Project Reporting and Tracking System
As noted, it is important to have a regular drumbeat of reporting on the progress and results of projects. Developing a formal reporting and tracking system should therefore be an early priority during this phase of Six Sigma deployment. The reporting system will provide electronic or paper documents to back up and facilitate the project reviews. The reporting structure for Six Sigma projects depends on the needs of the organization. A target frequency is:
Weekly highlights from the Black Belt to the Champion. A summary of the weekly review is usually sufficient for this purpose.
Monthly reports for the business or function leader, typically using information provided by the Champions.
Quarterly reports for corporate leadership, typically using information provided by the business and function leaders.
The purpose of the reporting system is to keep the various levels of management informed of progress and results of the initiative. These reports also become the raw material for internal and external communications (see communications plan section).
The reports should, of course, be designed to meet the needs of the organization. A good way to report on a project is to create a short summary of the project, analogous to the review template. Such a summary typically contains three parts: problem/issue description, work done, and results/impact/implications. Depending on the required length, it is usually appropriate to include a two or three sentence description for each of the three areas, plus relevant metrics and graphs. It is critical that your summary include the results obtained in terms of improvement of process performance and bottom line results. Six Sigma is about getting results.
Typically, the Black Belt enters the project-level information into a computer system that is able to roll up the results across projects, functions, and business units, and drill down to greater detail on individual projects. Using workflow software, users can track status of a project portfolio at a high level, and also find links to additional, more detailed information, such as PowerPoint™ presentations or statistical analyses.
A key element of this reporting system is the financial tracking system. Leadership needs to know how the total bottom line savings is progressing. By tracking the projects, leadership not only knows how the Six Sigma initiative is performing, but also communicates the importance of the initiative to the organization. Recall the old saying: “What we measure and pay attention to gets done.”
Project tracking is typically led by Finance because of the need to validate the financial data. Some key measures (English [2001]) typically tracked are:
Hard and soft dollar savings
Number of projects completed
Savings per project
Projects per Black Belt and Green Belt
Time to project completion
Number of Black Belts and Green Belts
Leaders will want reports of these measures for the whole organization, as well as the ability to drill down by business unit, function, plant or site, region of the world, country, and so on. It is easy keeping track of a few projects; an Excel™ spreadsheet will usually do the trick. As the projects grow in number and as Six Sigma moves throughout the organization, a more sophisticated system will be needed. This system may be a database such as Lotus Notes™, Microsoft Access™, or Oracle™, or software specifically designed for tracking Six Sigma projects. We are also aware of instances in which an existing project tracking system (e.g., for R&D projects) has been enhanced to track Six Sigma projects, thereby integrating Six Sigma with existing management systems.
A question people commonly ask when tracking projects is “How do I calculate the financial impact of a project?” While the answer is dependent on the financial rules of each organization, we can provide some general guidance.
Financial impact is typically divided into hard and soft dollars (Snee and Rodenbaugh [2002]). Hard dollars are those dollars that clearly flow to the bottom line and will show up on the balance sheet. Examples include dollars from cost reductions, increased capacity that is immediately sold (because the product is in a sold out condition), and decreased holding costs from increased inventory turns. As a general rule, companies only report the hard dollars as Six Sigma savings because these are the funds that indisputably affect the profitability of the organization. For example, W. R. Grace reported a $26 million bottom-line impact in 2000, and an additional $7 million in cost avoidance (soft dollars).
Soft dollars are improvements in operations that do not affect the bottom line directly, but typically do so indirectly. Some examples are improving meeting efficiency so that less time is wasted in meetings, preventing problems that typically occur in new product introduction, and simplifying accounting processes so fewer resources are needed to close the books.
In each case, we could calculate a theoretical savings (in soft dollars) due to reduction of either the effort required or typical waste and rework levels. However, we cannot clearly demonstrate how these soft savings will show up on the balance sheet.
To clarify the difference between hard and soft dollars, consider a process that is improved, requiring three fewer people to operate it. If these three people are reassigned to other work we have a cost avoidance (soft dollars). They are now freed to do more value-adding work to the benefit of the organization elsewhere. However, they are still employed and are still a cost to the organization, so we cannot claim hard dollar savings. If, on the other hand, three positions are removed from the employee rolls after reassignment, we have a cost reduction (hard dollars), because we will clearly see this savings on our payroll expenses.
It is not unusual for a project to have both hard and soft dollar savings. It is also not unusual for the financial impact of a project to come from several different places. Black Belts and the financial organization should search for all possible sources of project impacts, and capture the true savings to make sure that no tangible savings are missed. Typically, the finance organization makes the final decisions about what qualifies as hard savings.