Adding Value Through Six Sigma Concepts A Systematic Approach to Process Improvement. Presenter
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1 Adding Value Through Six Sigma Concepts A Systematic Approach to Process Improvement Presenter William T. Bostick CPA, CGMA Director, Office of Internal Audits Xavier University of Louisiana Today s Agenda Session Objectives Who is Xavier University of Louisiana Six Sigma and the Role of 3M The Six Sigma Process and it s Methodology Project Successes and Challenges 1
2 Session Objectives The Primary session objectives are to accomplish the following: Explain Six Sigma concepts, processes, approach and tools; Explore a process to identify the root causes of process variation based on available data; To apply value through tangible and measurable outcomes. Who is Xavier University of Louisiana Only Historically Black Catholic University in the United States; Founded by Saint Katherine Drexel in 1925 (She was canonized as a Saint in 2000); Current enrollment is approximately 3,000+ students; First in the number of African American Graduates who go on to complete Medical School; #1 in awarding African Americans baccalaureate degrees in Physics and the Physical Sciences; One of only two Schools of Pharmacy in the State of Louisiana; Approximately 25% of African American Pharmacists are Xavier Graduates; Wall Street Journal OpEd piece ranks Xavier #6 in the nation for social mobility measured by the % of students from the bottom 5 th of income distribution who ended up in the top 3/5ths in income following graduation. 2
3 The 3M Company and It s Role Xavier University of Louisiana was one of seven 3M Partner schools in a talent development program in Sales and Customer Relationship Management called Frontline Initiative. 3M sponsored a small conference for their partner schools. The goal was to incorporate Six Sigma and other concepts into the sales and marketing curriculum so that students were better prepared to understand customer requirements and improve the image of sales as a career. As a part of the preparation for the conference 3M provided to the partner schools copies of the book The Six Sigma Way, by Peter S. Pande, Robert P. Neuman, and Roland R. Cavanagh. Chance Encounter (Can I Tag Along?) A copy of The Six Sigma Way was provided to my office. After reading the book, the practical applications of the concepts were obvious. I asked of the possibly to participate in the Conference. The conference was a 2 ½ Day Six Sigma Training Combination of Champion and Green Belt and the rest is history. Xavier presented initial project results to senior managers of 3M involved with the partner schools. They were excited. 3
4 Adding Value 1) Designed to Add Value and Improve Operations Specific Consulting Projects focused on Business Processes. Creative, Collaborative and Innovative method of Problem solving that involves University Staff at all levels. 2) Systematic, Disciplined Approach to Improve These projects are a systematic approach to process improvement. Utilizes a common language, data, and specific techniques to drive improvements and achieve Breakthrough Results. Business Impacts of Process Variation Prevention Costs Education and training Quality planning Performing pilot runs Student (Customer) interface Controlling processes Appraisal Costs Independent audits External Consultants Accreditation External Monitoring Internal Failure Policy Noncompliance Noncompliance w/ Laws & Regs Rework Retest / Re-inspection Unplanned downtime Trouble shooting Product/Process changes External Failures Reputational issues Maintaining customer service Incurring penalties/questioned costs Decline in enrollment 4
5 The Six Sigma Process and It s Methodology Six Sigma Is A Measurement (NERD ALERT!!!) SIGMA Defects/Errors Per Million Opportunities YIELD %/EFFICIENCY RATE 1 691, % 2 308, % 3 66, % 4 6, % % % 5
6 Six Sigma Overview A systematic problem solving method tied to customer needs Initiating the right projects linked to business goals Facilitated Process Involving the right people Using specific methods (or roadmaps) and tools Getting the right results based on 3primary objectives Revenue Growth Productivity / Cost Cash / Working Capital The Methodology DMAIC Define, Measure, Analyze, Improve, Control Process thinking Everything is part of a process Variation exists in all processes and excess variation causes errors or defects. (PAIN!) The Key: Sources of variation can be identified, quantified and reduced or controlled Fact and data based decisions Idea and Data Management tools Statistical tools The work is to Identify and Focus on the Critical few variables 6
7 FEELING THE PAIN!!! FEELING THE PAIN Each process will be analyzed for its performance to key metrics What does PAIN at the process level look like: Roll Through Yield (RTY) Cost Of Poor Quality (COPQ) Process Capacity Productivity (C P) % 90% 90% 90% >90% Cycle time Yield Yield Yield Yield = Yield Document/Customer Returns FPY 81 % 73 % 66 % Servicing Students Final Yield ignores the hidden factory. Final Inspection 66% is not 90%... why not? 7
8 Project Highlights Grants Receivable Cash Project If we decrease grants receivable turnaround from 75 days to 64 days we will generate $2.3 million in Cash Flow (Results 58 days $2.7 Million in Cash Flow) Student Departmental Hires If processing time for DHP is reduced from 32 days to 10 business days, XU saves $25K in processing costs and eliminate verification noncompliance. (6 Days) Improve University Time and Attendance System Results of Grants Receivable Project A) Decreased the turnaround time for receiving grant funds from 143 days in 2001 to 58 days as of January B) Increased cash flow by a total of $6.3 million over the same three year time span. C) Identified immediate process improvements (Just Do s) D) Identified measures to continually monitor process. E) Individuals who touched the process at different levels discovered how their actions affects business processes. Cash Flow $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 -$500,000 -$1,000,000 Grants Receivable Turnover Fiscal Year Turnaround Time Fiscal Year Cash Flow Turn in Days 8
9 Six Sigma Analysis of Student Departmental Hires Process Capability PROCESS CAPABILITY 80 Policy Timeframe Policy Time Sample PAF's Six Sigma Student Departmental Hires Process Capability - EPAF 100 PROCESS CAPABILITY Policy Timeframe Policy Time EPAF Time
10 Timing of EPAF Application EPAF's Number of EPAF S EPAF's 47 EPAF's 55 EPAF's EPAFs Applied 30 Days or Greater EPAF Applied Within Two to Four Weeks EPAF Applied Within Two Weeks EPAF Applied Within One Week EPAF Applied Before or on Effective Start Date EPAF's 1 Timing of EPAF Processing EPAF Creates Job and Employee Record and Updates Status Changes Eligible Employee Records Time Worked Through T/S Eligible Employees Paid For Time Recorded EPAF s are currently processed to pay an employee, not to complete the establishment of the employee s eligibility or status change prior to the employee actually working. EPAF s Created Prior to Payroll but After Employee is Working 10
11 DMAIC The Problem Solving Discipline Define: Stating a problem in measurable and actionable terms Problem Statement What s the Process, Definition, Scope, Customers, Problems, Impact of Problems, Is it Measurable, Measurement Targets Project Charter Definition, Business Case, Project Objective, Benefit, Schedule, Support Required, Team Defining Entitlement Process Performance to Date, Theoretical Performance and the established Goal to be achieved. Stakeholder Analysis is an assessment of process stakeholders, their level of support, is it needed, and Influence Strategies to achieve support. Pursuing Entitlement Performance Goal Six Sigma Difference Baseline Traditional Goal Setting Closing the Gap Entitlement 11
12 DMAIC The Problem Solving Discipline Measure: measuring the variation of the problem s performance data Process Maps Hi, Lo documents key inputs and outputs Cause and Effects Matrix prioritizes key inputs for action Measure System Analysis evaluates accuracy and precision of measurement systems Initial Capability establishes initial process performance to customer specifications Purpose of the Process Map Document and build a common perspective about the process Highlights potential vulnerabilities and defects Identify the universe of variables that are relevant to the project Funnels detailed inputs to address the most important in FMEA Controlled Outputs or the End of a Process are a Function of the Inputs 12
13 Cause and Effects Matrix This is a simplified matrix to emphasize the importance of understanding customer requirements Relates the Key Inputs (X s) to the Key Outputs (Y s) using the Process Map as the primary information source Key Outputs are scored for their importance to the customer (1 10) Key Inputs are scored based on their relationship to key outputs (Correlational Scores 1,3,9 ) Measurement System Analysis & Initial Capability (WHERE IS the PAIN?) Data collection and data analysis are an integral part of Six Sigma. Having data is a critical starting point for Project solving and decisions regarding process redesign and/or improvement. Three important Questions are: What should we measure? Is data available? Is data valid and free of errors? Data collection can be difficult, but it is absolutely necessary. 13
14 Analysis of Payroll Cost Approval 177 Payroll Approval Monthly Payroll Bi Weekly Payroll 11% or 11% $15,982 or of $15,982 Bi Weekly of payroll Bi Weekly costs were not approved. $145, % or or $2,037,530 of exempt of payroll exempt costs payroll were not costs approved. $2,079, Number of Employees Amount of Payroll Analysis of Payroll Adjustments-Monthly Reissue 0% Adjustments 12% Manual 1% Voids 44% Redistributions 43% 14
15 DMAIC The Problem Solving Discipline Analyze: finding the sources of variation to the performance data FMEA Failure Mode and Effects Analysis Documents effects of Process Inputs (Xs) on Process Outputs (Ys) when key inputs (Xs) go wrong Documents potential causes of Xs (Inputs) going wrong The output of the FMEA is a Risk Priority Number (RPN) The RPN is determined by the severity of a potential error, how often it occurs and how well internal controls can detect the potential issue. FMEA Overview Process Step/Input Potential Failure Mode Potential Failure Effects S E V Potential Causes O C C Current Controls D E T R P N Actions Recom m ended How Bad? How Often? How well? What is the Input What can go wrong with the Input? What is the Effect on the Outputs? What are the Causes? How can these be found or prevented? What can be done?
16 Definition of RPN Terms Severity (of Effect) importance of effect on customer or process requirements should relate to project outputs (Y s) 1= None to Very minor; 10=Very Severe Occurrence (of Cause) frequency with which a given cause occurs and creates the failure mode. (Can sometimes refer to the frequency of a failure mode) 1=Not Likely to Occur; 10=Very Likely to Occur Detection (capability of Current Controls) ability of current control scheme to detect or prevent: the causes before creating failure mode the failure modes before causing effect 1=Likely to Detect; 10=Not Likely at all to Detect DMAIC The Problem Solving Discipline Improve: eliminating or enhancing the highest drivers of the performance data variation Design of Experiments (DOE), or Tests of process tweaks/changes Improvements based on results, process changes, controls and benchmarking data. Improving specific tasks create a Responsible, Accountable, Consulted, Informed (RACI) Matrix. As Is and Should Be for improvements 16
17 DMAIC The Problem Solving Discipline Control: establishing controls to manage the gains of the problem solution Develop a Control Plan utilizing the results from the Six Sigma DMAIC methodology From the documentation understand how the Critical inputs (X s) impact the Project outputs (Y s) and implement or adhere to the controls that reduce variance. Develop reaction Plan for out of control X (Human Element) Clarify ownership of Inputs (X s) and Outputs Y s. Show the linkage between control plans and the Discuss control methods. Control Plans Consulting report provides important elements from project information Including: Measurement Information; Updated Detailed Process Map Update Procedures, Etc. The Goal is to Sustain the Gains! 17
18 Control Plan Description Baseline Goal (70%) Entitlement There is an average difference of Eliminated in going to one 119 employees between the two system. The difference will systems. be 0 The Difference in Active Employees between the Banner and KRONOS Systems. Percentage of Employee Timesheet Approvals 89% of Bi Weekly Timesheets Approved; 2% of Monthly Timesheets approved. There should be a 0 employee difference between systems. A goal of 97% of Bi Weekly Timesheets Approved; and 80% of Monthly Timesheets. 100% Approval Rate Adjustments to Payroll Approximately 1,230 adjustments A goal of 370 adjustments. 0 Adjustments to Payroll Compliance with the Federal E Verification Process 75% Compliance Rate A goal of a 95% Compliance 100% Compliance Rate Rate. Difference in Vacation Balances Between System and Final Audit of Terminated Employees 54.5% of terminated Employees that were audited had a variance of greater than eight (8) hours. 15% Variance of Greater than Eight Hours. There should be a 0 difference system and final audited balance. EPAF s Applied Prior to the Effective Date of Hire 10% of EPAF s are applied prior to the effective hire date. 75% of EPAF s applied prior to effective start date. 100% of EPAF s should be applied prior to effective start date. Beware Of Project Pitfalls Timing Projects should be done in about 4 to 6 months There are exceptions, be prepared to defend them Measurable Output (Y) If the Y can t be measured, the project can t get done Need a statement of from and to General statements of reducing defects by X% don t provide the detail necessary to understand the problem. State where the metric is today and where you want it to move to. 18
19 Beware Of Project Pitfalls Boiling the ocean projects / Too many metrics Projects won t get done in 4 to 6 months Could be working on too many issues Solutions known DMAIC philosophy still applies Micro-focused Savings won t be significant Project may not get appropriate level of support When the Process Owner Gets It! Knowledge Transfer Occurs - Comments from a prize Pupil There is a newfound respect for the works of this Unit I have learned more about analyzing my own process flows. My experience was completely positive. Our changes were not subtle, they were bold I love the fact that the Auditors promoted team like efforts to assist with implementing the changes. I'd like to see the Office of Internal Audits develop a Six Sigma Team as part of a permanent staple of the University 19
20 Six Sigma in Summary Setting clear expectations for breakthrough in process performance Achieving excellence through process characterization, optimization, and control Creating a single approach to driving performance breakthroughs Same roadmap and tools Same language Driving improvements from fact This is just the beginning QUESTIONS??? CONTACT INFORMATION William T. Bostick, CPA, CGMA Director, Office of Internal Audits Xavier University of Louisiana o: (504) f: (504) a: 1 Drexel Drive, Box 150 New Orleans, LA w: e: wbostick@xula.edu 20
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