Reviewing the Business Case for Lean Six Sigma

SigmaPro uses a five phase approach to developing a sustainable approach to performance improvement.

1. Review – the Organisation to determine strengths, weakness and opportunities for improvement and establish the business case
2. Align – thinking at senior level to ensure that there is support to take action
3. Launch – the initiative by tackling some problems or improvement opportunities using the lean six sigma methods, either in a pilot area or across the organisation
4. Progress – to build on initial success and start putting in place the components required for ensuring a sustainable approach
5. Sustain – the initiative by making it part of everyday life

Phases 2-5 are described in more detail in other articles, but the first phase, that of reviewing the organisation to determine strengths, weakness and opportunities for improvement and establish the business case is covered here.

The first stage is to assess the organisation to determine current status and identify opportunities for improvement. A tool such as value stream mapping is useful to do this, and SigmaPro’s maturity assessment tool can also be used. Cultural mapping can also be carried out so that the culture can be compared with those of more mature organisations. As recommended in previous articles, it is best to do this by involving people rather than alone.

Suppliers, Customers and others in the organisations industry may be good sources of information to provide insights into how they improve their own performance, and their experience with using lean six sigma methods and tools.

If the people carrying out the business review are not familiar with lean and six sigma approaches then the organisation may wish to consider involving a Lean Six Sigma (LSS) consultancy or attending training to find out more about the approach.

Once the organisation review has been carried out, the business case can be properly assessed by evaluating short to medium term opportunities with the costs involved in training people and running projects.

The generic case for six sigma is well established. Research from Mikel Harry in the year 2000 found that Six Sigma projects created on average around £100,000 savings for the organisation. This was across 3,000 projects. SigmaPro research more recently has found similar results with an average project value in Europe of £121,000 per project.

Each Black Belt is expected to run around 4 projects per year if operating full time, and typically 1% of employees will be full time Black Belts. Therefore the total savings can be worked out as somewhere around £400,000. If belts are to operate part time then this number of projects can be reduced pro-rata. Green Belt projects should be expected to contribute far less than this, and there is less data around to quantify these, but in our experience a Green belt project delivers around £25,000, and GB’s will run on average 1 project per year as it takes longer to carry out due to part time working.

A rule of thumb is that around 1% of employees become Black Belts, and 5% become Green Belts.

It costs around £7,000 to fully train a Black Belt to a recognised level of competence, and a Black Belt salary is somewhere around £45,000 per annum. Green Belt training is around £4,000, but because Green Belts carry on in their existing roles and work part time on improvement their salaries are not included in business case calculations.

For a 100 employee organisation, there would typically be 1 Black Belt and 5 Green Belts. The salary costs and employee costs would be £72,000 for the first year. Benefits would be £262,000 in the first year (assuming that it takes six months before the first projects are completed). So there would be a clear business case at a generic level for a payback within the first year.

But of course many organisations are reluctant to accept such broad generic business case figures, on the basis that their own situation may well be different, for example more or less opportunities for improvement, different level of maturity and so on.  A further indication of the potential financial benefits can come from the level of maturity. SigmaPro research has confirmed that as maturity increases the Cost of Quality (COS) reduces as a percentage of Cost of Sales (COS). For low level maturity organisations (level 1) COQ is typically around 25% of COS, so for an organisation with a £10M COS COQ will be £2.5M. For a more mature organisation, COQ will reduce to around half of this or £1,25M. That is a £1.25M improvement, so the opportunity will be there to achieve financial savings

The full answer of course is to carry out a comprehensive business review on the organisation and determine the specific opportunities that exist and estimate the financial savings that can be made.

One other factor that needs to be remembered is that research has shown that there is a clear correlation between success and how well goals are deployed throughout the organisation.

 

Effective programmes are most often seen in organisations with effective goal deployment strategies. So, effective goal deployment needs to be a clear part of any overall programme plan.

The next decision that needs to be made is where to start in the organisation. Most organisations will find it easiest to start in manufacturing or operations, as this is where there is most financial opportunity short term, and most performance measurement. Over time the improvement approach can progress through administrative areas and ultimately into all areas. Most difficult is in Research and Marketing areas as these areas tend to resist being structured.

 

The steps involved in carrying out a business review are as follows:

1. Assess the Organisation to identify opportunities for improvement - use VSM or similar approach
2. Estimate financial values for the opportunities
3. Determine what would be required to realise the improvements
4. Assess the Infrastructure that already exists for improvement
5. Estimate the costs associated with making the changes
6. Make the Business Case!
   

Once the business case has been established, and assuming that it makes financial sense to progress it, then support for the changes required needs to be built. Getting support within the business requires concentration on the people side of things. It should be remembered that in almost every organisations the financials are important, even non-profit making organisations need to demonstrate best value and balance the financial books. The language of organisations is therefore money, and the business case needs to be expressed in monetary terms. Having said this, it is important that the vision for the future means something for the people as well, and paints a picture of a better working environment for example, or better customer satisfaction.

Thinking further about how to implement, sometimes people are reluctant to accept ideas from others, but most people will think about what any change in the business means to them as well as what it means for the organisation as a whole. It is a good idea to work out in advance what benefits there will be for different groups of people within the organisation, for example if customer service is better it will make it easier for sales to generate repeat business. If this benefit is communicated to sales management they will want to support it.

In summary, building the business case can be done at a generic level first and if this makes sense, a more detailed study can be done. Once this shows a good indication of the benefits support can be sought to start the process of implementation. 

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