Business Process Improvement Project – Process Detailing Exercise
Business Process Improvement provides an excellent opportunity for Organizations to overhaul their existing operations, to increase efficiencies, eliminate wastage as well as to implement new and improved methods of working. The ground for BPI projects is not only with Organizations who aim to move from a people dependent operation to Process driven Organization but also […]
Waiting Line (Queue) Management – Meaning and Important Concepts
Introduction The waiting line or queue management is a critical part of service industry. It deals with issue of treatment of customers in sense reduce wait time and improvement of service. Queue management deals with cases where the customer arrival is random; therefore, service rendered to them is also random. A service organization can reduce […]
The Drivers of Globalization: Friedmans Flatteners
The famous author and cheerleader for globalization, Thomas Friedman, in his book The World is Flat identified some key drivers of globalization. He called these factors the flatteners to denote the premise of the book that these factors were responsible for the flattening of the world. In other words, globalization has ensured that all countries […]
What Are Near-Shoring and Friend-Shoring and Why They Matter For Western Multinationals
We All Know What Offshoring Is! But, Do We Know What Near Shoring and Friend Shoring Mean? The term Offshoring is well known for business and management professionals. It denotes the practice of locating manufacturing facilities outside the home country of firms for cost related or efficiency related reasons. Offshoring can also entail the practice […]
Crackdown on Indian Credit Rating Firms
Credit rating industries are part of a closely held industry. For years, this has worked in favor of these agencies since they have to face less competition. However, these agencies are also the first ones to get blamed after every financial crisis. It is a known fact that no one can really predict a market […]
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.
Your email address will not be published. Required fields are marked *
Step 3B: Choosing the Correct Control Chart (Continuous Data)
February 12, 2025
