The Project Selection Process

One of the most difficult activities in Six Sigma deployment is the project selec- tion process. Projects can be divided into two types based on project savings: hard (bottom-line) savings and soft savings. Hard savings data can be obtained from a financial analysis of year-to-year spending, budget variance, and improvements in revenue. Hard savings could be a result of cost reduction, revenue enhancement, or a combination of both. Examples are presented in Table 1.4. Soft savings, on the other hand, are difficult to quantify, but soft savings may result in lowering capi- tal and/or budget requirements. Examples are presented in Table 1.4. Additional examples are on-time delivery, customer satisfaction, improvement of the sys- tem’s process potential index (Cp), and improvement of the system’s process capa- bility index (Cpk). Cpand Cpk are discussed in Chapter 3, Measure.

Additional elements impact selection of the right project:

• Correct selection of a right project can have a tremendous effect on the business. Once the project is implemented, processes will function more efficiently, employees will feel satisfied, and ultimately, share- holders will see the benefits.

• If a right project selection is made incorrectly and the selected project does not have full business buy-in, project roadblocks may not be removed due to other business priorities, the project team may feel ineffective, and the end result may be less than ideal. No one wins under these situations. Select a right project that is in line with busi- ness priorities.

• Ask business leaders, “What are the three greatest issues facing the business?” Ensure that the project chosen addresses one of these issues or is directly related to one of them. Including an important issue will increase the probability that the management team provides the proper attention and quickly removes hurdles to ensure successful completion of the project.

• Ask a similar question to customers. “As a customer, what are the three greatest issues at our company that are of concern to you?” To sup- port customer issues, investigate data from sources such as customer complaints. Specifically call customers who have cancelled services from the business.

• A selected project should be completed within 6 months. If the selected project is of longer duration, the team leader may lose team members as they take on other projects or other jobs.

Information presented so far provides a broad view of project selection, sav- ings, and sources. The following are more formalized steps for the project selec- tion process that will lead to the project’s mission statement:

1. Identify potential problems. 2. Obtain information/data. 3. Prioritize problems. 4. Characterize problems. 5. Evaluate and select project. 6. Prepare mission statement.

Discussing the six steps is facilitated by using an example. The setting is a jet engine manufacturing company. Assume that the company has a Six Sigma team leader. He is an employee in the jet engine manufacturing company. He has asked the company’s business leaders a question: “What are the three greatest issues fac- ing the business?” Responses from the business leaders would likely include:

• Losing revenue • High inventory • High resources cost

The following discussion will utilize the six steps to identify potential prob- lem(s) for the jet engine manufacturing company.

Step 1: Identify Potential Problems

The Six Sigma team leader wants to identify the potential problem(s) that result in loss of revenue. Revenue is derived from customers when they purchase jet engines. The Sales group sells the engines and the Service group provides service for the engines after they are sold. Generally, the Sales and Service groups are the last groups that maintain contact with customers.

As previously discussed, sales and services are processes just like any other process such as product designing and manufacturing. A process can be presented as a set of inputs, which, when used together, generates a corresponding set of outputs. Therefore, “a process is a process,” regardless of the type of organization and the function of the process. All processes have inputs and outputs. All processes have customers and suppliers. All processes may exhibit some level of variation. The Six Sigma team has to understand the root cause(s) of the varia- tion, find alternative solutions, and select and implement the best possible alter- native to minimize/eliminate the variance. To identify a potential problem(s), the team leader needs to analyze the inputs, the process, and the outputs with the key elements as listed below. This process is known as IPO (Input-Process-Output):

Inputs:

• Cost of unacceptable quality • Unsatisfied customer • Business strategy and plans • Reviews and analysis of input data • Management and other employees Process:

• List potential problems as identified by each source and their impact on: – Maintaining existing customers

– Attracting new customers – Return on investment

– Reducing the cost of unacceptable quality – Improving employee satisfaction

• Investigate key information sources in the organization.

Outputs:

• Evaluate process inputs.

• Develop a detailed list of potential Six Sigma projects. • Input information into project evaluation.

Note: Output from an IPO process becomes input for a project evaluation

process, in which it is compared with customer needs. IPO output must meet cus- tomer needs.

It is critical to understand the IPO process and relate how inputs are linked to outputs. The IPO process is used to develop a list of potential Six Sigma projects. (Remember: Six Sigma applies to manufacturing and nonmanufacturing processes.) Because revenue lost is a sales process, an IPO diagram for a sales process has been developed (Figure 1.4). The next step is to investigate and obtain prime sources of information managed by the manufacturer (the jet engine com- pany) and by customers.

Step 2: Obtain Information/Data

Several sources of information can help uncover issues affecting revenue: • Customers—Customer opinions are important. Customer com-

Table 1.4. Examples of Hard and Soft Savings Savings Type: Revenue improvement

Savings Category: Hard savings

Definition: Increased throughput over the planned level to meet market demand without any major capital expenditure. Additional savings will be a product of an increase in throughput and the product’s profit margin.

Example: A Six Sigma project was implemented in the inserter manufacturing area. The project improved throughput by 16% above the planned baseline.

Savings Type: Cost reduction Savings Category: Hard savings

Definition: Decrease in spending from prior year’s baseline budget. These savings can be normalized for changes in production.

Example: The Six Sigma project improved the efficiency of the heating system in the customer service building, resulting in a 15% savings in heating gas year after year. Savings Type: Cash flow improvement

Savings Category: Soft savings

Definition: Reduction of capital tied up in inventory/components, WIP, and finished products.

Example: A Six Sigma supply chain project was implemented, resulting in 25–50% reduction in suppliers’ lead time. Therefore, inventory was reduced.

Savings Type: Capital avoidance Savings Category: Soft savings

Definition: Eliminated or deferred future capital. This was an approved capital funding either for the current year or for a future year.

Example: The Six Sigma project improved the grinding process, resulting in eliminating the need for an additional set of grinders.

Savings Type: Cost avoidance Savings Category: Soft savings

Definition: Eliminated or deferred future expenses. These expenses have not occurred and they were not budgeted.

Example: A test machine was consuming more-than-normal material to perform a test. A Six Sigma project was implemented to reduce material consumption at the test machine. The Six Sigma project brought material requirements to normal levels.

• Product Reviews/Audits—Many manufacturers maintain data on the cost of poor quality in the areas of Quality Assurance, Internal Audit, and Management Engineering.

• Business Plans—Businesses develop strategic plans with goals and other business objectives. Some of these plans may call for significant quality improvement projects.

• Managers/Other Company Employees—Managers and other associ- ates are often the first to recognize opportunities to improve the prod- uct and customer service.

As information is obtained from the sources helps to identify problems, col- lect specific objective data on each problem or process that has been identified as a potential project. Collected/available data should answer some of the following questions:

• What complaints and dissatisfaction issues are most likely to drive away existing or new customers? Example: Commercial jet engine cus- tomers are typically airlines. Airlines cannot afford to keep a jet plane on the ground because a few jet engine parts are needed from the jet engine manufacturer.

Sales Process

Sales Volume Number of Defects

Number of Contract Errors Number of Lost Sales Number of Sales-Related Customer Complaints

Input Process Output

Product Line Intelligence Customer Relationship Sales SOP

Pricing Policy

Sales Workforce Sales Training

Sales Incentive System Competitor Intelligence Product Distribution

Sales Follow-Up Policy Payment Policy

Contract Completion Cycle Time Profit Margin

Sales Person Uniformity Sales Identification of Customer Needs

Market Share

• What are our most costly deficiencies? Example: The jet engine man- ufacturer’s difference (deficiency) in original cost estimation for over- haul of a jet engine vs. the final billing. Generally, original estimates are too low compared to the final cost of overhauling a jet engine. • What level of performance does the competition deliver and how does

it compare with our level of performance?

• Which deficiencies in our internal processes have the most adverse affect on employees?

Brainstorming. Sometimes brainstorming can be used to develop a list of potential problems. Brainstorming is an excellent approach to generate a list of ideas, but it must not be a substitute for information or data collection. There must be no judgment or analysis of ideas during a brainstorming session. One or a few individuals should not dominate the presentation of ideas.

In brainstorming, it is critical to recognize that the differences between cre- ativity and logical thought do not imply that there are differences in the truth or

usefulness of ideas produced. It is the method by which an idea is produced that is

the difference. Logical thought follows rules and can be reproduced by anyone using the same rules. Creative thought is not determined by rules and usually can- not be duplicated by others. Key steps in a brainstorming process include:

1. Preparation for the Session—The purpose statement must focus on the issue. The statement must be broad enough to allow creativity, but have no leading emphasis. Communicating the purpose of the session ahead of time is very helpful for participants. An ideal num- ber of participants would be six to ten.

2. Introducing the Session—Describe and review basic brainstorming rules:

– Ideas will be listed on a flip chart or a visible screen. – No criticism or evaluation of any type will be permitted. – Use unconventional thinking.

– Aim for many quality ideas in a short time.

– Using another person’s idea as a basis for one’s own idea will be allowed and acceptable.

– Make contributions in turn. – Contribute only one idea per turn. – A participant may pass.

3. Warming Up—Sometimes it is helpful to conduct a warm-up ses- sion with a neutral topic for 5 to 10 minutes.

4. The Session—Explain the issue. Write the issue so that it will be vis- ible to all participants. End the session before participants show fatigue. A session can last for 20 to 40 minutes.

5. Processing Ideas—Once the brainstorming session is over, continue working with the team to:

– Clarify each idea

– Combine and group similar ideas – Collect data on ideas wherever available

– Proceed with a cause-and-effect diagram for the ideas that have no data

By this time, the problems that have been identified must be in list form. Working on all problems on the list may not be possible. Therefore, the problems must be prioritized.

Step 3: Prioritize the Problems

Once a list of problems is developed, the next step is to select a problem from the developed list. Key elements must be kept in mind when evaluating problems for selection:

• What are the costs and paybacks?

• How much time is needed to find a solution and implement the solution?

• Probability of success in developing and implementing a solution both technologically and organizationally?

• What processes are you responsible for? • Who is the owner of these processes? • Who are the team members?

• How well does the team work together?

• Which processes have the highest priority for improvement? • How was this conclusion reached? Do data support this conclusion? The nominal group technique (NGT) is a structured process that identifies and ranks major problems or issues that need addressing. The NGT is used for:

• Identifying the major strengths of an institution/unit/department and making decisions by consensus when selecting the problem solution

• Providing each participant with an equal voice (e.g., defusing a dom- inating sales team member or influential employee who tends to con- trol the discussion and dominate the process)

Steps to follow when conducting the NGT include:

1. Request that all participants (usually five to ten people) write or state the problem/issue that they perceive is most important. 2. Develop a master list of the problems/issues (e.g., losing revenue in

a jet engine business).

3. Generate and distribute to each participant a form that numbers in no particular order the problems/issues. Request that each partici- pant rank the top five problems/issues by assigning five points to the problem they perceive to be most important and one point to the least important of their top five.

4. Tally the results by adding the points assigned to each problem/issue. The problem/issue with the highest score will be the most important problem for the total team.

5. Discuss the results and generate a final ranked list for action plan- ning.

The NGT application is presented in Example 1.1. This process will be repeated for each issue. Finally, there will be a proposed solution for each issue. The business may not have enough resources to solve all of the issues at the same time. Therefore, the issues with their proposed solutions must be prioritized again. As problem solutions are selected through NGT, these problems should be characterized according to customer needs and business strategy before going on to the next round to prioritize the selected solutions for the issues.

Note: The goal of every business is to completely satisfy customers and also to

improve profit margin. Customer satisfaction is derived by meeting customer needs; the profit margin is linked to business strategy.

Example 1.1: An NGT Application

Five possible solutions to a problem have been identified. There are six team members who must decide which solution should be attempted first. The solutions are identified as I, II, III, IV, and V. The team members are identified as A, B, C, D, E, and F.

Each member of the six-person team orders the potential solutions, produc- ing the following matrix:

Solution A B C D E F Total I 1 2 1 4 3 5 16 II 5 5 2 5 5 4 26 III 4 3 3 3 1 2 16 IV 2 1 4 1 2 1 11 V 3 4 5 2 4 3 21

Based on the matrix, solution II should get the highest priority followed by solution V.

Step 4: Characterize the Problems

Although each of the following questions might not apply to the solution of every issue, the following questions are commonly asked. They help to identify the needed information as well as to sort the information:

• How is the process performed?

• What are the process performance measures and why? • How accurate and precise is the measurement system?

• What are the customer-driven specifications for all of the perform- ance measures?

• How good or bad is the current performance? • What are the improvement goals for the process? • What are all the sources of variability in the process?

• Which sources of variability do you control? How do you control them and how is it documented?

• Are there any sources of variability that are supplier-dependent? If so, what are they, which supplier(s) is responsible, and what is being done about it?

• What are the sensitive (key) variables that affect the average and the variation of the measures of performance? Support the characteristics with data.

• What are the relationships between the measures of performance and the key variables? Do any variables interact? Support/validate the characteristic with data.

Once the listed questions have been answered, enough identified and sorted information exists to move on to Step 5, which is to evaluate and select a solution for the issue. This becomes the Six Sigma project for the team.

Note: Because data from the jet engine manufacturing company are confiden-

tial, information about the issue of “losing revenue” is not presented here.

Step 5: Evaluate and Select

The elements of this step are summarized in the IPO process with the nominal group technique (NGT), where:

Input is a list of top-priority projects (with decision-making data).

Process is to evaluate the top-priority projects utilizing NGT, with the follow- ing as some of the key criteria:

• Continuing problem

• Significant improvement in product/service • Measurable improvement

• Support the business strategy • High probability of success • Customer satisfaction • Support resistance • Project risk

Output is to select a Six Sigma project. Once the project is selected, preparing the mission statement is next.

Step 6: Prepare Mission Statement

Management should review the mission statement following Step 6 of the project selection process. The defined mission statement should describe the problem that the project team has to resolve. The IPO process can be used to prepare the mis- sion statement, where:

Input identifies the problem/issue (e.g., losing revenue)

Process describes the problem/issue and identifies the project team’s objectives to resolve the problem.

Output develops a mission statement to resolve or minimize the problem. The following criteria apply to the problem description and the mission state- ment. An effective problem description and a mission statement must be:

• Specific—Explain exactly what is incorrect; do not include other busi-

ness problems. Similarly, state what is to be accomplished in the mis- sion statement.

• Measurable—The scope of the problem must be quantifiable. Be pre-

pared to answer questions such as “How many?” “How often?” “How much?” (Also be prepared to state the case for the mission statement.) • Observable—Project team members and/or others should be able to

actually observe the problem (also the case for the mission statement once the proposed solution is implemented).

• Manageable—The problem can be resolved in a clearly defined time.

A mission statement:

• Must consider business objectives and strive to understand what the business wants to accomplish.

• Must indicate the objective of the project, i.e., what the project team must do to solve the problem.

An effective problem description and a mission statement must exclude: • Blame—Assigning blame. Do not assign blame to any individual

and/or group. Assigning blame may create defensive behavior and interfere with the team’s ability to collect and analyze data objectively. • Cause—Identifying a cause. Identifying a cause(s) in the mission

statement may prevent discovery of the true cause(s) of the problem. • Remedy—Suggesting a solution. Do not suggest/propose a solution. A

suggested solution might be incorrect. Product/service quality may become worse than expected.

Therefore, problem statement for the jet engine manufacturing company

In document Six Sigma Best Practices (Page 45-59)