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©Sloan Consulting/Quality Health Systems of America, Inc., 2002

Table of Contents

The Six Sigma Executive............................................................................................2 The Six Sigma Profit Strategy ..................................................................................3 The 6σ Project Results Map .....................................................................................4 Define, Measure, Analyze, Improve, Control....................................5 Processes and Systems Produce Information.............................................................6 Operational Definitions......................................................................6 Columns and Rows ............................................................................6 Fields And Records............................................................................7 Spreadsheet Example .........................................................................7 6σ Array - Spreadsheet Example .......................................................7 How to Turn Your Data Into Information..................................................................8 6σ - The International Analysis Gold Standard.................................8 The Mean ( X )...................................................................................8 The Standard Deviation (σ) ..............................................................8 Probability Information (The F Ratio) ..............................................8 Analytic Graphs .................................................................................8 Using Excel to Filter Data..................................................................9 How to Compare Data Sets .......................................................................................12 How to Compete an Excel ANOVA..................................................12 The Stat Ease Graphic ANOVA ........................................................15 How to Draw and Interpret 6σ Software Pictures .....................................................16 Crystal Ball Spreadsheet Simulations................................................16 Quality Control Charts.......................................................................19 Scatter Diagrams and Correlation Analysis.......................................23 3D Cube, Probability, and Interaction Plots ......................................25 6σ Realities ............................................................................................................28 Executives, Champions, Black Belts and Green Belts ......................29

©Sloan Consulting/Quality Health Systems of America, Inc. 2002, 206-525-7968, http://www.danielsloan.com

1

**The Six Sigma Executive
**

Top-level leadership commitment powers Six Sigma. As a Six Sigma executive, champion, Master Black Belt, or Black Belt project leader you’ll discover that 6σ projects produce financial benefits. 6σ is a profit based business initiative. This business initiative improves the quality of decisions affect every process in the enterprise: financial, operational, and production. As 6σ projects improve profits, grow market share, reduce production costs, enhance productivity, they create near perfect processes, products, and services. Success transforms the corporate culture. Values matter in a 6σ applied business science culture. Customer satisfaction, quality information, speed, and lean organizational structures are highly valued. What is valued gets measured and rewarded. Measurements are made and recorded in a disciplined way. Six Sigma measurements are rigorously analyzed. Computing power and intuitive software minimize, and in many cases eliminate, the math anxiety that used to plague companies who pioneered the use of quantitative analysis. Personal computing frees executives, champions, and Black Belt project leaders for their primary responsibility. That responsibility is to ask tough, very tough, questions. Six Sigma questions move corporate cultures from their comfort zone and into a more profitable future. Analysis pays the biggest dividends when it is used for breakthrough improvements. Proven tools, now called Six Sigma tools, have an unprecedented 70-year history in every industry. Successes are a matter of record in agriculture, telecommunications, manufacturing, and medicine. Success, doing more of what works, depends on the interactions of all the following variables: • Top-level executives personally lead the Six Sigma initiative in highly visible ways. Compensation and promotion are tied to breakthrough projects. Education and skill training in the recognized 6σ body of knowledge permeate the organization. Computing literacy is an expected competency, top to bottom. Exponential rates of improvement are an expected outcome. New ways of getting work done take precedence over incremental process improvements. 6σ metrics are tied to short term and long-term financial performance. Executive leaders allocate their time and resources for 6σ projects. They assign the company’s most capable people full-time to Six Sigma breakthrough projects. They champion statistical reasoning on a company-wide basis while they remove bureaucratic roadblocks to improvement. Delegated champions, Master Black Belts, and project Black Belts plan, educate, train, coach, lead, and consult across all organizational boundaries.

©Sloan Consulting/Quality Health Systems of America, Inc. 2002, 206-525-7968, http://www.danielsloan.com

• • • •

2

**The Six Sigma Profit Strategy
**

Six Sigma is a proven method for improving profits by pursuing perfection. Six Sigma, or 6σ, is a disciplined use of applied science that improves profits by creating and systematically replicating breakthrough improvements. With 6σ, productivity soars. The lower case Greek letter, σ, is pronounced sigma. In Six Sigma science, σ is the symbol for a statistical measure called the standard deviation. This measure helps describe the shape of a bell curve like the one on this book’s cover. When one knows the average ( X ) and standard deviation (σ) of a process, one can improve that process to near perfection. Old school Continuous Quality Improvement (CQI) aimed for 3-sigma rather than 6σ-quality. The Lower Control Limit (LCL) and Upper Control Limit (UCL),3σ above and below the average, include 99.73% of a given process’s outcomes. This sounds better than it is. The promised 99.73% quality performance actually produces 67,000 mistakes or defects per million (DPM) products delivered or services performed The sad reality of 3σ quality is illustrated above using a light blue distribution curve with dark blue “tails.” Processes invariably drift around an average value. This drift is suggested by the red tailed curve, which has shifted 1.5σ to the right. To put this fact into perspective, a 3σ-sigma aviation safety level would translate into airline crashes each week. In health care it would mean 15,000 dropped newborn babies per year. Banks would lose thousands of checks daily. 3σ quality literally costs businesses between 25-40% of their annual operating income in waste and rework. Six Sigma quality reduces variation. A Six Sigma bell curve covers 99.999% of a given process’s outcomes. The graphic effect of a smaller standard deviation, σ, is illustrated on the left. The bell curve shrinks so only 3-4 defects per million (DPM), can occur. This challenging goal can be achieved. The reward for achievement is dramatically improved profits. Historically, each Six Sigma project generates a 180K-250K benefit. A 6σ Expert, called a Black Belt, can be expected to lead three to four projects per year. Their success, and your businesses success with 6σ, depends on the commitment of top-level executive leaders for achieving perfect, 6σ quality.

©Sloan Consulting/Quality Health Systems of America, Inc. 2002, 206-525-7968, http://www.danielsloan.com

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In a Six Sigma company top-level executives and managers must be able to use 6σ tools and language. Successful companies often link 6σ goals to incentive pay. In a 6σ culture every person becomes statistically minded. This interactive manual was written to get you up to speed as quickly as possible with 6σ tools, language, and reasoning.

**The 6σ Project Results Map
**

Flow diagrams, maps, simplify work by making hidden process dynamics visible. Seeing waste and complexity helps eliminate it. Flow diagrams, like the one below, can also create processes that produce desired results. To read the diagram, begin with the symbol at the upper left hand corner. Follow the arrows to the right hand page bottom.

The Six Sigma Project Results Map

Quantify Project's Value to the Business

Define Issues

Operationally, Statistically, and Practically

Customer Satisfaction & Profitability Goal(s)

Identify Performance Metrics

Benchmark Functional, Internal, and Competitive Standards

Measure

with help of Maps and Models

Spreadsheet Simulations

Flow Diagrams

Critical to Quality "X, Y, Z" Variables Identified and Arrayed

Data Collection Design Records Data Sequentially

Personal Observations

3-Dimensional Data Mining Computerized Systems Information

Analyze

Leverage Context: Six Sigma and Traditional Finance ANOVA Comparisons

Quality Control Charts

Scatter Diagrams with Regression Analysis

3D CUBE & Designed Experiments

Interpret Results

Optimize System

Improve

for Six Sigma Breakthroughs

Control

to Hold Breakthrough Improvements

Standardize Six Sigma Systems

Evolving Cultural Norms and Breakthrough Transformations

Customer Focus & Profitability Goal(s)

©Sloan Consulting/Quality Health Systems of America, Inc. 2002, 206-525-7968, http://www.danielsloan.com

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Define, Measure, Analyze, Improve, Control (DMAIC) Customer satisfaction and profitability goals come first and last in Six Sigma. As 6σ breakthroughs help companies surpass quarterly and annual financial targets, long-term objectives are continuously upgraded to sustain momentum. The yellow process steps – top and bottom rows - outline top-level leadership responsibilities. The green process steps outline Black Belt project responsibilities. The light blue rectangles indicate close collaboration between top-level leaders and Black Belts. The processes of interpreting results, optimizing systems, and implementing breakthrough improvements often flatten bureaucracy. Consequently, broad-based organizational involvement is required for success in these steps. The entire process map frames the Define, Measure, Analyze, Improve and Control (DMAIC) improvement model developed at Motorola during the 1980s. DMAIC is now recognized as an integral part of the American Society for Quality’s, Six Sigma Body of Knowledge. http://www.asq.org/cert/types/sixsigma/bok.html Essential DMAIC process flow highlights include: Quantify a project’s value to the business. Every Six Sigma project must be related to critical quality characteristics and have a significant dollar impact. Quantifying value is the primary criteria for selecting a project. Value justifies the assignment of a full time, Black Belt 6σ expert to creating the required breakthrough. Measurement is a means of communication. Six Sigma is largely the applied science of measurement. Knowing how to measure, when to measure, what to measure, and how to record measurements for maximum value are essential 6σ skills. Measurement skills depend on measurement knowledge. The blue Design of Experiments (DOE) CUBE symbolically emphasizes the importance of well-designed data collection plans. Data needs to be recorded sequentially. Accounting and finance people call this technique a time series. Whenever one collects data, either by counting or measuring, record 100% of the data in sequential order. A Six Sigma analysis is a statistical analysis. In addition, 6σ executives use traditional financial analyses to communicate with key customers. Six Sigma and financial measurements are valuable when framed in a meaningful context. Breakthrough, improvement, and quality control principles are well documented. Their proven 72-year history of improving profits in industry is unsurpassed. The project flow diagram describes an efficient, economical, and thorough path towards Six Sigma improvements. This process has repeatedly demonstrated its capacity for productivity, quality, information and breakthrough improvements.

©Sloan Consulting/Quality Health Systems of America, Inc. 2002, 206-525-7968, http://www.danielsloan.com

5

**Processes and Systems Produce Information
**

A repeated series of actions and variables is a process. A collection of processes is a system. Virtually perfect 6σ quality results from an optimal interaction of all the variables in a given system. Process and system questions we all face at work include, “Which variables are the most important to the customer?” “Am I being efficient? Am I being effective? Am I using the best methods to complete my tasks? Is there a better way? The science of data collection has two keys we can use to answer these questions. By systematically observing processes and systems, we learn faster than we do through trial and error. As Yogi Berra said; “You can see a lot just by looking.” When we look and learn, we can improve. Six Sigma counts, measures, and graphs speed learning. Key #1: Develop crystal clear operational definitions. Define precisely what you mean to count or measure before you start to count and measure. This is tricky business. For example, write down your definition of the word ‘pan’ on the following line. Good work. Your definition is correct. So are at least 10 others. In Spanish, pan means bread. Pan is a cooking container, a depression in the earth, a cavity in the lock of a flintlock, and the Greek god of the woods. You can pan a camera or pan for gold. Be very, very, specific when you define what it is that you intend to count or measure. Here is another example of why clear operational definitions are crucial to even a simple process like counting. Count the number of f’s in the following paragraph. FOR CENTURIES IMPORTANT PROJECTS HAVE BEEN DEFERRED BY WEEKS OF INDECISION AND MONTHS OF STUDY AND YEARS OF FORMAL DEBATE. Depending on how you decided to define the letter “f” there are seven possible correct answers. There are no lower case f’s. So, zero is one correct answer. If you decided to count any F, there are 6. If you proof read phonetically, in other words you defined “f” by the sound of the letter, the F in each OF sounds like a “v.” So, if you defined an F by the way it sounds you could have counted 1, 2, 3, 4, 5, or 6. Any one, or all of these answers, taken in the context of its definition, could be considered to be correct. Key #2: Array your data in columns and rows. Tables are the proven way to array the data you collect in columns and rows. Data can be collected from any process. Column Row Row Column Column Column

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In our computer age, operational definitions for ‘row’ and ‘column’ have changed. Rows are now called “Records.” Columns are “Fields.” Fields describe details about each record. Recording each record in its proper sequence is exceptionally important. Record the data sequence for every Six Sigma analysis. A four-field array is illustrated below.

Field Date Record #1 Record #2 Field Name Field Gender Field Age

This 6σ data array of fields and records would tell us a little about each observation. The more fields, the richer our understanding can be. For example, in the same amount of space the following table has twice as much data. Rich data, meaning each column/field has a crystal clear operational definition, can yield rich information. Many times we collect dozens of fields for each recorded observation. Since data collection is time consuming and expensive, design your collection plan with care before you begin.

Date W Record #1 Record #2 Name X Gender Y Age Z Primary MD AA Surgeon BB Nursing Unit CC DRG DD

Spreadsheet Example: Excel spreadsheets help accounting and finance professionals scan vast amounts of data. Spreadsheets help them spot patterns. As helpful as this format is to their trained eyes, each record/row and column/field in a traditional spreadsheet mixes different fields and records together. This heterogeneous characteristic does not lend itself to a computer powered, statistically valid 6σ analysis.

6σ Array – Spreadsheet Example: The following Six Sigma, 6σ, array presents A/R Aging Dollars data in a way that leverages 21st Century computing power. Note the sequential time frame in the first column. The entire table goes back years, week-byweek, record-by-record. Each field is homogeneous. Uniform arrays promote the use of accurate, 6σ statistical analyses as well as improving eyeball assessments.

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**How to Turn Your Data Into Information
**

Data arrays become information when they are analyzed and graphed in a disciplined way. Analytic graphs are valuable. These decision guides save time and money. Six Sigma is the international analysis gold standard. This gold standard lets us compare processes that differ in scope and complexity. Though many professionals choose not to use statistics, all professions do. Statistical evidence is essential to professional credibility. Probability theory, the foundation for statistics, is bedrock 21st Century science. Probability is how Las Vegas casinos and State lotteries guarantee that they will make money. Six Sigma sets the odds the same way for a business enterprise. Statistical methods deliver the highest level of evidence for making judgments. A statistical analysis is the surest way to confirm whether what we have observed is due to CHANCE variations, or due to something special. Without an analysis, we have only intuition, assumptions, and guesses. Sometimes our assumptions are correct, sometimes not. Six Sigma reduces guesswork. Statistical analyses increase confidence in the judgments we must make in an uncertain world. Here are the four rules for completing a statistically valid, graphic, 6σ data analysis. Excel can and will complete the calculations for you. All you have to do is “click and drag.” You will never personally have to use an equation. Follow the four rules in order. 1. Calculate the average value for your set of numbers. A set of numbers is called a data set. The average, or mean, is symbolized in 6σ by the character X . This symbol is pronounced X bar. Excel’s Paste Function key (fx) can and will calculate averages automatically. 2. Calculate the standard deviation, σ, for your data set. The symbol for the standard deviation is called sigma, σ. Excel’s Paste function key (fx) or other Six Sigma software can and will calculate this statistic automatically. 3. Calculate the probability information for your data set. Probability information tells us if the differences we see in our counts or measures are due to random CHANCE. Or, probability will tell us if the differences we see are most likely due to one factor or a combination of variables. Excel’s ANOVA function automatically calculates an essential probability statistic called an F ratio for you. 4. Graph your data using an appropriate analytic graph. Excel’s bar graphs and pie charts are descriptive, not analytic. The affordable Six Sigma software add-ins illustrated later in this manual work seamlessly with Excel to graph the average, standard deviation, and probability information in more meaningful ways. Clearly, basic spreadsheet skills are an expected competency for 6σ executives who expect their Black Belt experts to produce best results. Computing power makes 6σ initiatives possible. Prioritize learning strategies to your personal needs.

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When we turn our counts and measures into accurate statistical pictures, patterns emerge. These precious, time and money saving patterns would otherwise remain buried in columns and rows of numbers. Learning to recognize these patterns is an indispensable 6σ skill. Valuing the information conveyed by these patterns is one of the most important contributions executive leaders can make to Six Sigma projects. Using Excel to Filter Data Once data is arrayed in an Excel table fields, it can be mined. In other words, one can filter data to look for specific patterns, specific answers, to business questions. For example, the following table arrays data about delivery times, units purchased, and total cost. In a very short amount of time we were still able to learn quite a lot the combination of variables that leads to fast delivery times.

Before we mined and analyzed the data in these columns and rows we created a special kind of a 6σ array which is shown at the bottom of this page. This Design of Experiments (DOE), or orthogonal, array let us consider three variables at once, saving time and money. The word orthogonal simply means a 90° angle; these columns and rows join at 90° angles. First we decided we wanted to know whether the Supplier (A or B), the complexity of the order (Simple or Complex), and/or the Bid Level (Low or High) had any effect on delivery times. Here is what our orthogonal array for 3 variables set at two levels looked like. X Supplier - A + B - A + B - A + B - A + B Y Complexity - Simple - Simple + Complex + Complex - Simple - Simple + Complex + Complex Z Bid Level - Low - Low - Low - Low + High + High + High + High Delivery Times

1. 2. 3. 4. 5. 6. 7. 8.

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The plus/minus coding system in this array is simple. For Supplier, a minus sign symbolized supplier A; a plus sign symbolized B. For Complexity, a - meant Simple, a + meant . For Bid Level a minus meant ‘Low.’ A plus meant ‘High.’ When you put the plus signs and minus signs together graphically, you get a cube like the one at the right. As you know, each corner of a cube is 90°. Therefore, you have an orthogonal array! Six Sigma Executives use orthogonal arrays as guides to filter data. If you want one to work along with this example, you may get a free copy of this supplier delivery time data set from daniel@danielsloan.com Highlight row one using a left mouse button. Go to Data, Filter, AutoFilter Function. As you can see below, after you have made these key strokes, a drop down arrow appears in every column heading.

We then used the drop down arrow filter to find how many matches there were for the first combination of variables in our array. What were the delivery times when conditions included Supplier A, a Simple order, and the Low bid? The five matches averaged a 41.2day delivery time.

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By repeating this process for the next seven combinations of variables, a pattern of statistically and economically significant results emerged. See for yourself in the completed array below. What combination of variables produced the fastest delivery time? What combination of variables produced the slowest delivery time? What patterns do you see? X Supplier 1. 2. 3. 4. 5. 6. 7. 8. + + + + A B A B A B A B Y Complexity + + + + Simple Simple Complex Complex Simple Simple Complex Complex Z Bid Level + + + + Low Low Low Low High High High High Average Delivery Times in Days 41.2 44 36.6 40.5 33 18.4 24.6 19.13

If you noticed the fastest times were created by the two-factor interaction of a High Bid and Supplier B, congratulations. You have just completed a completely intuitive, 6σ multivariate statistical analysis! No equations. No fooling. This enterprise was paying a premium for fast delivery. Discuss how you could use this type of data mining and statistical analysis to uncover patterns in your own work you could improve productivity and profitability. Brainstorm ideas. Use your imagination.

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**How to Compare Data Sets
**

In 1920, Sir Ronald A. Fisher invented a statistical way to compare data sets. Fisher called his method the Analysis of Variance, which was later dubbed an ANOVA. This method eventually evolved into Six Sigma data set comparisons. An ANOVA is a guide for determining whether or not an event was most likely due to the random chance of natural variation. Or, conversely, the same method provides guidance in saying with a 95% level of confidence that a certain factor (X) or factors (X, Y, and/or Z) were the more likely reason for the event. The F ratio mentioned under rule 3 on page seven is the probability information produced by an ANOVA. It was named for Fisher. The orthogonal array and the Results Project, DMAIC designed experiment’s cube were also his inventions. An ANOVA can be, and ought to be, used to evaluate differences between data sets. It can be used with any number of data sets, recorded from any process. The data sets need not be equal in size. Data sets suitable for an ANOVA can be as small as three or four numbers, to infinitely large sets of numbers. How to Complete an Excel ANOVA The difficulty of calculating ANOVAs by hand prevented most people from using this 6σ tool until the 1990’s. Now, using software like Microsoft Excel, anyone and everyone can quickly determine whether differences in a set of counts or measurements were most likely due to chance variation. Or, can we say it should be more likely attributed to a “combination of factors.” These variables are often labeled factor X, Y, or Z. Here is how you could use an Excel ANOVA to determine who is a better bowler. You could and can use an ANOVA to compare any scores. Lengths of stay, days in AR, the number of phone calls, readmission rates, stock prices and any other measure are all fair game for an ANOVA. Below are six game scores for three bowlers. Which bowler is best? If there is a best bowler, is the difference between bowlers statistically significant? Pat 157 148 150 140 160 167 Mark 180 175 165 195 185 170 Sheri 156 158 145 151 166 161

Step 1. Recreate the columns using Excel. Each bowler’s name is the field title. Step 2. Go to Tools and select Data Analysis as shown. If Data Analysis does not appear as the last choice on the list in your computer, you must click Add-Ins and click the Analysis ToolPak options.

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Step 3. Click OK to the first choice, ANOVA: Single Factor.

Step 4. Click and drag your mouse from Pat’s name to the last score in Sheri’s column. This automatically completes the Input Range for you:$F$1:$H$7. Click the box labeled “Labels in First Row.” Click Output Range. Then either type in an empty cell location, or mouse click an empty cell, $I$8, as illustrated by the dotted cell below. Click OK.

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Step 5. Interpret the probability results by evaluating the F ratio. If the F ratio is larger than the F critical value, F crit, there is a statistically significant difference. If it is smaller than the F crit value, the score differences are best explained by chance.

Anova: Single Factor Which Bowler is Best? SUMMARY Groups Count 6 Pat 6 Mark 6 Sheri

Sum Average Variance 922 153.6667 92.26667 1070 178.3333 116.6667 937 156.1667 54.96667

ANOVA Source of Variation SS Between Groups 2212.111 Within Groups 1319.5 Total 3531.611

df

MS P-value F F crit 2 1106.056 12.57358 0.000621 3.682317 15 87.96667 17

The F ratio 12.57 is larger than the F crit value 3.68. Mark is a better bowler. The difference between him and the other two bowlers is statistically significant. Excel automatically calculated the average, the variance – which is the standard deviation, σ, squared – and the essential probability information instantly. You can use this technique to compare physicians, nurses, hospital lengths of stay, revenue, expense, supply cost, days in accounts receivable, or any other factor of interest.

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The Stat Ease Graphic Anova Excel takes care of the first three 6σ rules for completing an analysis. Unfortunately, it does not create a meaningful, analytic graph. As mentioned earlier, most Excel graphs are descriptive, rather than analytic. As you advance in your Six Sigma learning you may want to learn to use a 6σ software program called Stat Ease Design Expert. Stat Ease calculates an ANOVA and graphically shows statistical differences between sets of data. It is all achieved with mouse clicks. You won’t have to look at, or calculate an equation.

Each I-Bar has a black square in its center. This square identifies the average score for each bowler. The top and bottom of each I-Bar extends two standard deviations, 2σ, above and below the mean. Think of these as the Upper Control Limit (UCL) and Lower Control Limit (LCL) for each bowler’s score. Each I-Bar covers 95% of an imaginary, on-its-side bell curve for each bowler. Note the overlapping values in red circle markers. On occasion both Pat and Sheri could have bowled a better game than Mark. But, when the data are viewed using the mean value ( X ), the standard deviation (σ), the probability information provided by the F ratio, and a meaningful analytic graph, Mark is obviously a better bowler. In fact, as we mentioned before, he is a better bowler in a statistically significant way.

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**How to Draw and Interpret 6σ Software Pictures
**

Practice makes perfect. One can only learn how to draw 6σ software pictures by using the software. All the vendors in this book have free demonstration downloads available via the Internet. We recommend three ways to learn how to draw 6σ software pictures: 1) Ask someone who is already using these programs to show you how. The Excel skills you have will transfer nicely. The programs are remarkably easy to use. Friends can often be good teachers. 2) Borrow the software manuals. Complete the program tutorials. 3) Ask for a one-on-one or one-to-many expert training sessions. Each expert Six Sigma software-training session takes about 2.5 hours to complete. This manual gives an overview of each one, so you can get started immediately. Start with small tasks before you tackle large, complex ones. Crystal Ball Spreadsheet Simulations Crystal Ball extends the forecasting ability of Microsoft Excel. This program strengthens traditional spreadsheet scenarios. Once you have a developed a budget, or if you have a budget already prepared, you can use Crystal Ball. Spreadsheets are models. So are budgets. A model like a budget is an analysis tool. It symbolically represents what the future could look like. It is an affordable test about potential outcomes. Traditional spreadsheet models and “what-if” scenarios fall short of Six Sigma analysis needs in four ways. 1. A point estimate, an individual number in a cell, is often misleading. It misleads because it ignores context. Without context - an average ( X ), a standard deviation (σ), probability information, and an analytic graph - one has to guess at the number’s meaning. Guessing answers is an unnecessary risk. 2. Spreadsheets use simple addition, subtraction, multiplication and division. Though simple arithmetic is familiar, it cannot produce the insight or information a rigorous, 3-dimensional computer driven analysis can. 3. Spreadsheet scenarios are usually created using One-Factor-at-a-Time (OFAT) methods. These methods are time consuming. They over simplify business problem complexities. Oversimplification misrepresents reality. 4. Spreadsheet scenarios give a false impression of precision. Since one number is given as a “bottom line answer” the likelihood and entire range of probable outcomes are ignored.

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Simulation programs like Crystal Ball use existing spreadsheets. Once a Crystal Ball model has been embedded in a spreadsheet, you will have a much better grasp on the range of possible outcomes. You will know the likelihood and probability of those outcomes. Simulation programs let you perform tens of thousands of multivariate scenarios in minutes. This is less time than it takes to complete a single OFAT scenario. In addition, after your computer completes thousands of simulations for you, for no extra charge you get a sensitivity chart. This chart ranks the statistical importance each variable has on your bottom line forecast. Not infrequently, a sensitivity chart points out entirely counter-intuitive patterns. Counter-intuitive patterns are masked by spreadsheets. Onefactor-at-a time (OFAT) scenarios cannot and do not generate counter-intuitive, 3dimensional information. A sensitivity analysis ensures that you focus on the key variables that have the most impact, rather than variables you think may be most important. In this way, Crystal Ball increases your level of confidence as you make decisions in the face of uncertainty. The following flow diagram is used with permission of Decisioneering, developers of the Crystal Ball Excel add-in. It illustrates the simulation modeling process. It is taken from their self-study CD ROM course entitled, Risk Analysis Using Crystal Ball. MedCath has a number of copies of this program you may want to borrow. More details are on the Decisioneering website. http://www.decisioneering.com . The web site also includes case studies and helpful articles.

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Crystal Ball is a set of icons on the Excel toolbar called out by the red arrow. In the illustration below, you can see the toolbar begins with a green, bell shaped curve at the far left. This bell curve icon automatically defines the mean, ( X ), a standard deviation (σ), related probability information, and an analytic graph for each of your budget assumptions.

The “red and blue bell curve,” the third icon from the left, defines your “bottom line” forecasts. Crystal Ball color codes each assumption with green, and each forecast with blue. This is illustrated in the spreadsheet below.

The above spreadsheet makes it look like this landlord can expect to make $2,500 per month. Unfortunately, this one number answer fails to consider the mean, standard deviation, and probability information of the forecast. It takes less than 10 seconds to run 1,000 simulations of this simple, two factor budget model. Crystal Ball’s graphic, distribution curve output below shows that, given the assumptions. The bell curve illustrates the entire range of probable outcomes. There is a 50% chance of hitting $2,500.

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At the click of a mouse button, the bell curve’s related sensitivity chart below shows that the most significant factor is the number of rental units. The largest contributor to the variance in outcomes is related to rental unit marketing. Crystal Ball can play an instrumental role in selecting appropriate Six Sigma Projects, as well as evaluating the value of breakthrough improvements.

Quality Control Charts Quality control charts have been used by thousands of companies for scores of years. So, for many businesses these Six Sigma charts will not be new. What is new with Six Sigma, is that quality control charts are used to analyze all sorts of process outcomes. Operational, financial, productivity, and other managerial metrics. Though there are a number of different kinds of control charts that can be used, the most familiar one to executives is called an Individual X and Moving Range chart. This chart is also called an X chart, or Individuals chart, because it charts individual measurements. Control charts graph an average ( X ), a standard deviation (σ), and probability information simultaneously. The Excel icon used to complete a control chart is circled with red in the illustration below. If you don’t have an icon like this on your Excel toolbar, just ask visit the Quality America website http://www.qualityamerica.com

By clicking and dragging a column of numbers that have been recorded in sequential order, you can quickly complete a control chart. Just follow the chart wizard that comes with Quality America, Statistical Process Control (SPC) application. For example, draw a control chart using Pat’s scores from our best bowler data columns. Click and drag on Pat’s scores and left mouse button click the control chart icon. Left

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mouse button click the menu choice, Individual-X and Moving Range Chart to highlight it as shown. Then click Next.

Step 2 of 4 shows the name of the Excel worksheet and the data range included in your click and drag keystroke. Simply click Next.

In Step 3 of 4, be sure the Curve Fit is set to normal. Depending on which version of the Quality America, SPC Excel add-in you have, you may have to reset this every time. Or, if you have access to the upgraded version, it will automatically leave the curve fit at your prior setting. The preferred setting is Normal. Click Finish.

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The control chart automatically presents the process average value as a Process Center Line (PCL). In this case, the Upper Control Limit (UCL) and Lower Control Limit (LCL) represent 3 standard deviations above and 3σ below the average. You will remember these 3σ values from page 2. On page two of this manual the bell curve was presented vertically. On an individual’s chart that curve is displayed horizontally. Because none of the points are highlighted with either a circle or a square, all variations here are most likely due to natural, CHANCE variation.

If you array all of the bowlers’ scores in one column and create a single control chart, you will see highly improbable, statistically significant patterns. These patterns are identified with circles and/or a square. The high point, Mark’s best score, falls beyond 3 standard deviations above the mean. The next circled data point is also highly improbable.

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Either one or both of these two control chart signals are meant to catch your eye. If you can identify the factor (X) or combination of factors (X, Y, and/or Z) related to these high scores, and repeat them, you will raise your average score. You will win more often.

By using advanced features, you can add titles, create stepped control limits for separate data groups, label the X-axis, and give the chart eye appeal. This is illustrated below.

The following control chart shows the impact of a 6σ-style, medical, breakthrough improvement. Benchmark statistical and anecdotal evidence persuaded a thoracic surgeon to master a challenging technique termed off-pump heart surgery. The chart profiles the

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surgeon’s patient lengths of stay while he was still using the assistance of a heart and lung machine, and lengths of stay after he had learned to perform the surgery without this pump. By performing his Coronary Artery Bypass Graft surgeries off-pump, patients stayed in the hospital an average of three days following surgery rather than 6 days. The standard deviation, or spread of the data also shrank from 1.7 days to 0.79 days. In addition to improved patient safety, the hospital’s annual financial gains related to improved surgical technique exceeded $1 million.

Scatter Diagrams and Correlation Analysis Six Sigma scatter diagrams and their correlation analyses often debunk management myths. Many times executives assume and/or presume that measures vary together when they do not. Sometimes they assume and/or presume that measures do not vary in concert with one another when they do. For better or worse, budget forecasts are based on these assumptions. Knowing which factors do and don’t vary together improves forecasting accuracy. Improved forecasts can reduce decision risk. Being able to quantify the degree of co-variation, called correlation, helps leaders understand whether assumptions are on or off base. The word correlation does not imply or mean, causation. A correlation simply means that two measures tend to vary together. A perfect positive, one-to-one (1:1) correlation has a correlation coefficient of +1. A perfect 1:1 negative correlation has a correlation of –1. Since everything varies, one rarely sees a perfect correlation. If you see a perfect correlation coefficient doubt it.

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The following table arrays an older Six Sigma executive’s age and the price of gasoline over the past 50 years. Because the paired recorded data is in sequential order, we can analyze the data. Notice each field is homogeneous; data fields are not mixed together as they would be in a traditional spreadsheet. Use the same Excel add-in icon you used to create a quality control chart. This icon also creates a scatter diagram. Recreate this array in an Excel spreadsheet so you can complete a scatter diagram. Year 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 My Age 0 5 10 15 20 25 30 35 40 45 50 Gasoline Price $0.06 $0.12 $0.27 $0.15 $0.52 $0.64 $0.76 $0.89 $1.10 $1.19 $1.40

Click and drag to select the two columns labeled My Age and Gasoline Price. Select Scatter diagram. Then click Finish and the scatter diagram is completed automatically. With a bit of advanced training you can add titles for eye appeal.

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The linear relationship between the correlation’s coordinate points on the X axis, my age, and the price of gasoline on the Y axis is almost perfect, 0.984. The correlation number, 0.984 is called an r value in Six Sigma jargon. By using the straight black line to coordinate age values on the X axis and price values on the Y axis, what was the price when this executive was 22? What was the price when he was 48? Looking into the future, a process called extrapolation, what would you predict the price of gasoline and the executive’s age will be in 2005? Did an executive’s age cause the price of gasoline to increase? No. But, the two measures do tend to vary together. As one gets larger, so does the other. This is a linear relationship, meaning the black line in the middle of the chart describes the relationship. It is an easy chart to interpret. The red ‘curved lines’ framing the line are called confidence intervals. As a rule of thumb a strong correlation or relationship has an r-value range of between 0.85 to 1, or -0.85 to –1. In a moderate correlation, the r-value ranges from 0.75 to 0.85 or, -0.75 to –0.85. In a weak correlation, one that is not a very helpful predictor, r ranges from 0.60 to 0.74 or –0.60 to 0.74. Though an entirely random relationship equals, 0.00, any relationship that has a correlation r-value that is 0.59 and below is not considered to be a reliable predictor. The scatter diagram at the top of the next page illustrates a case in point. In this enterprise, finance managers assumed that there was a linear relationship, a correlation, between monthly operating expenses and the number of units their factory processed. The shotgun pattern illustrates that the simple linear relationship is so weak, that their predictions were invariably misleading. The low r value of 0.159 suggests that there was virtually no relationship between these two factors. This insight helped the team focus on other key factors that did matter. The insight gained from Six Sigma statistics saved time and money.

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3D Cube, Probability and Interaction Plots The Stat Ease Design Expert software application brings us back to the Designed Experiments orthogonal array. The Stat Ease web site has information and a newsletter you can subscribe to learn more about Six Sigma topics. http://www.statease.com Stat Ease is a point and click, advanced statistical software application. As with our other Six Sigma software, an expert led introductory course takes about 2.5 hours. Our purpose in this manual is to introduce you to the pictures it automatically produces. All of these pictures are based on calculating a mean, a standard deviation, an F ratio, and graphing this statistical information analytically. The following array is the Stat Ease equivalent to the Excel data-filtering array on page 8. The study was on conducted using retrospective data on fluoroscopy times in a hospital. Fluoroscopy is a medical imagining process, which is expensive and involves patient safety.

Note that the column (factor) titles in this multivariate fluoroscopy times study are labeled A, B or C, rather than X, Y, and Z. This variation does not affect calculations.

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Also, please note that the coding scheme of pluses and minuses is not visible here. Nevertheless, you will recognize a familiar pattern. The first column alternates between a low (a minus) and a high (a plus). The middle column lists two levels of one factor, then two of another. The third column has four in a row of one level, and the same level four times in a row, and then another level of that factor four-in-a-row. Stat Ease completes an ANOVA simply by left mouse clicking a button labeled ANOVA. The output is shown below. Factors A and C and the two factor AC interaction in the model are statistically significant. If you look closely at the bottom of the illustration, you will see that Stat Ease ANOVA tells you this answer in plain English.

The Half Normal Plot at the top of the next page automatically highlights the two factors which are active. This chart is quite similar to the sensitivity chart produced by the Crystal Ball financial spreadsheet simulation application. It should come as no surprise that both programs use a 3D cube in its calculations. In this study, the amount of contrast used (factor A), the gender of the patient (factor C) and the interaction between the contrast and gender (AC) are all active. In other words, the outcome is a result of an interaction with two variables working together. These factors appear to have affected the outcome: fluoroscopy time. The physician does not appear to make a difference the outcome. The amount of contrast used, the patient’s gender and the combination of the contrast used and patient gender do appear to make a difference. The half-normal plot on the next page illustrates this answer in a colorful way. As a historical note, it is helpful to know that prior to completing this study, the assumption and presumption were that the doctor was the main factor. Every one knew this fact to be “true.” Even though the truth turned out to be incorrect, the graph provided another important example of why a rigorous data analysis can play such an important role in making solid decisions.

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The following Interaction Graph shows that men who receive a high amount of contrast experience longer fluoroscopy times. Once again, the square in the center of each I-Beam represents the mean. The lines at the top and bottom of the I-Beam represent UCL and LCL set at 2σ above and below the mean. Shortest fluoroscopy times were in men who received a low amount of contrast media.

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The 3D cube graph symbolically presents the mean, standard deviation, and probability information of three variables simultaneously. Note where the two longest predicted fluoro times, 23.05, are located. It makes no difference if the Physician is “B minus” or “B plus.” In both cases the predicted high numbers fell along the A+ (High Contrast) and C- (Gender C- means male) planes. This is one classic example of a gender bias in the delivery of cardiovascular medicine. It is taken from a non-MedCath hospital and published in a book entitled Using Designed Experiments to Shrink Health Care Costs. This book is available on a CD ROM format.

6σ Realities

Six Sigma projects require the time and full attention of a company’s best people. If corners are cut here, value is cut from breakthrough financial benefits. The diagram on page three guides the flow of projects. Once the company president and senior leaders embrace 6σ values by linking them to meaningful incentives breakthrough projects can start. In order to approve a project, there must be a clearly Defined aim so that the DMAIC strategy remains linked to core business issues. That aim ought to be defined so that 3 key Six Sigma objectives can be achieved: 1) a quality breakthrough that delights customers is an expected outcome, 2) the project is significant enough to produce at least a 150K-280K or larger financial return, and 3) it strengthens the company’s market position and profitability.

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A Champion guides 6σ projects sponsored by executives to completion. A champion is an executive whose primary function is to lead the corporate Six Sigma initiative. Projects are executed and implemented by trained 6σ experts known as Black Belts who work full time on breakthrough improvement projects. Typically, Black Belts are the company’s best people. Black Belt training is extensive and takes place over a period of four to nine months. Their “tour of duty” lasts at least two years during which time they are expected to complete 3 to 4 projects annually. Training and projects begin simultaneously so that results can drop to the bottom line as quickly as possible. Results drive the Six Sigma process forward. Six Sigma is all about doing more of what works. Consequently, 6σ projects that improve quality, productivity and bring dollars to the bottom line are priorities. Finance leaders plays many support roles in 6σ projects, from modeling improvements to documenting the financial value of the breakthrough projects. During this beginning phase, ideas and hypotheses are generated as to which factors (X, Y, Z and as many others as there are) measurements are key to success. Processes and systems are observed using sound sampling plans. Data is filtered and analyzed to identify variables that have the most affect on outcomes. Sensitivity charts and other statistical charts are used extensively throughout the organization. Processes are flow diagrammed and additional analytic charts are created as required. There is a pronounced emphasis on statistical thinking. ANOVAs, control charts, scatter diagrams, half normal probability plots, interaction graphs, and cubes turn data into information. Once an improvement begins, it is tracked continuously. It takes more than a good idea to create a successful project. It involves company wide teamwork. The following combination of tactics has proven to be effective. External statistical performance standards comparing outcomes command attention. Thorough literature searches and reviews of peer-reviewed scientific publications play important roles in this process. 100% sampling of key variables is more efficient, effective and informative than random samples. We leverage the economy of 100% sampling and orthogonal arrays using expert judgment. Financial models using Crystal Ball create insight. Simulations are powerful communication tools. For the duration of the project there is continuous feedback- graphic and analytic. Personal, face-to-face interactions with all key players matter. Advanced Six Sigma education is done on-the-fly and just-in-time as required by the scope and priority of projects.

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**References and Copyright Acknowledgements
**

Six Sigma reference articles and texts for advanced study are available on CD ROM format or hard copy from Sloan Consulting or Quality Health Systems of America, Inc. 10035 46th AVE NE, Seattle, Washington 98125. Voice and Fax: (206)-525-7968 • The New Management Equation, Productivity, Quality, and Information Analysis Solutions That Add Up. (Sloan Consulting, 1998) This is a breakthrough productivity textbook for all industries. For details please visit http://www.danielsloan.com Analyzing Clinical Care Pathways – 3-D Tools for Quality Measurement, Outcomes, and Improvement, (McGraw Hill, 1999) Sloan and Guinane. This textbook is specifically written for health care breakthroughs. For details visit http://www.danielsloan.com Using Designed Experiments to Shrink Health Care Costs, (ASQ Quality Press, 1997) CD-ROM Version, M. Daniel Sloan. This textbook is specifically written for health care data mining and breakthroughs. For details visit http://www.danielsloan.com

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•

Sloan Consulting appreciates the written permission granted for using graphic image adaptations and data sets from the following companies. • • • • Sloan Consulting for the 3D Normal Curve, capability curve illustrations, Cube, Fluoroscopy case study example, and other previously published materials. Control Engineering Online and Control Engineering Magazine for granting us permission to modify their Six Sigma capability curve illustrations. Decisioneering for their Crystal Ball Simulation Modeling Process Diagram. Stat-Ease for their Which Bowler is Best Data and Analysis example, borrowed from their Design Expert training manual tutorial.

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- Data Organization for Analysis

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