For Six Sigma to succeed in a financial services organization, the deployment team and the business need to be able to measure the benefit of the projects. This should occur from both a financial and operational effectiveness perspective.

By Bryan Carey

Many financial institutions began using Six Sigma methods in the past three to five years in order to improve performance – reduce costs, improve the customer experience, grow revenue, develop future leaders and change the culture to make decisions based on facts and data. Most financial institutions chose to use Six Sigma in their operations areas, which have traditionally been considered the best candidates for Six Sigma work.

Because the operations area deals with a large number of repeatable transactions, it can be considered analogous to a manufacturing plant. Six Sigma methods introduced into this transaction-oriented work was relatively painless. Based on early good results in operations processes, many companies have decided to expand the implementation to business and functional units as well. Migration of Six Sigma principles into these business and functional units, however, was not nearly as smooth or painless.

The Difference

One of the primary reasons the migration of Six Sigma from operations areas into sales and support areas was not as smooth is because it was less clear whether the investment being made in Six Sigma yielded the desired results. Business units such as sales and functional areas (like legal and marketing) are not as easily measured as transaction-oriented operations groups. Since the ability to see sales or marketing as a process is a challenge for most in the business, it is even a greater leap of faith to see these processes as having measurable transactions that directly correlate to financial gain and process improvement based on the project itself.

Although there are many metrics used to indicate the success of sales organizations and other related business units and functions (such as sales revenue and sales closed per call), it is a different animal to be able to measure the impact of an improvement project on the sales process itself. In many instances, measuring financial and operational performance benefits of the Six Sigma work itself was not always done, and when it was done, it was not done consistently.

Measuring Financial Benefits

One of the most important things a Six Sigma deployment Champion can do is to integrate a finance role into the deployment team. The role of the finance participant is to create tools and guidelines for what constitutes the financial benefits of a Six Sigma project within that company’s culture. In order to do this, it is imperative that the finance representative:

  • Establishes outcome measures for the projects.
  • Determines current performance and identifies immediate actions that need to be taken.
  • Establishes a process to ensure Six Sigma projects maximize the return on the investment through an established measurement and oversight process.

A large majority of Six Sigma project financial benefits will fall into one of several categories. It is important that any categories used align to the company’s overall project approval and financial tracking philosophies. As much as possible, Six Sigma benefits should be dealt with in the same way any change initiative is approved, budgeted and tracked. This emphasizes that Six Sigma is part of the way business is conducted and not an additional “to do.” Here are some suggested categories to consider:

  • Cost reduction – Take resources or other costs out of the business and provide an overall reduction of expense that falls to the bottom line. If resources are eliminated as a result of the Six Sigma project, the project receives a benefit for the cost reduction. These are reductions in cost that fall directly to the bottom line and should be measured by the amount of annualized cost eliminated from the business.
  • Increased capacity – Improve the productivity of a process (process more with the same resources, thereby reducing the overall unit cost). This benefit is measured by calculating the amount of expense retained in order to prevent future cost increases.
  • Cost avoidance – Responses to competitive pressures and changing environment (such as new legislation). This benefit is measured as the realistic cost avoided as a result of the implementation of the new process.
  • Revenue growth – Increase in revenue from new business. This is measured by calculating the value of new business for the increase in revenue over a pre-defined period.
  • Retained revenue (profit) – Revenue retained from existing customers at risk. This is measured by calculating the value of existing business over a pre-defined period.
  • Improved investment income – The additional investment income earned due to an acceleration of the receipt of monies. The financial benefit is calculated by determining the net present value of the accelerated cash flow over a pre-determined period.
  • Risk management – Projects that enable more effective management of the company’s risk in functional areas such as actuarial, audit and insurance. Benefits of these types of projects are measured by improvements in either reduced economic capital or a lower cost of capital.

Many times if the finance representative determines a project does not fall into one of these categories, then a team consisting of the process owner, Black Belt, Master Black Belt and the finance representative will create their best calculation of value. Using a predefined governance or review process, this calculated value may be reviewed by a designee of the CFO who is assigned to the companywide finance governance process or to an established steering committee – and even the process owner – for approval. The most important thing is that it is reviewed and that standards and guidelines are maintained.

Measuring Operational Performance Benefits

Measuring financial benefits is one means for determining the impact of a Six Sigma project on a process and in turn, the business. Another set of benefits that needs to be measured are the key performance indicators (KPIs) for a company. KPIs are critical measurements of behavior or performance that directly correlate with specific business goals and in turn, operational performance.

Whatever KPIs are selected, they must reflect the organization’s goals, they must be key to its success and they must be quantifiable (measurable). KPIs usually are long-term considerations. The definition of what they are and how they are measured do not change often. The goals for a particular KPI may change as the organization’s goals change or as it get closer to achieving a goal.

If a key performance indicator is going to be of any value, there must be a way to accurately define and measure it. “Create more cross sales” is useless as a KPI without some way to distinguish between one product offering and the next. “Being the friendliest process” will not work as a KPI because there is no way to measure the subjective quality of friendliness or compare it to others.

It is also important to define the KPIs consistently from project to project. For a KPI of “increase sales,” considerations like whether to measure by units sold or by dollar value of sales must be addressed. Will returns be deducted from sales in the month of the sale or the month of the return? Will sales be recorded for the KPI at list price or at the actual sales price?

Targets must also be set for each KPI. A company goal to be the employer of choice might include a KPI of “turnover rate.” After the key performance indicator has been defined as “the number of voluntary resignations and terminations for performance, divided by the total number of employees at the beginning of the period” and a way to measure it has been set up by collecting the information in a Human Resource Information System, the target has to be established. “Reduce turnover by 5 percent per year” is a clear target that everyone will understand and be able to take specific action to accomplish.

As with many management issues, it is often best to build a solution in stages. Suggested stages for KPIs are:

  • Define the links between corporate goals and major operational perspectives.
  • Map these strategic links to required processes in each perspective area.
  • Define a set of near-term and medium-term metrics that drive the new outcomes in each perspective.
  • Define the gaps and dependencies across the organization that will need to be bridged to result in corporate success.
  • Implement the metrics as individual and group scorecards and monitor to secure the strategic results.

Additional considerations in setting KPIs should include using the SMART test:

  • S = Specific: Clear and focused to avoid misinterpretation
  • M = Measurable: Can be quantified and compared to other data
  • A = Attainable: Achievable, reasonable and credible under expected conditions
  • R = Realistic: Fits into the organization’s constraints and is cost effective
  • T = Timely: Doable within the time frame given

This simple test helps ensure that KPIs are clear.

Key performance indicators should therefore be trendable, observable, reliable, measurable and specific. Some examples of good KPIs for sales and marketing processes might include:

  • Productivity – Number of sales calls and cycle time of typical sales call
  • Effectiveness – Sales conversion rate
  • Quality – Accuracy of quotes and percentage of add-on products accepted
  • Customer satisfaction – Customer attrition and turnover
  • Revenue – Number of new accounts, account profitability and revenue per sale


If Six Sigma is to be successful in a financial services organization, the deployment team and the business need to be able to measure the benefit of the projects. This should occur from both a financial and operational effectiveness perspective. Standard financial metrics that are integrated into the overall business planning process and not just a stand-alone Six Sigma process are important aspects of successful benefit measurement practices.

Additionally, key process indicators that are based on actual process transactions and linked to the business strategy allow for an important understanding of Six Sigma project benefits from an operational performance perspective. Both of these views combined help make the transition of Six Sigma application from the obvious transaction-oriented operations functions to the not-so-obvious sales and marketing areas much smoother.

About the Author: Bryan Carey, an executive vice president of DeLeeuw Associates, a division of Conversion Services International, is the leader of the company’s Lean Six Sigma practice. He has more than 20 years of experience as an executive in project and change management in the banking industry. At NationsBank/Bank of America, he had senior leadership roles in some of the largest mergers and change initiatives in the history of the financial services industry. Mr. Carey is a certified Six Sigma Green Belt and a trained Six Sigma Champion. He can be reached at [email protected].

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