- June 5, 2008 at 9:01 pm #50222
I agree with the DMAIC methodology but where in the process does one do a Cost benefit analysis? Where does one do a AS IS activity based cost model and then a POST activity based cost model?June 6, 2008 at 5:58 am #172612
It seems to me the place to do a “before” cost study would be during the Define step. You are defining the problem or the opportunity for improvement. The “after” cost study would be done at the “analyze” or “improve” step as a means of verifying the analysis and effectiveness of the improvements.June 6, 2008 at 7:00 am #172613
Budget allocation for the Define phase>
Cost Ineffective/Effictive in the Analyse Phase>June 6, 2008 at 8:08 am #172614
Confused and DazedParticipant
I would do this in the improve phase as part of testing solutions not the analyse phase when I’ve just found the problem.
Or have I got something fundamentaly wroung?June 6, 2008 at 10:29 am #172617
I conduct CBA after identify and select solutions in Improve phase to calculate financial impact of solutionsJune 6, 2008 at 12:10 pm #172620
Think you’re on the right track about DMAIC.
We have worked with many Lean/SS teams on DMAIC projects in supply chain and they tend to develop their Hypotheses in the Measure/Analyze phase. We tend to get involved with the teams at the Analyze Phase in order to Quantify & Qualify their Hypotheses, with a Bottom Line Impact, using Digital Modeling, Discrete-event Simulation and DOE rogor.
After the Analyze phase, and with Priortitized & Dollarized profiles of what to do and where to do it, using Process Simulation & the clients TEST those hypotheses in a LIVE environment. Pretty cool……
Just thought I’d give you all a different slant.
GregJune 6, 2008 at 5:13 pm #172628
In practice they are done at almost every point by different deployments and there are some that take an esoteric approach and do not do it at all.
We do cost models before the project is approved as a project. Nobody approves something like a capital project without some form of study and analysis so why would a Six Sigma project be any different? You are making a business decision to expend resources. It deserves the same consideration. That model should be updated and verified (by someone representing accounting/finance) at each tollgate since your knowledge of the process and the project should improve with each phase. There needs to be a final sign off at the end by the Process Owner as well as Accounting/Finance that the model and calculations are accurate.
We prefer a third party audit at the end of the year – particularly the first year – to validate the numbers and verify the system is working properly.
You can drive improvement into the financial modeling process in the beginning by an anlysis of the projected savings before the project and the actual at the end. That improvement will allow you to make better decisions on what projects are being selected because you have better information. Do not expect the accounting/finance people to take kindly to this – they do not generally appreciate being measured.
Just my opinion.June 12, 2008 at 1:07 pm #172775
Julia, the Cost benefit analysis is comprised within 2 phases of the DMAIC: the Measure, and the Analyze. You need to have data measured in order to establish your baseline. It is in the Measure phase that you find your “AS IS”. The Analyze phase will allow you establish the pattern to follow for your POST activity based cost model. Here, based on the type of project you are deploying, you need to select your tools.
Hope this can help.
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