Cash: The Biggest “Y” of All

Every Six Sigma project is (or should be) built around improving a primary process metric: the Big Y. From there, we drill down into the critical factors, as measured by the “little y’s” – if we can improve the right factors, the primary metric will improve, and we can all declare victory and move on.

One frequent frustration of green and black belts is that getting resources and priority on their improvement projects is difficult, leading to long project cycle times and a sense of disappointment and anti-climax when the control phase comes to an end. It doesn’t need to be this way.

Which brings me to the title of this piece: Cash. Recently I read a post on a Lean discussion board in response to a question about what metrics to use in valuing lean projects. An astute poster replied: cashflow. Reduced inventory and defects, more efficient use of materials and labor, and increased throughput will all find their way to the bottom line. The cashlevels of the company are one of the best ways to measure health. Conversely, if the cash situation is not improving, that should prompt an evaluation of current projects, especially if expense reduction as an explicit or implicit goal of Lean Six Sigma at the company.

The financial piece of Lean Six Sigma projects is often viewed as a necessary evil by Green and Black belts – for many, the language of accounting and finance is as engaging as the finer details of two-way ANOVA with replication and blocking. Many companies don’t have activity based costing for manufacturing processes, let alone transactional ones, and the process of establishing the financial opportunity for a Lean Six Sigma effort can seem like non-value-added activity.

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Let me suggest that Black Belts and Master Black Belts would be wise to spend time with a CFO or Controller, to understand what the business leaders are looking at to run the business. Take the time to understand the difference between the Balance Sheet and the Income Statement, Net Present Value and Internal Rate of Return, EBITDA and Cashflow. Your business leaders may in fact be paying far closer attention to thesemetrics than process metrics. And the next time you have to explain how your projects affect the company, you can speak the language of business – cash.

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