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LEAN SIX SIGMA FOR SERVICES! ! 1!

Lean Six Sigma in a Services Organization

Jose Simoes

Post University

Capstone Project

December 2013

LEAN SIX SIGMA FOR SERVICES! ! 2

TABLE OF CONTENTS 1! Executive Summary .................................................................................................................. 4!

2! Problem Statement & Opportunities ......................................................................................... 6!

2.1! Problem Statement ............................................................................................................. 6!

2.2! Opportunities ...................................................................................................................... 7!

3! Project Goals & Objectives ....................................................................................................... 8!

3.1! Project Goals ...................................................................................................................... 8!

3.1.1! Improve Efficiency ..................................................................................................... 9!

3.1.2! Reduce Process Costs ............................................................................................... 10!

3.1.3! Control Quality ......................................................................................................... 11!

4! Organizational Strategies ........................................................................................................ 13!

4.1! Organizational Dynamics Analysis .................................................................................. 13!

4.2! Change Leadership ........................................................................................................... 15!

4.3! Cultural Change Management ......................................................................................... 16!

4.4! Gap Analysis .................................................................................................................... 17!

4.4.1! SWOT Analysis ........................................................................................................ 18!

5! Project Management Plan ....................................................................................................... 19!

5.1! Scope ................................................................................................................................ 19!

5.1.1! Project Authority and Stakeholders .......................................................................... 20!

5.1.2! Stakeholder Management .......................................................................................... 20!

5.1.3! Work Breakdown Structure ...................................................................................... 21!

5.2! Time ................................................................................................................................. 25!

5.3! Quality .............................................................................................................................. 27!


5.3.1! Quality Roles and Responsibilities: .......................................................................... 27!

5.3.2! Quality Assurance ..................................................................................................... 27!

5.3.3! Quality Control ......................................................................................................... 28!

5.3.4! Process Improvement ................................................................................................ 29!

5.4! Budget .............................................................................................................................. 29!

5.4.1! Estimate Costs and Determine Budget ..................................................................... 29!

5.4.2! Control Costs ............................................................................................................ 30!

5.5! Risk Management Plan .................................................................................................... 30!

5.5.1! Roles and Responsibilities ........................................................................................ 32!

5.5.2! Risk Categories ......................................................................................................... 33!

5.5.3! Risk Register ............................................................................................................. 34!

6! Financial Analysis ................................................................................................................... 35!

6.1! Value Analysis ................................................................................................................. 35!

6.2! Return on Investment ....................................................................................................... 36!

6.3! Financial Conclusions ...................................................................................................... 36!

7! References ............................................................................................................................... 37!


1 Executive Summary

Over the past three decades manufacturing and service organizations have used continuous

improvement methodologies to achieve higher customer satisfaction. Lean Six Sigma has

become the driving force behind innovation and financial growth in service organizations by

establishing a methodical approach to continuous improvement that goes beyond the attributes of

each individual methodology. This proposal details a project plan for Lean Six Sigma

implementation to a service process. The goals of the project will be to maximize the value

capture of the service and increase customer satisfaction by improving speed and quality. Lean

Six Sigma will improve process speed and eliminate work in progress. The result will be reduced

payroll costs to the organization and added value to the customer. After Lean Six Sigma

implementation the organization will be capable of making better decisions regarding human

resources and capital allocations. Research has shown that the cost of services is inflated by 30-

80% of waste. Furthermore, approximately 30-50% of the cost is caused by slow speed of

processes. This represents a significant incentive for organizations to implement this type of

program. Moreover, when the right projects or processes are selected for improvement, the

organization can benefit from an increase in productivity and financial performance. The success

of a continuous improvement initiative hinges on successful project implementation. The project

management plan outlined in this proposal includes the requisites for successful Lean Six Sigma

implementation. The processes selected for continuing improvement implementation must have a

significant impact on the organization’s financial performance. Lean Six Sigma projects need to

be represented in terms of financial benefits and measurement performance. The financial

benefits of the process improvement will validate the initiative and help with the understanding


and commitment of those involved in the project. The proposal concludes with a value analysis

and a return-on-investment analysis specific for Lean Six Sigma.


Introduction

Over the past three decades manufacturing and service organizations have used

continuous improvement methodologies to reduce costs and achieve higher customer

satisfaction. Two of most common continuous improvement methodologies are Lean and Six

Sigma. Lean is defined as the systematic approach to eliminate waste and increase productivity

by continuous improvement of processes. Six Sigma, on the other hand, focuses on quality

control and reduction of variation (Sunder, 2013). Lean Six Sigma combines both methodologies

to offer an integrated solution to streamline processes and improve quality thus increasing

customer satisfaction. Lean Six Sigma has become the driving force behind innovation and

financial growth in service organizations by establishing a methodical approach to continuous

improvement that goes beyond the attributes of each individual methodology (George, 2003).

This paper details the attributes of Lean Six Sigma for services and applies them into a high-level

project plan for Lean Six Sigma implementation in a services organization.

2 Problem Statement & Opportunities

2.1 Problem Statement

One of the challenges inherent to services organizations is the difficulty in quantifying

the value of the services offered. Without the ability to measure value, how can one capture

value? Moreover, even manufacturing organizations often incur most of their product cost (up to

80%) from service activities such as finance, product development, purchasing and engineering

(George, 2003). Organizations that excel at identifying the service attributes that add value to the

customer can focus on eliminating non-value added activities. When this is done systematically

the organization can reduce costs and increase customer satisfaction. Work that adds no value to

the customer typically comprises 50% of total service costs (George, 2003). This represents an


enormous opportunity for organizations to gain decisive competitive advantage by increasing

their profit margins while improving service quality. Service providers also face an increasingly

demand for higher value from the customer. This demand often leads to increased service

complexity and reduced efficiency. Complexity and inefficiency often yields low service

effectiveness. Service effectiveness is defined as the extent to which a service meets customer’s

expectations. The service attributes that affect effectiveness are quality and timeliness. Any

process problem, whether it is a defect, low productivity or complexity results in delays to the

service process. Hence, time is the unit of measure for any improvement process.

2.2 Opportunities

Traditionally, organizations have used Lean Six Sigma to improve their processes

however; its use goes beyond process improvement. Lean Six Sigma’s focus on fact-based

analysis and customer input can play an essential role in the development of innovative strategies

that drive financial growth (Lubowe & Blitz, 2008). According to Laureani (2012) the benefits of

Lean Six Sigma for services include:

• Ensuring the service meets the customer’s expectations (voice-of-customer)

• Removing non-value added steps or processes, which reduces waste

• Reducing cost of poor quality, which reduces product cost

• Shortening the cycle time (time between order and completion of service)

The application of Lean Six Sigma to service processes aims to improve process speed and

eliminate work in progress. The result is reduced process costs to the organization and added

value to the customer. After Lean Six Sigma implementation the organization is also capable of

making better decisions regarding human resources and capital allocations. For example, the

organization is able to assess when the lead-time is decreasing value of service to the customer


and there is the need to hire additional staff or implement changes to the service attributes. In a

services organization every process improvement must be customer-focused and a continuous

improvement process needs to assess customer value first and foremost.

3 Project Goals & Objectives

3.1 Project Goals

Lean Six Sigma maximizes value through improvement in cost and quality of the service

(George, 2003). This is accomplished by using Lean methodologies to increase efficiency and

speed of processes and using Six Sigma methodologies to reduce service defects and increase

quality of service. The compounded result is higher customer satisfaction – the key measure of

success for a services organization. The goal of the Lean Six Sigma implementation project is to

maximize the value capture of services and increase customer satisfaction by improving speed

and quality of service. The SMART (Specific, Measurable, Attainable, Relevant, Time-Bound)

objectives that will help achieve this goal are:

• Improve efficiency: efficiency in a service industry means the timely delivery of

services at a reasonable cost. This is achieved by reducing process complexity and

making every process task as Lean as possible (George, 2003).

• Cost reduction: cost can be reduced by eliminating waste, such as reducing errors

or mistakes in a process or reducing the time taken to complete a task. Cost

reduction is reflected in reduced order do-overs and/or payroll reduction.

(Laureani, 2012).

• Increase quality of the service: quality of the service is a measure of the extent to

which the service delivered meets the customer’s expectations. This objective is


directly related to the organization’s value proposition. (Chakraborty & Chuan

Tan , 2012)

These SMART objectives must be aligned with the organization’s strategy and will ultimately be

the determinants of whether the initiative is a success or failure (Breyfogle, 2008).

3.1.1 Improve Efficiency

The main benefit of using Lean concepts and tools is the increase of speed through

efficiency of processes and elimination of waste. The two key terms in Lean are lead-time and

process speed. Lead-time is defined as how long it takes to deliver the service once the order is

received. Process speed is defined as how long it takes to perform the actual work. The equation

known as Little’s Law (George, 2003) states that:

Lead Time = Amount of Work-In-Progress (WIP) / Average Completion Rate

Following this equation, the easiest way to improve lead-time is to decrease work-in-

progress (WIP). In order to decrease WIP, the process must be free of activities that waste time

or resources. The first step in determining waste in a process is to identify non-value added

activities. A flowchart is an essential tool for this process. Flowcharts are useful analysis tools

because they provide a visual map of the process. Figure 1 presents a typical flowchart template

for a service process.


Figure 1 Process Flowchart (asq.org)

The ideal process eliminates the points where the flow reverses or reduces the frequency in

which backward flow occurs. These points usually occur at decision points. One of the goals of

Lean Six Sigma is to reduce the amount of decision points by determining whether or not they

add value to the customer. The process of eliminating waste is not a one-and-done activity. It

requires the work of a team that can view the process from the customer’s perspective and

understand the activities that add value to the organization. This is a key aspect of the selection

process for the project team members and sponsor(s).

3.1.2 Reduce Process Costs

There are two opposing forces that the organization must deal with:


• The demands from the customer that require an increase in service offerings (high quality

grade) thus increasing complexity;

• The necessity to reduce complexity in order to achieve lower process costs while meeting

service quality requirements (George, 2003).

It is essential to find the right balance between these two opposing forces. Customer satisfaction

is the primary goal. However, the cost of a process that is too complex can undermine the

company’s financial goals. There are two strategies for reducing complexity:

• Standardization: processes need to be standardized and modularized so that tasks can be

performed faster (George, 2003).

• Optimization: eliminate the practices that do not add specific and measurable value to the

customer (George, 2003). Activities that add complexity to the process without adding

value cause longer lead-times.

During brainstorming sessions the project team will lead efforts to identify and eliminate steps

that do not add value to the customer but add complexity to the process. There is a direct

relationship between the project tasks that meet each of the objectives. The act of improving

efficiency does not occur without reducing complexity. Process costs should also decrease once a

process becomes more efficient.

3.1.3 Control Quality

Increasing speed and reducing costs are internal facing processes. Improving quality, on

the other hand, is a customer facing activity. Six Sigma focuses on reducing variation and

reducing cost of poor quality. One of the key components of Six Sigma is to map processes that

are critical to customer satisfaction. Six Sigma aims to improve service effectiveness and

efficiency (Antony, 2012). Research has shown that services perform at less than 3.5 sigma


quality level or 97.7% yield (Antony, 2012). An improvement to just 4-sigma level will increase

the yield to 99.38%, which could translate to significant reduction in process costs and increase

in customer satisfaction (Antony, 2012).

Once the process is determined to be efficient and effective then it must remain that way.

The Six Sigma concept of DMAIC (Define, Measure, Analyze, Improve, Control) takes center

stage at this point. Variation from the ideal process must be quantified and the necessary action

taken to ensure the process remains Lean. In a services environment the process of determining

what constitutes a defect is an essential task. Table 1 provides an overview of the five stages of

the quality control process.

Table 1 DMAIC Stages Description (Chakraborty & Chuan Tan , 2012)

Phase Description Define Identify, evaluate and select projects

Measure

Quantify the problem, document the process, identify key customer requirements, determine key product characteristics and process parameters

Analyze Plan for data collection; analyze the data and establish and confirm the determinants of performance

Improve Design and carry out experiments to determine the mathematical cause- effect relationships and optimize the process

Control Design controls; make improvements, implement and monitor

When creating quality metrics one must find the right balance between speed and quality

(Breyfogle, 2008). The quality of a service is defined by the value the customer places on the

service (Shukla, 2010). The quality of the service must be improved from the customer’s point of

view (voice-of-customer). An essential element of the project is to identify the process qualities

that are critical to customer satisfaction. To accomplish this, the project team uses Quality


Function Deployment – a method to translate the customer’s expectations into specific functions

in the service process (Chakraborty & Chuan Tan , 2012).

4 Organizational Strategies

The processes selected for continuing improvement implementation must have a

significat impact on the organization’s financial performance. Otherwise, the resources invested

in the implementation of Lean Six Sigma will return little or no value. Therefore, there must be

an alignment between the continuous improvement metrics and the organization’s strategy

(Breyfogle, 2008). An analysis of the strategic challenges with Lean Six Sigma implementation

is a required first step to create the project plan. These challenges include factors such as

economic impact, alignment with company’s vision and mission, and leadership issues with

implementation.

4.1 Organizational Dynamics Analysis

The purpose of an organization analysis is to understand the factors that influence the

behavior of its employees, the leadership characteristics that drive organizational dynamics, and

the organization’s culture. Understanding relationships between people within an organization

helps identify possible silos and castes that can undermine the success of the project. Moreover,

the relationship framework of the organization can negatively impact communication and

organizational strategies. An organizational analysis can yield some interesting observations.

Most notorious is the interaction and interdependency of organization type, leadership structure

and organizational culture. A sociogram is a valuable tool to diagram and analyze the

relationship web of an organization (Figure 2).

An analysis of a sociogram can point out the communications bottlenecks or gaps that

could affect the implementation of the project. Lawler III and Worley (2006) identify the need


for organizations to adopt structures, strategies and processes that allow them to adapt to change

quickly and effectively. An essential component of a successful organization (LawlerIII &

Worley, 2006) is its human resources and the relationships between its human components. The

organizational sociogram illustrates how prepared the organization is for the fast and rigorous

change demands characteristic of a Lean Six Sigma project. There are two key recommendations

to improve an organization’s relationship framework to better adopt Lean Six Sigma:

• Open lines of communications and foster more two-way relationships. It is important for

the service processes functional employees to have more input in strategic decisions and

this can only be accomplished if the organization’s leaders open two-way communication

channels with each element of the service team.

• Increase synergy between each employee and the customer. According to Lawler III and

Worley (2006), when creating a built-to-change organization, every employee should

have no more than one degree of separation to the customer. This is key to create the

“pull” system that is essential in Lean Six Sigma (Sunder, 2013).


Figure 2 Organizational Sociogram Template

4.2 Change Leadership

Lean Six Sigma implementation faces a series of adaptive challenges. Some of these

challenges are not predictable and keep evolving. Leaders must be able to handle the constant

and fast change of business conditions and do so while communicating to their followers the

reasons for change and the reasoning behind their business decisions (Blanchard, 2010). One of

the critical success factors present in most process improvement projects is top management

commitment and involvement (Chakraborty & Chuan Tan , 2012). An organization’s top

leadership plays a vital role in the restructuring of business processes and cultural change

attitudes (Chakraborty & Chuan Tan , 2012). Kotter (1995) identifies lack of a sense of urgency


as one of the leading causes of failure in change initiatives. For Lean Six Sigma to succeed it is

imperative for people to be driven out of their comfort zones. This can be harder than expected

and can lead to change resistance (Kotter, 1995). The organization will need to create a multi-

disciplinary team headed by the project manager and sponsored by the CEO to analyze trends

and improve processes. This team will look to create more effective continuous improvement

processes and perform industry and customer trend analysis to suggest ways to adapt to these

external factors. Once the project’s scope is defined, project leadership needs to effectively

communicate to all stakeholders the importance of the project to the financial future of the

organization. Creating a guiding vision for the change will encourage employees to work

together (Kotter, 1995) and follow the project’s leaders in implementing Lean Six Sigma.

Change resistance is one of the biggest risk factors to a Lean Six Sigma project and that is

reflected in the risk management plan presented in the project plan section.

4.3 Cultural Change Management

Organizational culture refers to a set of characteristics that describe the perception

employees have about the company. Successful change implementation requires a thorough

understanding of the organization’s culture. Organizations competing in today’s global and

dynamic business environment may find it difficult to survive with their current processes and

culture (Jaruzelski & Katzenbach, 2012). Cultural change is needed to foster an environment

where innovative approaches to service improvements can thrive. One of the challenges with

Lean Six Sigma is the need for data collection and measurement. The employees that are most

affected by the changes need to accept, champion and be the driving force behind the

improvement strategy. They need to consider questions such as:


“Are my business goals being met? Do I have all the right tools, but still find

myself wasting time on the same problems over and over again? Are organizational

metrics leading to the wrong behaviors? Does our organization simply tell stories when

reporting metrics, or do reactions to metrics actually lead to performance improvements?

Are we creating and executing the most beneficial organizational strategies? Are projects

getting completed? And when completed, do they impact the bottom line as expected?

(Breyfogle, 2008 P.20)”

When employees can answer these questions affirmatively they are ready to embrace Lean Six

Sigma as an essential component of their work. Furthermore, Lean Six Sigma can only be

considered a success once it becomes integrated within the organization’s culture. To achieve

this, the organization needs to continuously share and communicate the benefits associated with

Lean Six Sigma and ensure that future managers and leaders personify Lean Six Sigma (Kotter,

1995).

4.4 Gap Analysis

Service based organizations have different characteristics from the manufacturing plants

that yielded the Lean Six Sigma methodologies (Laureani, 2012). This differentiation presents

some challenges to the implementation of Lean Six Sigma. These include:

• Intangibility: services are difficult to measure and quantify. Six Sigma depends on

the quality of the metrics to quantify defects. Hence, in services, the measurement

of quality is typically done through customer surveys (Laureani, 2012).

• Variability: each service action may be different. As a result, there is higher

variability leading to different customer experiences (Laureani, 2012).

• Perishability: Services cannot be inventoried. Work actions can spend as much as


90% of time waiting to be executed (Laureani, 2012).

Despite these challenges there are also great opportunities for the use of Lean Six Sigma in a

services organization. For example, research has shown that the cost of services is inflated by 30-

80% of waste (Laureani, 2012). Furthermore, approximately 30-50% of the cost is caused by

slow speed of processes. There is, therefore, a significant incentive for organizations to

implement this type of program. Moreover, when the right projects or processes are selected for

improvement, the organization can benefit from an increase in productivity and financial

performance (Sunder, 2013).

4.4.1 SWOT Analysis

A SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis is particularly

appropriate to strategic projects as is the case with Lean Six Sigma implementation. A

SWOT analysis involves the generation and recording of the strengths, weaknesses,

opportunities, and threats concerning an organization. The analysis takes into account internal

resources and capabilities (strengths and weaknesses) and factors external to the organization

(opportunities and threats) as they relate to the project. The SWOT analysis presented in Table 2

assesses an organization’s readiness for the challenges inherent to Lean Six Sigma

implementation and the internal and external factors that could contribute to the initiative’s

success or failure.


Table 2 Project SWOT Matrix

5 Project Management Plan

Project management is defined as the application of a set of skills, tools, and techniques to

achieve all of the project’s goals and objectives. The primary objectives are scope, time, quality

and budget. (Project Management Institute, 2008) The success of a continuous improvement

initiative hinges on successful project implementation. The project management plan outlined in

this proposal includes the requisites for successful Lean Six Sigma implementation to a service

process. Additionally, a risk management plan is included to facilitate the understanding of the

factors the influence the success of the project.

5.1 Scope

Project scope management includes the processes required to ensure that the project

includes all the work required to complete the project successfully. The scope of a Lean Six

Sigma project includes implementation of the methodology necessary to apply Lean Six Sigma

Strengths

• Organization’s culture is open to innovative

initiatives

• Leadership understands need to better capture

value of its service offerings

• Use of continuous improvement processes

already present in manufacturing business units

Weaknesses

• Lean Six Sigma requires heavy commitment to

measurement activities and analysis. This can

further add to the already heavy workload of

employees.

Opportunities

• Opportunity to capture customers and gain

competitive advantage

• Reduce labor costs by more effective human

resources deployment

Threats

• Lack of adequate metrics

• Lack of support from top leadership

• Change resistance


to the service process in an organization. The project scope includes sponsor and project

champions identification, identification and selection of quality metrics, process mapping and

improvement, and communication of Lean Six Sigma objectives and benefits to organization.

5.1.1 Project Authority and Stakeholders

A project’s stakeholder is anyone who has influence or vested interest in the outcome of

the project (Project Management Institute, 2008). Projects usually have several levels of

stakeholders, which include main customer of the project, project champion and business owners

of the deliverable (Antonioni, 2009). Project managers and sponsors need to be aware of the

synergy between stakeholders and the project to effectively negotiate any conflict between

stakeholder interests and successful project completion. The first step in stakeholder

management is thorough stakeholder identification. The project manager needs to completely

identify the project’s stakeholders until all those affected by the project and those with influence

on the project’s outcome are identified. The project manager and project sponsor must undertake

the task of selecting project champions in a Lean Six Sigma project. The project sponsor should

be the CEO or someone at the highest management level. Commitment from leadership at the

initial stages of the project will demonstrate to the organization the importance of the initiative to

all those affected by the inevitable changes. Because Six Sigma relies on the measurement and

analysis of data and the success of the program hinges on its return on investment, one of the

project champions must be a finance manager whose responsibility is to tie Lean Six Sigma to

financial performance.

5.1.2 Stakeholder Management

Stakeholder management begins with the assessment of how the stakeholders feel about

the project deliverable. Stakeholders can be categorized into three groups (Antonioni, 2009):


• Those with high level of agreement and trust

• Those with low levels of agreement and high levels of trust

• Those with low levels of agreement and trust

Once this assessment is performed the project manager and sponsor need to assess how much

power each stakeholder has and develop a management plan to deal with each stakeholder.

During the planning phase the stakeholders should be encouraged to voice their ideas and

concerns during regularly scheduled meetings with project manager and sponsor. Stakeholder

involvement during planning phase increases stakeholder commitment (Antonioni, 2009).

During the execution phase, the project manager and sponsor will inform the stakeholder of the

project’s progress, scope changes, and when risk responses are triggered (Antonioni, 2009).

During the controlling phase the stakeholder’s expectations will be managed by communicating

the project’s progress with status reviews. During the closing phase stakeholders will be asked to

contribute with feedback on the project and recommendations for future projects.

5.1.3 Work Breakdown Structure

Dividing a project into easily managed increments ensures completeness in definning the

necessary tasks for project completion. These tasks must be subdivided until all tasks that fall

within scope of project are identified and can be assigned a resource and their costs estimated

(Scheweighardt, 2010). Such division is done through the development of a work breakdown

structure (WBS). Project managers use the WBS to ensure that all tasks are identified and fit

together properly to complete the project. From the WBS the complete project can be identified,

project scheduling performed, costs and budgets established and responsibilities assigned

(Project Management Institute, 2008). The WBS for the Lean Six Sigma project is presented in

Table 3 in the following three pages.


Table 3 Work Breakdown Structure

WBS for Project

ID LEVEL&1&TASK LEVEL&2&TASK LEVEL&3&TASKS LEVEL&4&TASKS RESOURCE

1Readiness(Assessment

1.1 Select(the(champion

1.1.1Interview(possible(candidates PM,(Finance(Manager

1.1.2 Nominate(champion CEO

1.2Establish(a(baseline(snapshot

1.2.1Compile(basic(information

1.2.1.1 Compile(business(data Finance(Manager

1.2.1.2Compile(data(on(existing(competencies PM,(Finance(Manager

1.2.1.3 Benchmark Finance(Manager

1.3Interviews(with(top(management

1.3.1 Interview(with(CEO

1.3.1.1Determine(experience(with(past(Lean(Six(Sigma

Finance(Manager,(Customer(Service(Manager

1.3.1.2Identify(corporate(strategies(and(priorities CEO

1.3.2Interview(with(VP(of(Sales(and(Marketing

1.3.2.1

List(what(people(consider(key(to(their(personal(success Customer(Service(Manager

1.3.2.2How(strategic(planning(and(individual(goals(are(aligned CEO

1.3.2.3 Training(history CEO

1.3.3Interview(with(Account(Managers

1.3.3.1Evaluate(teamwork/collaboration Customer(Service(Manager

1.3.3.2Assess(openness(to(new(approaches Project(Manager

1.3.3.3Identify(how(work(gets(done Project(Team(Member

1.4Engaging(key(influencers

1.4.1Develop(communication(strategy Project(Manager

1.4.2 Identify(key(influencers

1.4.2.1Examine(past(initiatives(for(key(influencers(action CEO

1.4.3Meet(with(key(influencers

1.4.3.1 OneMonMOne(meetings CEO1.4.3.2 Focus(group(meetings PM,(Finance(Manager


WBS for Project

ID LEVEL&1&TASK LEVEL&2&TASK LEVEL&3&TASKS LEVEL&4&TASKS RESOURCE1.5 Assessing'the'Impact

1.5.1Compile'gained'information

1.5.1.1 Identify'behavior'patterns Project'Team'Member1.5.1.2 Synthesize'information Project'Team'Member1.5.2 Outline'critical'issues

1.5.2.1Identify'possible'issues'with'deployment PM,'Finance'Manager

1.5.2.2Identify'possible'issues'with'training PM,'Finance'Manager

1.5.2.3Identify'possible'issues'with'infrastructure PM,'CEO

1.5.3Develop'leadership'training'course

1.5.3.1Communicate'critical'issues Finance'Manager

1.5.3.2Develop'strategy'to'deal'with'critical'issues CEO

2 Engagement2.1 Engagement'Strategy

2.1.1Link'Lean'Six'Sigma'to'strategic'objectives CEO

2.1.2Deploy'champions'to'engage'stakeholders Project'Manager

2.2

Education,'Communication'and'Involvement

2.2.1Structure'training'to'build'implementation

2.2.1.1 Establish'need CEO2.2.1.2 Develop'sense'of'urgency CEO

2.2.2 Offer'training'workshops2.2.2.1 Application'simulation Project'Team'Member

2.2.2.2

Create'clear'picture'of'how'changes'will'affect'individuals PM,'CEO


WBS for Project

ID LEVEL&1&TASK LEVEL&2&TASK LEVEL&3&TASKS LEVEL&4&TASKS RESOURCE3 Mobilization

3.1Commission-an-Executive-team

3.1.1Select-members-of-Executive-team

3.1.1.1

Determine-gaps-between-current-and-desired-performance CEO,-Finance-Manager

3.1.1.2Determine-how-Lean-Six-Sigma-can-close-gap PM,-CEO

3.1.1.3Benchmark-performance-against-other-organizations CEO

3.2 Create-Infrastructure

3.2.1

Determine-positions-with-matrix-responsibilities

3.2.1.1 Develop-RACI Project-Manager

3.2.2

Determine-positions-with-Lean-Six-Sigma-responsibilities

3.2.2.1 Develop-RACI Project-Manager3.3 Develop-Training

3.3.1 Executive-training

3.3.1.1Introduction-to-Lean-Six-Sigma Project-Team-Member

3.3.1.2Simulation-of-DMAIC-process Project-Manager

3.3.1.3 Leadership-training PM,-CEO3.3.2 Process-owners-training


3.3.2.2Simulation-of-DMAIC-process Project-Team-Member

3.3.2.3 Leadership-training Project-Manager3.3.3 Champion-training


3.3.3.2Simulation-of-DMAIC-process Project-Team-Member

3.3.3.3 Leadership-training CEO3.3.4 Rest-of-organization


3.4Reach-Consensus-on-Metrics

3.4.1Decide-on-knowledge-needs CEO

3.4.2Decide-on-financial-metrics Finance-Manager

3.4.3Decide-on-before/after-project-results PM,-CEO


5.2 Time

A continuous improvement process needs to be an ongoing activity, however, the initial

roll out must be efficient and effective to show the benefits of the process. One of the key

elements required to successful Lean Six Sigma implementation is to show quick and significant

results to overcome any reservations that stakeholders might have about the importance or

significance of the project (George, 2003). Initial roll out will include presentation to company

leadership and key internal stakeholders of the benefits of the process to the company and the

customer. The second phase will include Lean methodology implementation to streamline the

process and, finally, Six Sigma methodology to improve and monitor the quality improvement

process. Table 4 presents the project schedule in Gantt chart format. The Gantt chart provides a

visual cue to the duration of each task and the interdependencies between tasks. The use of a

Gantt chart helps the project team determine and communicate which tasks are critical to the

timely completion of the project.


Table 4 Ghant Chart

1.1.1 Interview)possible)candidates1.1.2 Nominate)champion1.2.1.1 Compile)business)data1.2.1.2 Compile)data)on)existing)competencies1.2.1.3 Benchmark1.3.1.1 Determine)experience)with)past)Lean)Six)Sigma1.3.1.2 Identify)corporate)strategies)and)priorities1.3.2.1 List)what)people)consider)key)to)their)personal)success1.3.2.2 How)strategic)planning)and)individual)goals)are)aligned1.3.2.3 Training)history1.3.3.1 Evaluate)teamwork/collaboration1.3.3.2 Assess)openness)to)new)approaches1.3.3.3 Identify)how)work)gets)done1.4.1 Develop)communication)strategy1.4.2.1 Examine)past)initiatives)for)key)influencers)action1.4.3.1 OneFonFOne)meetings1.4.3.2 Focus)group)meetings1.5.1.1 Identify)behavior)patterns1.5.1.2 Synthesize)information1.5.2.1 Identify)possible)issues)with)deployment1.5.2.2 Identify)possible)issues)with)training1.5.2.3 Identify)possible)issues)with)infrastructure1.5.3.1 Communicate)critical)issues1.5.3.2 Develop)strategy)to)deal)with)critical)issues2.1.1 Link)Lean)Six)Sigma)to)strategic)objectives2.1.2 Deploy)champions)to)engage)stakeholders2.2.1.1 Establish)need2.2.1.2 Develop)sense)of)urgency2.2.2.1 Application)simulation2.2.2.2 Create)clear)picture)of)how)changes)will)affect)individuals

3.1.1.1Determine)gaps)between)current)and)desired)performance

3.1.1.2 Determine)how)Lean)Six)Sigma)can)close)gap3.1.1.3 Benchmark)performance)against)other)organizations3.2.1.1 Develop)RACI3.2.2.1 Develop)RACI3.3.1.1 Introduction)to)Lean)Six)Sigma3.3.1.2 Simulation)of)DMAIC)process3.3.1.3 Leadership)training3.3.2.1 Introduction)to)Lean)Six)Sigma3.3.2.2 Simulation)of)DMAIC)process3.3.2.3 Leadership)training3.3.3.1 Introduction)to)Lean)Six)Sigma3.3.3.2 Simulation)of)DMAIC)process3.3.3.3 Leadership)training3.3.4.1 Introduction)to)Lean)Six)Sigma3.4.1 Decide)on)knowledge)needs3.4.2 Decide)on)financial)metrics3.4.3 Decide)on)before/after)project)results

0 20 2222

1 21 2

1 0 21 0 2

1 0 21 0 2

1 0 21 0 2

1 0 21 0 2

1 0 21 0 2

1 0 2


5.3 Quality

Key components of the project plan that assure overall quality and customer satisfaction

are communication between project manager and stakeholders and the establishment of quality

standards at the outset of the project. The quality of the project is defined by the reduction of

process costs to the organization and the increase of the processing speed of services. The quality

assurance standards that define the success of the project are based on the achievement of the

SMART objectives outlined in the project goals section.

5.3.1 Quality Roles and Responsibilities:

Role: Responsibilities:

1. Project Manager 2. Finance Manager 3. Project Manager, Finance Manager 4. Customer Service Manager

1. Overall project quality 2. Quality of metrics 3. Measurement and data recording 4. Customer focus and feedback

5.3.2 Quality Assurance

Quality will be assured by communicating from the outset the expected quality standards to

all stakeholders. Furthermore, each stakeholder will be made aware of their responsibility and be

asked to communicate with project manager any deviations from the expected standard. In a

Lean Six Sigma project the critical-to-quality (Chakraborty & Chuan Tan , 2012) characteristics

are:

• Clear performance metrics: process time and lead-time are clearly defined and the goals

are based on the SMART objectives.


• Success is tied to financial benefits: the cost savings that result from the improvement

project are measurable and have significant impact of the organization’s financial

outlook.

• Organizational understanding of work processes: Lean Six Sigma requires cultural

acceptance of continuous improvement methodologies. The project’s quality is dependent

on the quality of communication between project leadership, stakeholders, and rest of

organization.

5.3.3 Quality Control

Weekly stakeholder status meetings will be held to discuss the current stage of the project

and identify any deviations from the quality standards accepted at the beginning of the project.

The response to quality deviations will depend on the magnitude of the deviations and their

impact to the deliverable’s quality.

• Performance metrics: there are two risks identified that might affect the quality of the

performance metrics: metrics chosen may not reflect the scope of the project and the

results do not show enough improvement to justify the additional workload to functional

employees. The metrics need to show progressive improvement towards the project’s

goals. Otherwise, the project management team must analyze the chosen metrics and

evaluate whether or not they accurately reflect the project’s efforts.

• Financial benefits: the financial benefit of the project is dependent on the cost-savings

associated with the continuous improvement process in relation to the project’s costs. The

project management team will need to maintain close control of the project’s cost by

ensuring the tasks are being performed within the timeline set by the project’s schedule.

It is imperative that activities are completed on time and within schedule since payroll


costs (from consultants, project team, and functional employees) are typically the bulk of

the project’s cost baseline.

• Organizational understanding of processes: interviews and focus group meetings will

serve to assess the level of understanding and acceptance of the project’s processes by the

organization. If there is slower than expected understanding from employees then training

sessions should be scheduled.

5.3.4 Process Improvement

Although the goals for the project have been defined, there might be unidentified

opportunities to further improve processes and increase the quality of project. Regularly

scheduled brainstorming sessions will be held to identify opportunities for improvement. Quality

issues that arise and the solutions to solve them will be documented and filed when project is

closed. This documentation will be available for reference on future projects.

5.4 Budget

The project cost management processes include estimate costs, determine budget and cost

control plan (Project Management Institute, 2008). In a Lean Six Sigma project, cost estimating

and budgeting may be combined into a single process.

5.4.1 Estimate Costs and Determine Budget

The cost of this project relates mostly to the cost of human resources applied to the

different stages of the project. For example, the time to measure processes must be accounted

against time otherwise used for functional activities. During project implementation the cost will

be higher because of the need to establish processes and define metrics. The cost of human

resources should take into account opportunity cost of not having staff available to perform other

tasks. This cost should be added to the project’s cost baseline. Additionally, the organization


needs to decide whether to hire a Lean Six Sigma consultant or invest in the training of internal

employees in the methodologies. Cost estimates are further refined during the course of the

project as better understanding of the actual duration of each task is achieved (Project

Management Institute, 2008).

5.4.2 Control Costs

Control costs is the “process of monitoring the status of the project to update the project

budget and managing the changes to the cost baseline.” (Project Management Institute, 2008,

p.179) The budget will be managed and monitored by comparing actual costs with the amount of

time each WBS activity was allocated. Earned Value Management is a method for measuring

and controlling a project based on the amount of work performed at a specific time. Earned

Value Management answers the question “What did I receive for what I spent?” (Chen, 2008) It

is based on three values:

• The earned value (EV), which is the authorized work that has been completed

• The original budget for the project (BAC)

• The actual costs (AC) incurred to convert the planned value into the earned value (Byrne,

2011)

Earned Value Management reduces the subjectivity inherent to comparing actual cost to planned

cost. Actual cost incurred is not an accurate reflection of accomplishment because it does not

account for performance efficiency (Chen, 2008).

5.5 Risk Management Plan

An essential part of project management is the risk management plan. Risks result from

the uncertainty inherent to the different activities from a project. These risks can be positive or

negative. Positive risks can be opportunities to improve project deliverables while negative risk


might cause project deliverables to be missed or delayed. Because there are different strategies to

how risks will be managed, the risk management process begins with the planning of how risk

management will occur throughout the project. The plan includes the following sections:

• Methodology,

• Roles and responsibilities,

• Budget,

• Timing,

• Risk categories,

• Definitions of risk probability and impact,

• Probability and impact matrix,

• Revised stakeholder’s tolerances,

• Reporting formats and tracking (Project Management Institute, 2008).

For the purpose of this proposal the templates provided are the RACI, risk categories matrix, and

risk register.


5.5.1 Roles and Responsibilities

Risk Management Activity Project Manager Project Sponsor Finance Manager

Determine Methodology R, A I C

Determine risk management budget and timing

A R I

Create RBS R, A I I

Facilitate brainstorming session A C R

Perform SWOT R, A C C

Do quantitative analysis A C R

Develop risk strategies R, A C C

Assign risk owners A R C

Monitor and control R, A I I

Key

R Responsible - performs activity

A Accountable - insures activity is completed

C Consult – provides input into this activity

I Inform – is informed about the progress of the activity


5.5.2 Risk Categories

Risk categories for this project include project management risks, deliverable quality

risks, technical risks and organizational risks. The risk category matrix will help during risk

identification process by providing a template for type of risks that need to be identified.


5.5.3 Risk Register

Risk%ID%# Risk%Type

1 Implementation

2 Schedule, Human Resources

3 Technical

4 Communication

5 Communication

6 Human Resources

7 Human Resources

8 Technical

9 Human Resources

10 Budget

Risk%Statement Risk%Triggers Risk%Strategies Residual%Risks%or%Secondary%Risks

If there is no link between Lean Six Sigma resources and P&L management the initiative will not be a priority. (George, 2001)

Resources become scarce. Mitigate: Include P&L manager in implementation team.

P&L manager does not see value in initiative.

If there are too many process improvement processes in the pipeline then the available resources will be stretched too thin.(George, 2001)

Employees start complaining about workload.

Mitigate: Create a matrix to decide which projects will be implemented first and limit the number of concurrent projects.

Improvement process is not fast enough to justify investment.

If Lean Six Sigma results are not properly quantified then evaluating their impact and making good decisions will be difficult.(George, 2001)

Determining value is difficult. Mitigate: Involve P&L manager in the measurement of collected data.

Collected data is not sufficient.

If lessons learned and best practices are not shared then the organization, as a whole, will fail to gain the most from the program.(George, 2001)

The organization does not plan to apply program to other units.

Mitigate: Present and communicate a best practices packet at the end of the project.

Organization will fail to continue program after initial roll out.

If people not directly involved in the program are ignored then resentment can grow.(George, 2001)

There is change resistance. Mitigate: Implement communications plan to include entire organization.

Change resistance might still be present.

If initial results from the initiative are not significant then stakeholders might become frustrated by the extra work.(George, 2001)

Frustration with process is increasing.

Mitigate: Start with projects that will show significant value.

Second wave of projects will not show as much value.

If the changes increases productivity and sales then the current staffing might not be able to handle the increase in business.(George, 2001)

Staff is required to work above normal overtime.

Accept: Maintain regular meetings with human resources manager.

Poor services quality due to increase business.

If the right metrics are not used then the team will have a hard time measuring value.(George, 2001)

Data is confusing. Mitigate: Brainstorm to decide which metrics are most relevant.

Measurement of metrics can be time consuming.

If enough human resources are not allocated to the program then not enough Lean Six Sigma certifications will be accomplished.(George, 2001)

There are not enough Black Belts to lead the initiative.

Mitigate: Hire one consultant to train current employees on Lean Six Sigma.

Resentment over who gets certified might occur.

If organization does not have enough employees capable of achieving Black Belt certification then outside consultants will need to be hired increasing the financial cost of the program.(George, 2001)

There are not enough Black Belts to lead the initiative.

Avoid: Roll out program in department that most needs it and work through the organization incrementally.

Organization's strategy changes and resources get cut.


6 Financial Analysis

The challenge faced by many innovative process improvement initiatives is that they do

not have a defined alignment with a business strategy or financial return. Hence, leadership has a

difficult time evaluating the value of the innovation to the company’s strategy (Mathews, 2011).

The goal of innovation is to eventually create something of value to the company. This goal is

seldom achieved without understanding how value is created or how implementation of an idea

impacts the company’s bottom line. Lean Six Sigma projects need to be represented in terms of

financial benefits and measurement performance. The financial benefits of the process will

validate the project and help with the understanding and commitment of those involved in the

project (Chakraborty & Chuan Tan , 2012).

6.1 Value Analysis

One of the key measures of success of the project is measured by demonstrating the cost

savings achieved by the organization because of increased output. A key attribute of the service

is speed. Increasing the speed of service is a result of decreasing the time a job spends on the

queue waiting to be processed. The cost savings benefit can be measured by quantifying the

personnel time needed for a process before project implementation and after implementation.

The difference, net savings, multiplied by pay rate determines the savings each time an order is

processed (Smith, 2010). Although the savings may be small per order or process, the financial

impact over time can be significant. A form of calculating added value is:

Value Added= Value after Alteration - Value before Alteration

This concept is the basis for the measurement of the value of the Lean Six Sigma program:

Cost Savings = Cost after program implementation - Cost before program

implementation (Smith, 2010)


The value is quantified by the improvement in the amount of time it takes to process an order.

6.2 Return on Investment

The goal of any project is to add value to the organization. It is difficult, however, to

determine the value of a project such as Lean Six Sigma because of the ambiguity of depicting

improvement into financial values (Scheweighardt, 2010). One method to justify the project is

with a return-on-investment (ROI) analysis. ROI is an essential tool to analyze project value. The

formula to calculate return on investment is:

ROI = [(Financial value – Project cost) / Project cost] x 100 (Scheweighardt, 2010)

The financial value is defined as the project’s cost savings as calculated in the value analysis

section (6.1). The project cost is estimated by assigning a cost to each of the WBS activities.

6.3 Financial Conclusions

The value analysis and the return-on-investment analysis should illustrate what is the

common outcome of Lean Six Sigma. Process speed improvement results in lower process costs

derived mostly from payroll savings. It also results in higher customer satisfaction because of

faster lead times (Laureani, 2012). Value and ROI analysis should be performed during the

initiation phase of the project and presented to project’s stakeholders as a means justify the

project and gain the necessary support. The payback point for the project should not be later than

the third year of Lean Six Sigma implementation. Lean Six Sigma is a continuous improvement

process and as such it will continuously create financial value to the organization. However, if

the ROI does not allow for a fast payback on the costs of the implementation project then the

right service process might have not been selected for Lean Six Sigma. Although every service

process should be improved, Lean Six Sigma should only be applied to those processes that can

be tied to financial gains.


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