Financial Spin-offs From Implementing Six Sigma

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The Six Sigma approach comprises a management initiative, improvement projects and a set of methods and tools. Six Sigma is about a breakthrough in business improvement. Companies trying to implement the program find considerable difficulty in getting commitment from various functions. This happens despite the project teams being able to identify significant operating efficiencies. The main reason for this is the impact on the company’s bottom line not being clearly discernible. The Six Sigma program can be implemented much more effectively if the CFO and his/her staff can be brought on board so that their concurrence can be obtained.

The Six Sigma Program:

The Six Sigma strategy aims at achieving breakthrough business improvements and then creating the required infrastructure and systems to grow and maintain the gains. Typically, Six Sigma projects target a 30% to 60% process improvement in 4 – 6 months. The overall aim is that the Six Sigma mindset should spread throughout the organization. Employees become aware of the ramifications of poor performance, unproductive processes and non-value adding activities. It is essential that the improvements be linked to the bottom line. In fact, many organizations stipulate that the finance department verifies the financial spin-offs, and where exactly in the financial statement this will manifest itself. A project tracking software is employed, that measures the process improvements and the financial spin-offs and generates the reports. Considering the importance of the impact on the bottom-line, the finance function has to closely associate with the initiative from the outset.

Co-opting the Finance Function

The success of the Six Sigma program depends largely on selecting and training the right people to fill key roles. Good companies allocate potential leaders on a high career growth path to fill key project positions. The detailed composition of the team is always a matter of debate. The team must have cross-functional representation to tackle various issues that may arise. Finance and accounting executives have a particularly important role as they act like scorekeepers and report on key business parameters affecting the bottom-line. This results in creating greater shareholder value, which in turn ensures the success of the Six Sigma initiative. The finance professional must be co-opted at the inception of the project to contribute the maximum value to the team. He can, also help in designing an appropriate incentive system for rewarding performance by team members in tandem with human resources.

Quality Issues:

Quality in businesses encompasses the entire process and focuses on eliminating defects and producing goods and services that satisfy the customer. The Six Sigma process incorporates the financial aspects at all stages of the project:

o Before starting a project, a financial impact analysis is carried out to identify benefits.

o During the project, the employees and management become aware of the actual processes of the business in various aspects, and how they are performing, including financials.

o After the project or during completion, a review of actual results is done and the returns quantified. This serves as a feedback for the Quality department.

Any quality program, including the Six Sigma initiative, can be much more effective if the project is tied to quantifiable financial results. Informed and motivated employees, with good training can make all the difference to the success of the program.

Source by Alexander Gordon

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