Define Phase Selecting Projects

1. Define PhaseSelecting Projects

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

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

4. 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. Project Selection – Core Components

5. Project Selection - Governance

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. • EBIT • Cycle time • Defects • Cost • Revenue • Complaints • Compliance • Safety Level 2 Level 2 Level 1 Level 2 Level 2 A Structured Approach – A Starting Point

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

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 2 Level 3 Activities Processes Level 1 Level 4 Level 2 Activities Processes Business Case Components – Level 1

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. Business Measure Business Measure Activities Processes Primary Business Measure Business Measure Business Measure Activities Processes Business Case Components – Business Measures

10. Y = f (x1, x2, x3…xn ) Business Measure Business Measure Activities Processes 1st Call Resolution = f (Calls, Operators, Resolutions…xn ) Primary Business Measure Business Measure Business Measure Activities Processes Black Box Testing = f (Specifications, Simulation, Engineering…xn) Business Case Components - Activities

11. Business Measure Business Measure Activities Processes Primary Business Measure Business Measure Business Measure Activities Processes Y = f (x1, x2, x3…xn ) Resolutions = f(New Customers, Existing Customers, Defective Products…xn ) Simulation = f (Design, Data, modeling…xn ) Business Case Components - Processes

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! What is a Business Case?

13. Business Case Example 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.

14. The Business Case Template 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)

15. Exercise objective: To understand how to create a “strong” Business Case. • 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) Business Case Exercise

16. 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: What is a Project Charter? • 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

17. 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. Project Charter - Definitions

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

19. Project Charter – Objective & Scope • 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

20. Pareto Analysis • Pareto Analysis: • A bar graph used to arrange information in such a way that priorities for process improvement can be established. • The 80-20 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.

21. 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 The 80:20 Rule Examples

22. Pareto Chart - Tool • 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

23. Interpretation: Level 1: Department J Makes up 60% of the Scrap Level 2: Part Z101 Makes up 80% of Department J’s Scrap Pareto Chart - Tool Level 2 Level 3

24. Open “Define Data Sets.xls” and use the “Call Center” worksheet to create a Pareto Chart. Pareto Chart - Example

25. Pareto Chart - Example What would you do with this Pareto? When your Pareto shows up like this your focus is probably too broad.

26. Pareto Chart - Example • Let’s look at the problem a little differently… • Using a higher level scope for the first Pareto may help in providing focus. • Create another Pareto as shown above.

27. Pareto Chart - Example This gives a better picture of which product category produces the highest defect count. Now we’ve got something to work with. Notice the 80% area, draw a line from the 80% mark across to the cumulative percent line (Blue Line) in the graph as shown here.

28. Pareto Chart - Example • 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.

29. Pareto Chart - Example Now what, we’ve got ourselves another “Flateto”… Essentially this tells us that there in no clear direction within the Platinum Business Accounts.

30. Project Charter – Primary Metric • 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.

31. Project Charter – Secondary Metrics • 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.

32. Project Charter – Metric Charts • 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.

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

34. What is the Financial Evaluation? • 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.

35. Whatever your organization’s protocol may be these aspects should be accounted for within any improvement project. I M P A C T Sustainable Impact “One-Off” Impact C O S T C O D E S Reduced Costs Increased Revenue Costs Implemen- tation Capital F O R E C A S T Realization Schedule (Cash Flow) By Period (i.e. Q1,Q2,Q3,Q4) Benefits Capture - Calculation “Template” 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

36. 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). Benefits Capture – Basic Guidelines

37. D B C A Benefits Capture - Categorization • 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!

38. Benefits Calculation Involvement & Responsibility

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. Benefits Capture - Summary It’s a wrap!

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

41. 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 Summary

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