In addition to the more familiar Green Belt and Black Belt, some Six Sigma organizations have defined another role – a “Money Belt.” The function of the Money Belt is to provide an independent and objective evaluation of the financial benefits projections and the actual results achieved by Six Sigma projects.
Chosen by the chief financial officer (CFO), the individuals in this role are often financial analysts or accountants. In mid-size and smaller organizations, this function may be integrated into the job of Black Belts, Master Black Belts or perhaps the deployment leader. Regardless of the form of implementation, managing benefits accounting in a credible and verifiable way is an important factor in the intermediate to longer-term success of every deployment. Properly executed, the role of the Money Belt helps to maintain truthful accounting for results.
Most Belt training gives insufficient attention to the tools and techniques required for this role. Accounting for project benefits is a weakness in many Six Sigma deployments. Thus it is valuable to explore the best practices and the relevant body of knowledge which will contribute to the success of the Money Belt role.
Maintaining the integrity of benefits estimation and accounting of actual results works best when a “benefits policy” has been established, ideally owned and endorsed by the CFO. This policy establishes clear rules and definitions that govern all aspects of benefits estimation and accounting, including benefits categories to be considered (e.g., hard and soft benefits, or just hard), the methods of calculation to be used (e.g., current value, net present value, internal rate of return) and the benefits horizon to be included (e.g., one year, two years).
The benefits policy implemented by the Money Belts ensures an enterprise-wide perspective. This avoids local improvements that result in negative impacts in other areas and in the organization overall. Ideally, Money Belts maintain a positive and cooperative relationship with all stakeholders and play a supportive role before, during and after each Six Sigma project. It is essential to avoid the “audit” mentality which often proves adversarial and unconstructive.
Money Belts also may have responsibility to maintain and publicize on-going summaries of results, including analyses of what has worked and what has not. Six Sigma programs often create significant opportunities to replicate successes throughout the organization, and Money Belts can help raise awareness and leverage successes.
Other important aspects of the Money Belt role include:
- Providing feedback and learning to the project selection process
- Evaluating how incentives impact the Six Sigma program
- Ensuring that credit is given where credit is due
Benefits Analysis Body of Knowledge
The activities of the Money Belt are primarily in the realm of managerial accounting, a different viewpoint than financial accounting. Differences between these perspectives may be summarized as follows:
|Managerial Accounting||Financial Accounting|
|Focus||Internal, both prospective and historical||External, primarily historical|
|Rules Set||Variable, set by agreement among stakeholders||Governed by GAAP, IRS, SEC, NYSE, etc.|
|Issues||Ample opportunity for self-deception (“good news”)||Often not very useful for internal, foward-looking decisions|
It is often useful to focus Six Sigma improvement projects on the most costly activities within a process. While it is easy to agree on that, it may not always be easy to agree what costs are appropriately attributable to an activity. Activity-based costing is typically a five-step process that to some extent parallels the Six Sigma roadmap.
- Step 1 – Analyze activities (create a process map)
- Step 2 – Gather costs (managerial accounting)
- Step 3 – Trace costs to activities
- Step 4 – Establish output measures
- Step 5 – Analyze costs
Time Value of Money
The Money Belt often employs a form of “discounted cash flow” to take into account the effects of inflation, changes in interest rates and opportunity costs. Tools commonly used include net present value (NPV) and internal rate of return (IRR). These tools require certain assumptions about interest rates and periodicity of the cash flows that must be applied consistently to achieve credible results.
The key idea of the curves, which are known by different names, is that not all customers respond in the same way to varying levels of cost, functionality or service delivered, response or cycle time, or any other set of critical-to-quality (CTQ) attributes of a particular product or process. Hence, any projection of benefits based on improvements to CTQ attributes can only be made in the context of a certain set of assumptions (hopefully data-based) about the utility a particular customer attaches to each attribute.
Some customers are price sensitive and assign little weight to other attributes, while others are very sensitive to cycle time and are willing to pay more to get fast results. Discovering these weights and their distribution within the target customer set can be critical to an accurate forecast of benefits of proposed improvements. Many Six Sigma Belts have little training or experience in this area.
Benefit Categories – Hard
Top line (increased revenue):
- Higher price for a product or service justified by a value increment in excess of the cost increment
- Increased market share – e.g., improved cost of ownership, feature differentiation, product quality or usability, reduced time to market
- New product or service; new market segments
The Money Belt may play a key role in evaluating secondary impact of revenue-focused projects – e.g., the impact of improvements in one product or service on sales/margins of other products or services.
Bottom line (reduced cost):
- Lower cost to produce the product or deliver the service
- Lower warranty cost (cost of failure)
- Reduced capital requirement – e.g., less equipment or facilities, reduced working capital
The Money Belt may play an important role in determining “true value” – e.g., if the facility requirements for a particular process are reduced, but no alternate use is applicable, what is the monetary value of the hypothesized savings?
Benefit Categories – Soft
- Improved reputation, competitive position, customer satisfaction
- Furtherance of company vision and mission
- Positioning the organization for the future
- Improved internal communication
- Reduced cycle time
- Process simplification
- Increased capacity
- Reduced risk
Policies vary widely as to the degree to which soft benefits are used to justify Six Sigma projects. If they are to be used, the Money Belt can help to define a consistent approach that minimizes the amount of “funny money,” or undocumentable benefits, in circulation.
Conclusion: Make Sure the Numbers Are Solid
A disciplined and auditable approach to measurement of Six Sigma benefits is an important part of sustaining any deployment long-term. The best way to ensure that discipline is to specialize the role of Money Belt and to assign qualified financial analysis professionals who are thoroughly grounded in the appropriate body of knowledge.
When the CFO signs off on benefit claims, it becomes far more likely they will be accepted by the CEO, the board of directors and the stock market. For most companies, the real measure of ultimate success is a higher share price – which happens when the numbers are solid.