How to Draw a Fishbone Diagram
Given the usefulness of the fishbone diagram, it is essential that every student of quality and six sigma know how to use it. To aid the students in learning, here is a step-by-step procedure of how a fishbone diagram must be drawn: Step 1 – List The Effect (Problem) to the Right: A fishbone diagram […]
The Facebook Debacle and the “Own Your Data” Movement
The world media was recently rocked by a data breach scandal involving Facebook. This scandal wherein Facebook had allowed a third party named Cambridge Analytica to misuse the information of its users created a ruckus. Various campaigns broke out, and activists wanted to ensure that the integrity of the user’s data was not compromised by […]
Transformation of Business Intelligence in the Age of Big Data
The Transformation of Business Intelligence from Analysis to Prediction Business Intelligence which refers to the slicing and dicing of data to mine it for clues on everything from consumer behaviour to the business strategies of rivals and competitors has come a long way since the earliest days when it was used for market intelligence to […]
Finished Goods Supply Chain Operations
FG Supply Chain consists of all activities involved in movement, storage and distribution of Finished Goods from the Delivery point of Plant to the Point of Sale. In the case of global supply chains, supply chain management gets more complicated with the variations arising out of different countries regulations and logistical practices. Computer Hardware supply […]
Pharmacy Benefit Managers: The Root Cause of High Healthcare Prices
Healthcare prices in the United States are much higher than compared to the rest of the world. There are many factors which can be held responsible for this high price. However, one of the most important factors is the presence of unscrupulous middlemen. Pharmacy benefit managers (PBMs) are one such class of middlemen which act […]
There has been considerable debate in the industry in the past as to whether Six Sigma projects are worth all the hoopla that has been surrounding it. For decades before this debate, Six Sigma was followed in a cult-like manner and organizations would never question the financial viability of the projects undertaken. However given the fact that many conmen type consultants have surfaced in the recent past promising unbelievable benefits from Six Sigma projects, checks are now imposed to ensure that the projects are financially viable. Here is a list of some prominent issues in Six Sigma financial evaluation as well as how these issues have been solved.
Projected Numbers Never Materialize: At the end of the Six Sigma project, the Finance Certifier gives the PNV of the project. This is the Projected Net Value of the project and markedly different from the Net Present Value (NPV). The difference stems from the fact that all the calculations mentioned are hypothetical in nature. This means that it is assumed that the process will continue behaving in a certain way and financial benefits will be realised over a period of time. However an analysis of the past projects has shown that the reality was very different. In many cases, the projected numbers were not realised.
Calculations are Off-base: A deeper evaluation of past Six Sigma projects shows that the reason gains were never realised was the fact there were no gains in the first place! The numbers used to show the financial viability of the project were off base. Many times it was assumed that market shares would increase because of efficient processes, however it did not materialise because competitors improved their processes too. It was clear that the consultants were accounting for gains that were beyond the control of the organization.
Bonuses are Paid on Projections: What intensified the debate further was the fact that bonuses were paid to executives on the basis of these fudged numbers. Executives therefore had an interest to inflate the financial viability of the project and show it off as a bigger success than it actually was misleading the strategic initiative of the organization involved.
As a result of this debate, many organizations have become vigilant on what they spend towards Six Sigma initiatives and what is the Return On Investment (ROI). Here are some of the initiatives that have been started:
Follow Up Review: A project is not considered an immediate success on completion. Reviews are set up every six months or so where the senior member of the project team meet with the senior management to check whether the project is on track and delivering what was promised to the organization, if not, why? And what can be done to ensure that the gains are in fact realised?
Standardized Calculation Policy: Many corporations have come up with explicit policies regarding how calculations pertaining to Six Sigma projects can be done. This has eliminated the problem of fudged numbers to a large extent.
Personal Accountability: A large part of the bonus of the executives is linked to the realization of gains. Bonus is announced at one go, but paid over a period of time if reviews show the project is one track.
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Step 3B: Choosing the Correct Control Chart (Continuous Data)
February 12, 2025
