg 26 Example - Good

Pg 27 Amendments A Project Amendment is typically required When project benefits decline by 15 to 20% When the anticipated project close date slips by more than 30 days

Pg 28 Introduction to Benefits Calculator Through the Define and Measure Phase the Blackbelt establishes the Baseline performance of their project metric and works with the Financial Analyst to determine its associated financial impact on a period basis BaselineForecastActuals During the Analyze phase the Blackbelt validates the final financial project assumptions and with the help of finance, forecasts benefits for their project Actual benefits for the project are tracked according to deployment guidelines by the process owner or directed individual. Actuals compare the historical baseline performance of the project metric to current performance and calculates project benefits Converts The Improved Metric’s Performance Into Financial Benefits

Pg 29 Baseline - Benefits Calculator What Today’s Performance Is Costing Us

Pg 30 Forecasting - Benefits Calculator What Improved Performance May be Worth

Pg 31 Actuals - Benefits Calculator What Are The Actual Quantifiable Benefits From The Project

Pg 32 Charter Troubleshooting Process Owner Buy-in  Has the Process Owner agreed to the Charter, proposed benefits and has resources available to go forward with the project? Problem Statement  Does the Problem Statement contain a date range of baseline data, a baseline and source of data and the timeframe it was gathered? Is there a “Pain” sentence as the last sentence in the Problem Statement? Objective  Does the Objective state an “increase” or “decrease” from the baseline to the goal (% improvement) by a specific project target end date?  Do the Problem Statement, Primary Metric and Objective support one another?

Pg 33 Charter Troubleshooting - Continued Metrics  Is the Primary Metric documented and normalized for volume (i.e. if volume increases or decreases will the way the metric is used still make sense?)  Is there a Secondary Metric that ensures no undesired results occur due to a change in the Primary Metric? If not, is there a good reason there is no secondary metric?  Do metrics contain units (i.e. % defective, cycle time in mins, daily, weekly, monthly, etc.)?  Does the Defect Definition tie to the Primary metric and will it aid in establishing the Primary Metric chart? Finance  Is the financial value supported by computations?  What assumptions are in the financial value?  What business line will benefit from the savings?  Does the business line manager agree to any resultant budget adjustment?

Pg 34 Be sure that the team members have been identified. A project should not be approved without Process Owner buy-in. More Charter Examples Needs Improvements

Pg 35 No baseline data available. Is this the best use of the belt resource. This is a recurring issue that often results in cancelled or lengthy project cycle times More Charter Examples Needs Improvements

Pg 36 The entire charter is focused on the financial impact (cost) of the problem. The problem should be stated in terms of what drives the need for Outside Sorting. The Project Objective does not indicate when the project will be completed. When the Problem Statement has been properly stated, the metric and defect definition should align to the driver. The financial benefit of this project would be $488K (67% of $729K) and the charter writer would likely have caught this mistake if the calculation was on the face of the charter. This is NOT cost avoidance but a reduction in expense from one period to the next (P&L impact). More Charter Examples Needs Improvements

Pg 37 No baseline data. Overall poorly written charter in which the defect, metric, and objective are not aligned. No financial benefits determined. Based on the Project Objective, isn’t the defect definition “any box that must be opened after taping”. Without knowing specifics of the business, scope seems too large. More Charter Examples Needs Improvements

Pg 38 More Charter Examples Needs Improvements

Pg 39 More Charter Examples Needs Improvements Well written charter but Metric is not normalized based on cash flow.

Pg 40 More Charter Examples Good Note that this is the same as the previous “needs improvement” charter. Baseline period has been updated with more recent data, project goal was changed from 70% improvement to 60% improvement and metric has been normalized.

Pg 41 More Charter Examples Good

Pg 42 More Charter Examples Good

Pg 43 More Charter Examples Good

Pg 44 Charter Exercise Within the Packaging Department at Lava Lamps R Us, there are multiple packaging lines each performing two types of packaging set-up changeovers. “A” packaging set-up changeovers are performed when the team is packaging the same lamp branded for a new wholesaler. “B” changeovers are performed before the team begins to package a different lamp. The current times to perform both changeovers are above industry averages. With the tremendous growth in our U.S. market share and the expansion into several new markets abroad, we are capacity constrained. Our union agreement does not allow us to hire weekend staff. Since we are not meeting customer demand, all employees are required to work Saturday and Sunday to get product packaged for shipment. A 6-Sigma project was just completed that optimized the number of changeovers. Your project is to reduce the set-up time for both changeover types. Your goal is based on research done to benchmark changeover times for both processes. If your project is successful, all changeovers can be performed during normal business hours and you will achieve Management’s goal of no overtime. There is no opportunity to reduce staff (union again!) and the company does not recognize cost avoidance savings.

Pg 45 Charter Exercise Below is data gathered for this project. Working with your team, write a project charter for this project with the goal as stated for the respective changeover types. If you make any assumptions to calculate financial benefits, document each assumption on the face of the charter or an attached benefit calculation sheet.