Do Reforms drive International Businesses or International Businesses drive Reforms ?
Reforms driving International Businesses or Vice Versa? It is debatable whether the reforms in emerging and developing markets drive the entry of international businesses into those markets or whether the international businesses with their strategies drive reforms in these markets. Of course, the bottom line requirement for any international business to enter the emerging markets […]
Contract Logistics & Warehousing – Pricing & Costing Mechanisms
3PL Logistics Service Providers are many in the market. There are players from Multi National background, regional players, local companies and individually managed business organizations. Warehousing business, on the other hand, can flow through warehouses, consolidation and merging centers, finished goods stocking points, forward locations, raw material warehouses, JIT/VMI operations, Bonded warehouses, in plant warehouses, […]
What are Metrics and Why are they Important?
What are Metrics? Metrics are numbers that tell you important information about a process under question. They tell you accurate measurements about how the process is functioning and provide base for you to suggest improvements. It is said that only when one can express their understanding in terms of numbers is the understanding satisfactory and […]
How to Use a Fishbone Diagram
The fishbone diagram, which also goes by a couple of other names like the Cause and effect diagram and the Ishikawa diagram is one of the seven basic tools of quality management. It has wide ranging applications in almost all six sigma projects. The Fishbone diagram is a simple but highly effective tool in problem […]
Customs Clearance – Meaning, Scope and Documentation
Customs Departments are the government designated authority to implement the policies related to import and export, collect customs duties and facilitate movement of people, goods, and cargo into and out of the country. Area of Operations and Authority Customs departments have offices at all seaports, airports and border gateways that are essentially the exit and […]
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
