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Process capability on budget achievement

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  • #49714

    PeterL
    Participant

    Great forum, I’ve learned a lot here – but more to go..
    Just wondering if I can use a process capability analysis using % of budget achieved for 200+ offices. This isn’t sampled so no sub-groups exist. An individual run chart comes out quite well, showing those offices above/below the CL but for reasons of developing a KPI around a process sigma, it seems it would be good to have the Cpk and Ppk. Advice appreciated.

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    #170314

    Fake MBB
    Participant

    Wrong application

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    #170328

    PL
    Participant

    What would be the best approach then to look at the way the budget achievment is spread – and to set up limits .

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    #170341

    Fake MBB
    Participant

    It is pure finance thing,don’t try to involve Six Sigma in every aspect.
    Don’t mix orange with apple.

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    #170343

    Soumen Bhattacharyya
    Member

    Hi Peter L.
    Your application of Six Sigma is appreciable in Finance Function. One should understand Business Excellence is Triple “E” Concept. Excellence in “Everything”, “Everywhere” and “Every One”.
    Any way coming back to you problem of Process Capability on Budget.
    One should understand Process Capability concept is highly dependent on Normality assumptions of data, otherwise it being a point estimate, will have very high amount of fluctuation from expected value.
    Some Checks before Process Capability, one should follow as bible
    -Check Variability (Normality)
    -Stability (check on presence of Assignable problem if any, remove)
    -Then Process Capability.
    Cpk is having predictability for future process; ppk is not a recommended study. (Refer D C Montgomery-Introducton to Statistical Quality Control 5th Edition-Statistical Terrorism-Process Capability Chapter, he also referred Kotz and Lovelace ).
    Coming back to your point, Management in many organizations ask for Capability in every processes, and definitely why not, why should Six Sigma be restricted to only world of Normality?
    Suggest, you measure the percentage achieved against target. The percentage not met convert to DPM and find corresponding sigma level, which will give you idea of Sigma level of the process. Which is a better way of representation of capability of binomial, Poisson etc type of data. You can convert that sigma to Cpk value but not to be recommended based on the point estimation problem of non normal data (also sample size?) will have high fluctuation from true value as explained above.
    Regards
    Soumen Bhattacharyya
    Master Black Belt
    Indian Statistical Institute
     
     

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    #170344

    Mikel
    Member

    Nonsense, read Deming

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    #170348

    Mikel
    Member

    Just put your data on a control chart, p or I (Montgomery) and see if
    the data lays within the control limits. Just remember budgets,
    especially with poorly communicated strategy, can be political
    exercises. This means that just because something is out of the
    control limits does not make them bad or good – just different.Forget the conversion to a sigma value, its just a superstitious dance.

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    #170390

    PL
    Participant

    Thanks for your information. I have indeed used the DPM calculation to calculate a process sigma . As you might expect the dist. is not particulary normal but follows a lognormal curve so process capability can still be run …   But as you say, it has its problems.

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    #170392

    PL
    Participant

    I see. You confirm what I want to do, I think – simply present the budget achievments on a control chart   – and start to investigate the root causes of offices that are below (or above)  the LCL/UCL.  I just wasn’t sure that someone with some more experience than me would object to using a control  chart and process capability – the latter I can drop it seems.s  Indeed – the budgets are arbitrary – but hopefully my exercise will expose some of the weakness in the budget setting.

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