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Six Sigma – Financial Overview

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Roles and ResponsibilitiesRoles and Responsibilitiesof the Finance Support Teamof the Finance Support Team

• Policy Setting– Define Savings/Benefits– Provide tools for financial analysts and BBs

• DMAIC Process: Financial Support– Project Selection and Review– Project Evaluation– Track Savings/Benefits

• Post Completion– Validate/Audit Financial Results– Forecast adjustments

• Management Reporting– Program costs and SSA relationship

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Savings DefinitionSavings Definition

• TFS6s definition of “project benefits” is grounded in EBIT impact•“Hard” Savings

– Measurable, controllable and contribute to earnings– Sources

• Margin improvements directly attributable to Six Sigma projects• Reduction of operating expenses• Lower carrying cost related to CAPEX reduction• EBIT contribution from revenue enhancement projects

• “Soft” Savings– Difficult to measure or not tied directly to earnings– Examples

• Customer satisfaction• Safety or regulatory compliance• Cash impact of reduced CAPEX

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Savings DefinitionSavings Definition - Examples- Examples

Hard Savings • Decrease bad debts (increase in revenue)• Decrease time to post payments received (increase interest income)• Decrease in Labor cost (FTEs) or Overtime Paid• Decrease in Office Supply Expense• Decrease in Travel Expense• Decrease in Late Payment Fees• Decrease in Rent/Lease Expense• Decrease in Utilities Expense• Decrease in Repair Costs

Soft Savings • CAPEX saved net of interest, depreciation, property tax• Increase in Customer Service• Increase in Customer Satisfaction• Increase in customer/employee Safety• Aid in Regulatory Compliance

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Project Benefits Template

Example To Be Tailored To Tracking System And EnvironmentExample To Be Tailored To Tracking System And EnvironmentExample To Be Tailored To Tracking System And EnvironmentExample To Be Tailored To Tracking System And Environment

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Roles and ResponsibilitiesRoles and ResponsibilitiesBlack Belt vs. Financial Analyst Black Belt vs. Financial Analyst

Black Belt– Data Collection

– Original Analysis

– Cost Analysis

Financial Analyst– Provide Budget Information by Cost Center

– Cost / Benefit Analysis

– Review / Validation

– Budget Adjustment

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Project Process MapProject Process MapDMAIC – Finance InvolvementDMAIC – Finance Involvement

Project Consideration Close Project

Finance Sign-Off: Business

Unit / Division Finance

Champion

Project Assignment

Project Champion

Enters High Level Estimate of

Cost Savings

Measure & Analyze

• Establish Budget and Savings.

• Enter Data into Tracking Model

• Finance Sign-Off by Project Team Financial Analyst.

• Sign-Off by Functional Deployment Champion - Finance

Improve & Control

• Sign-Off by Project Team Financial Analyst

• Sign-Off by Director-Level Deployment Champion - Finance.

• Sign-Off by Functional Deployment Champion - Finance.

• Appropriate Budgets Adjusted.

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Finance Sign-OffFinance Sign-Off

1. Project Consideration and Definition stage: high level “sanity check”

– The Project Champion completes an evaluation model with high level estimates of EBIT benefit, in thousands of dollars

– Questions for Finance to ask:– Are there hard savings?– Are the savings categorized correctly? (ie hard versus soft)– Are there other possible sources of savings?– Is this an opportunity to save $250,000 or more?

2. Measurement and Analysis stage: before the Process Improvement takes place

– The Black Belt reviews and updates the financial model– Questions for Finance to ask:

– How do these estimates compare with the previous estimates?– Do these savings look realistic for the proposed improvement?– Are there any errors in the data entry?– How do the savings estimates compare with current budget numbers?– Is the decision to proceed confirmed?

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Finance Sign-OffFinance Sign-Off

3. Improve and Control stage: on completion of the Project– Detailed “audit” of savings to confirm total targeted benefit– Questions to ask:

– Did the process improvement take place?– Does the process improvement result in the reported level of savings?– Are appropriate procedures in place to maintain the improvement?

4. Ongoing tracking of financial results– Sustainability of benefits– Employee incentives– Relationship with and payment to SSA

5. Budget Adjustment– Adjust budgets / forecasts to realize financial benefits

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Tracking BenefitsTracking Benefits

• System will be implemented to record & report project

benefits:• Record approved projects

• Track through DMAIC stages

• Forecast benefits stream, track actual benefits

• Report results by Business, BB, Champion, Fiscal Periods, Benefits

category, etc.

• Changes to a project’s Benefits Measurement method

requires Steering Committee approval

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Program Costs and SSA PaymentsProgram Costs and SSA Payments

• Program Costs– Comprises training and other establishment costs; payroll

costs for BBs– Propose to charge centrally to cost center under Ken Chmiel,

and allocate out monthly to business units enjoying benefits

• SSA Relationship– Program costs reimbursed– SSA takes commission % of “net project benefits” generated

(gross EBIT impact less direct incremental costs to implement) – measured and invoiced monthly for 2 years

– Early stage adjustment mechanism to relieve high up front

costs in FY03

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Finance TeamFinance Team

S ix S ig m a F ina n ce F u nc tion

R o n E ich o ltzD iv is io n a l F in a n ce

B u s in ess U n itF in a nce C h a m p ion

Profit cente rF inancia l analys t

P rofit cente rF inancia l analys t

P rofit cente rF inancia l analys t

B u s in ess U n itF in a nce C h a m p ion

Profit cente rF inancia l analys t

P rofit cente rF inancia l analys t

P rofit cente rF inancia l analys t

B u s in ess U n itF in a nce C h a m p ion

Profit cente rF inancia l analys t

P rofit cente rF inancia l analys t

P rofit cente rF inancia l analys t

S te ve F in n eyD iv is ion a l F in a n ce C h am p ion

M a rk S ch m itzE xe cu tive S te e ring C o m m ittee