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Business Performance Index 6 Business Scorecard (Key Departmental Measures) Departmental 6 Scorecard
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FIGURE 6-6.
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Hierarchical structure of measures.
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SIX SIGMA BUSINESS SCORECARD DEVELOPMENT
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The following shows the frequency of review required to maintain a certain level of profitability:
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3 to 5 years Annual Quarterly Monthly Weekly
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REVIEW CYCLE
Annual Quarterly Monthly Weekly Daily
The leadership must also monitor the variance in the business performance not just performance levels. Reviewing the business performance frequently and communicating that information with the executive team enable the business to take timely remedial actions and achieve the desired business objectives. During the review, the leadership must have very clear expectations for the executive team in terms of the rate of improvement, innovation, and trends for business performance. The executive team members (or the equivalent in small businesses) are responsible for ensuring optimal performance of the business processes, good interaction between processes, appropriate strategic alignment, good teamwork, and positive trends in performance. Collectively, the executive team is responsible for ensuring that the Six Sigma Business Scorecard is developed and used for monitoring the business performance. Executives review the performance periodically and take appropriate actions to adjust processes as needed to maintain profitability. The information for these measurements is pulled from the process-level measurements.
STEP-BY-STEP DEVELOPMENT OF THE SIX SIGMA BUSINESS SCORECARD
To develop the Six Sigma Business Scorecard, the executive team must outline the business process flow, identifying key
CHAPTER SIX
processes and establishing measures of their effectiveness. Measurement parameters are selected for critical inputs, inprocess, and outputs of the process. The team establishes a total error rate for each process by summing all defects or mistakes and normalizing them to the number of units inspected or verified. The indicators for each process can be summarized in a group of measures including cycle time, process Sigma, and cost or effectiveness. To calculate Defects Per Million Opportunities (DPMO), the team defines opportunities for errors based on actions that could produce errors. For example, in invoice preparation, the number of items that are manually entered could be counted as the opportunities for error. Departmental Defects per Unit (DPU) or DPMO can be calculated, and Sigma levels can be determined. For nonproduction processes, the formulas for DPU and DPMO are restated in terms of errors instead of defects. DPU Number of errors made at a process Total number of units produced in a department Number of errors made at a process 1,000,000 Total number of opportunities for making errors
DPMO
Following is a list of steps to guide development of the Six Sigma Business Scorecard: 1. Understand the intent of the Six Sigma Business Scorecard. 2. Commit to using the Six Sigma Business Scorecard by integrating Six Sigma in a revised vision of the company. 3. Create a Business Performance Index (BPIn). 4. Establish short-term and long-term improvement goals for a profit center or the company. 5. Establish measurements for each category of the Six Sigma Business Scorecard for each profit center. 6. Establish the relationship between profitability and Six Sigma Business Scorecard measurements.
SIX SIGMA BUSINESS SCORECARD DEVELOPMENT
7. Develop plans to utilize technology to automate the data collection and analysis. 8. If multiple profit centers exist, establish an aggregated Six Sigma Business Scorecard for the corporation. 9. Identify key processes for improving business performance. 10. Identify input, in-process, and output process parameters. 11. Establish data collection methods for these process parameters. 12. Collect data and calculate the error rate, cycle time, and cost for each department. 13. Plot trend charts and present the data with respect to established goals on a weekly basis. 14. Publish the weekly BPIn and monthly Six Sigma Business Scorecard reports. 15. Review business performance using Six Sigma Business Scorecard results. 16. Identify measurements with the greatest variance and adverse performance. 17. Investigate for root causes of the variance and waste in those areas. 18. Initiate remedial actions to improve the performance. 19. Monitor impact on the BPIn and profitability.
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