What is Six Sigma?
Six Sigma is a disciplined, data-driven approach and methodology that is used for eliminating defects (driving towards six standard deviations between the mean and the nearest specification limit) in any process from manufacturing to transactional and encompasses from product to service.
The statistical representation of Six Sigma will describe quantitatively how a process is performing. In order to achieve Six Sigma, a process must not produce more than 3.4 defects per million opportunities. A Six Sigma defect is clearly defined as anything outside of customer specifications. A Six Sigma opportunity is then the total quantity of chances for a possible defect. Process sigma can easily be calculated using a Six Sigma calculator.
This is accomplished through using one of two Six Sigma sub-methodologies: DMAIC and DMADV. The Six Sigma DMAIC process (which is known as: define, measure, analyze, improve, control) is an improvement system for existing processes that are falling below specification and looking for incremental improvement. The Six Sigma DMADV process (which is known as define, measure, analyze, design, verify) is an improvement system that is used to develop new processes or products at Six Sigma quality levels.
It can also be employed if a current process requires more than just an incremental improvement. Both Six Sigma processes can be executed by Six Sigma Green Belts and Six Sigma Black Belts, and are overseen by Six Sigma Master Black Belts.
According to the Six Sigma Academy, Black Belts can save companies approximately $230,000 per project and can complete four to 6 projects per year. General Electric, one of the most successful companies that have implemented Six Sigma, has estimated benefits of $10 billion during the first five years of implementation. GE first began Six Sigma in 1995 after Motorola and Allied Signal blazed open the Six Sigma trail. Since then, thousands of other companies around the world have discovered the far reaching benefits of Six Sigma.
Many frameworks currently exist for implementing the Six Sigma methodology. Six Sigma Consultants all over the world have developed proprietary methodologies for implementing Six Sigma quality that is based on the similar change management philosophies and applications of tools.
One of the most distinct differences between Six Sigma and other quality management systems is the direct link to business finances. Financial benefits of potential process improvement projects are quantified and then used to help select and prioritize process improvement projects. Financial benefits are constantly re-evaluated during the analyze phase to ensure that the cost of improvements suggested will be supported by the benefit of the project. And finally, the financial benefits are verified once the project enters the control (for DMAIC) and verify (for DMADV) phases.
The rigorous process that is associated with linking Six Sigma projects to business financials helps connect everyone within the business and not just the quality department and related personnel. The entire organization, including the CEO, CFO, line managers, employees, and shareholders, looks to Six Sigma to substantially increase cost savings, productivity, and incremental revenue. It also helps differentiate substantial process improvements from insignificant 'fluff' projects that will have little long-term benefit for the business.
Experts recommend that to forecast financial savings, consider the following calculation:
Tangible benefits - cost of project implementation = Financial benefits.
Then under each category like tangible benefits, try to break it further down to cost of sales, tax savings and all the financial jargon along with it. The cost of project implementation will be the labor cost and all other liabilities that arise from doing the project. That should give the most accurate forecast during the developmental phase. It is important to keep in mind that as the project goes along, there may be some changes in order to update the forecast to be even more accurate and revise the financial plan for approval.