Finance Vic Rainsford Vice President Planning & Analysis Jim Palmer Sr. Mgr. Planning & Analysis

2 Benefits Measurement n Benefits measurement is integrated into Six Sigma methodology (not an afterthought) n Benefits must be aligned with company’s goals n Focused on significant improvement opportunities n Structured to ensure Hard, Realized benefits n Appropriate controls implemented up-front Benefits Measurement Is A Critical Component Of A Successful Six Sigma Initiative

3 Functional Champion Finance Data Experts Steering Committee Instructor Provide overall Project governance Provide specific project charters Assist in obtaining data for selection of project areas and individual projects Trains & Mentors Black Belts Partner with Engagement Manager and MBBs Assists Functional Deployment Leader with project strategy Validates financial benefits of projects Finance – One of Many Partners Provides executive oversight for all Six Sigma activities Controls resources within the functional group Drives the Six Sigma initiative

4 Role of Finance n Define the Policies Driving Project Selection n Two Basic Selection Criteria n Minimum $250k in Hard Dollar Benefits in OI in 1 st year n Can be completed in 4 to 5 months n Then Prioritization of Selected Projects n ROI contribution n Project Complexity n Initiative Financial Reporting n Initiative level costs and benefits n Project level data & reporting tools for Financial Analyst and Black Belt n Utilization of a Project Charter Template for tracking each project

5 Role of Finance n During DMAIC Process: n Qualification of Project Opportunities n Review Black Belt’s Process Measurement Proposals n Validation of Projected Benefits as “Hard” Savings n Ongoing Project Financial Improvement Evaluation n Final End-of-Project Savings/Benefits validation n After Project Completion n Continual Review of Project Financial Results Disciplined Financial Review Is Essential During And After Project Completion

6 Savings Defined n Definition of “project benefits” is grounded in P&L impact n “Hard” Savings n Must be measurable, controllable and contribute to earnings n Sources n Margin improvements directly attributable to Six Sigma projects n Reduction of operating expenses n Lower carrying cost related to Working Capital (Inv / AR) reduction n OI contribution from revenue enhancement projects Benefits Must Be Directly Observed On The Bottom Line

7 Black Belt vs. Financial Analyst n Black Belt’s role n Business Process Data collection n Original analysis of process measurements n Project cost/benefit analysis n Overall Project Management n Financial Analyst’s Role n Provide budget information by cost center n Validate Business Process Measurements n Validate Cost / Benefit Analysis Financial Analyst Validates The Black Belt’s Original Analysis

8 Define Measure BB/MBB Finance Steering Committee Review assumptions, High level estimates, Consider up- stream/down-stream effects Categorize as hard/cost benefits Review measurement proposals Identify appropriate sources & uses of financial data to measure, estimate & validate as project progresses Analyze Improve Control Review Approve or re-direct Draft Charter High Level Problem statement, process definition, potential financial benefits & cost Engaged by BB as needed to update measurements, financials Update Charter as necessary while progressing through project phases. Engage Finance, Process Owner as needed. Request Steering Committee Approval if Method of measuring benefits OR significant change to benefits forecast is required. Validate actual benefits with BB/MBB Update forecast if necessary Sign-off Project Implements Control Plan Validates benefits with Finance Presents to Steering Committee for Sign-Off Review Approve or re-direct Finance Champion Approves Functional Champion DMAIC Process Map - - Finance Project Selection Draft Charter Functional Champion Sustain Long Term Project Benefits Utilize Ops reviews and Control Charts (Dashboard)

9 Finance Role During DMAIC Process n Project Definition stage: high level “sanity check” n The Project Champion completes a Business Process evaluation model with high level estimates of OI benefit. n Finance assists Black Belt in assessing and interpreting process data n Finance assists Black Belt in summarizing project costs and benefits n Questions for Finance to ask n Are these hard dollar benefits? n Are you measuring the Right factors in the business process? n Are there other possible sources of benefits? A more effective project? Additional sub-Projects? n Does this opportunity meet the minimum benefit requirements?

10 Finance Role During DMAIC Process n Measurement and Analysis stage: before the Process Improvement takes place n The Black Belt reviews and updates the financial model n Questions for Finance to ask: n How do these estimates compare with the previous estimates? n Do these benefits look realistic for the proposed improvement? n Are there any errors in the business process data? n How do the savings estimates compare with current budget numbers? n Is the decision to proceed confirmed?

11 Finance Role During DMAIC Process n Improve and Control stage: at completion of the project n Detailed “audit” of benefits to confirm total targeted benefits n Finance works with Black Belt to validate & verify project results n Questions for Finance to ask n Did the process improvement take place? n Does the process improvement result in the reported level of savings? n Are appropriate procedures in place to maintain the improvement? n Ongoing tracking of financial results n Provide support to Project Champion to monitor sustainability of benefits

12 Long-term Tracking of Benefits n A system will be implemented to record all projects & report all project benefits: n Track projects by Functional Area. n Track through each of the DMAIC stages n Forecast benefits stream and track actual (ongoing) benefits n Report results by Function, Black Belt, Project Champion, Fiscal Periods, Benefits category, etc. n Changes to a project’s Benefits Measurement method requires Steering Committee approval A Management Reporting Tool Will Allow Continual Results Tracking

13 Project Statement: Hard copies of sales documents are used for processing transactions. The “Order to Ship” process is not optimized resulting in delays in shipping product. Inefficient use of labor in making and distributing document copies. Critical To Quality: Defect Definition: Project Objective: Reduce labor costs. Reduce transaction processing cycle time. Reducing “Order-to- Invoice” cycle time by 1 day will bring a one time increase in Gross Profit of 1 day’s revenue. Timeline: Complete initial implementation of project in 4 months Current/Goal/Stretch Goal ________ current DPMO/DPU ________ goal ________ stretch goal Target Benefits: Reduce “Order to Book” cycle time 1 day. This reduces the “Order-to-Invoice” cycle time by 1 day. $300k reduced operating expense. $1.2mm one time OI benefit. Progress to Date: Existing business process defined Completed measurement validation New process flow being mapped Leverage opportunities identified Leveraging: Pilot process design will be replicated across all Call Centers and Regions. Example: Sales Document Imaging Project

14 Imaging Project Benefit Summary One Time Benefit: 1 day reduction in “Order to Bill” process resulting in one time benefit of $1.5 mm in increased GP. Offset by one time $300k increase in Commission Expense Recurring benefit: Reduced labor costs of $4.3mm over 5 years. Avg annual savings of $870k. Marginal Project Expense: $2.8mm total for hardware and software. $560k Avg annual expense increase. Project SavingsImpact To P&L

15 Benefits Measurement Framework Summary n Structured Project identification & selection against Policy Standards n Clear definition of benefits established & communicated n Consistent application of Project Charter template to identify, monitor & manage project progress & benefits n “Stakeholders” involved at every stage of process n Operational & financial metrics baselined, monitored, measured and approved

16 Benefits Measurement Framework Summary n Steering Committee approval required: n To start project, n At the end of each DMAIC phase n At project completion (benefits must be demonstrated at Control Phase before project completed) n Process Owner continues to monitor process performance, owns Control Plan, assures benefits realization n Post-implementation benefits review/audit Steering Committee And Stakeholder Involvement Are Key Process Controls