Lean Six Sigma Green Belt

Developing Project Metrics

 Key project measurements are also difficult to determine until the project selection and charter processes are complete. Careful selection of project measures ensure the overall success of the six sigma project. Since most six sigma projects deal with time and money issues, most project measures will also be about time and money or will be closely related to them. Project measures provide the data and information needed to analyse, evaluate and improve the business process as well as manage and evaluate, the impact of the six sigma project. Project measures for both cost and revenue factors must be included.

After a detailed list of project activities has been created (along with the resource requirements, and activity durations) the project budget is determined During the project, actual costs are collected and used as inputs to the revised estimated project costs. The team leader or project manager compares the revised estimated costs with the budgeted costs to monitor progress. The project budget must be reasonable, attainable, and based on estimates of the tasks to be accomplished.

Revenue factors included in the budget and analyses are:

Income from additional sales generated as a result of improved product cost, quality, features, availability to the customer.

Reduced losses for scrap, customer returns, warranty claims, cost of poor quality (COPQ), low throughput, poor time to market.

Cost factors included in the budget are:

  • Manpower and labour costs

  • Materials

  • Equipment costs, rentals, leases, etc.

  • Subcontracted work or fees

  • Overhead or consulting charges

  • Reserve or contingency funds

Business level measures will likely be identified and provided by the executive steering committee as part of the project selection process.

Detailed operations and process level measures should be chosen to support the business level measures used.

Estimates of project revenues and costs are described by four types of measurements:

  • Budget

  • Forecast

  • Actual

  • Variance.

  1. Budget: The approved written plan of the total costs and cash inflows, expressed in dollar amounts, for the project. The plan includes timing of the revenue and costs, and a benefit cost analysis.

  2. Forecast: The predicted total revenues and costs, adjusting to include actual information at the point when project is completed.

  3. Actual: Revenues and costs that have occurred, and for which the amounts are known instead of estimated.

  4. Variance: The difference between the budgeted and actual revenues and costs.

A positive variance denotes a favourable deviation and a negative variance denotes an unfavourable deviation. During project implementation, the actual cash flows are documented by the accounting department, and the information is provided to the team leader or project manager so that adjustments and decisions can be made. A favourable cost variance maybe due to good execution, or may be the result of incomplete work or material shortages.

To manage project risks, one should first identify and assess all potential risk areas. Risk areas include:

  • Business Risks

  • Technology changes

  • Competitor actions

  • Material shortages

  • Health and safety issues

  • Environmental issues

  • Insurable Risks

  • Property damage

  • Indirect consequential loss

  • Legal liabilities Personnel injury

After the risk areas are identified, each is assigned a probability of occurrence and the consequence of risk. The project risk factor is then the sum of the products of the probability of occurrence and the consequence of risk.

Project Risk Factor = Summation of {(probability of occurrence) X (consequence of risk)}

Risk factors for several projects can be compared, if alternative projects are being considered. Projects with lower risk factors are chosen in preference to projects with higher risk factors.


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