Project selection and financial analysis

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    Joanna King

    I organise international Six Sigma Forums and am currently researching the issues involved with project selection and financial analysis. My experience has shown that project selection repeatedly comes up as an area of concern amongst many companies implemeting Six Sigma . Can anyone provide me with some insight into this area. I am also looking for a guru speaker and would welcome any suggestions.

    Many Thanks.



    I would ‘like’ to provide insight – however, although a VERY important area of Six Sigma, available detailed information is thin on the ground!

    I’ve just started discussing the issue with various people in other companies, with the aim of sharing ideas and benchmarking our solutions against those already implemented.

    I have ‘some’ details about how some of the larger companies perform financial analysis, but little on how they (or anyone else) documents it, or uses it for project selection/tracking.

    I have developed my own views over the last few weeks and would be happy to share them. Feel free to contact me directly.

    I’d also welcome comments from other people – both from companies who have already implemented Six Sigma and from companies (like my own) who are planning to implement in the near future.



    Dominic Lai

    Hi Joanna,

    The reason project selection is always a main concern for most companies or any person taking up the 6 sigma initiative is because the success or failure of the initiative / project starts with proper project selection.

    6 sigma methodology is so flexible that it covers a broad spectrum of jobs and work scopes that the same project title/goal can be done by so many different people and also in so many different approaches.

    Many people choose projects that fail simply because it is not that they do not poseses a good level of understanding of DMAIC, stats and its concepts, but rather sometimes fail to understand that 6 sigma is not a magic pill if taken, will elevate your org. and increase profits. Some projects are just to vauge in description that can be interpreted in so many ways thus as the project gets along, it gets longer and longer and there doesnt seem to be any light at the end of the tunnel.

    Just my 2 cents worth.
    Hope it has helped.


    Larry Leach

    A little clarification on the situation and need might aid this discussion. Are you addressing how a process focused team doing DMAIC might use financial analysis to select amongst alternatives to improve the process, or are you further upstream in selecting your key processes and process teams, and wondering which to do first? Or even further upstream, deciding if there is value in implementing six sigma?
    I think different criteria and methods may be appropriate for these distinctly different functions.




    Joanna –

    Last summer in Quality Digest there were several articles relating to this topic authored by Tom Pyzdek. The articles appeared in the June, August, September, and October issues.

    The author introduced Theory of Constraints (TOC) as a tool for project selection in the first article. In the August article he wrote about cost issues in project selection and compared a couple of software programs.

    The articles can be found at
    Hope you find them helpful.


    Dr Jiju Antony


    I would like to know more on this. If you have got something, please e-mail me so that we can share the experiences in this topic.






    I believe the discussion is about initial ‘financial analysis’ used as part of the project selection process.

    In my (limited) Six Sigma experience I have been able to obtain reams of information about the financial/statistical tools that are used by a project team. However I (and apparently many people I have contacted through this forum) have found limited information about how financial analysis takes place to aid project selection.

    I have my own ideas which I would be willing to share, but would also welcome yours and other peoples views on this issue.


    Tim Howard

    You may want to review this article in QD:

    Good Luck,

    Tim Howard



    Hi Joanna
    I have basically divided your question in two parts and shall attempt to answer them

    (a)Project selection repeatedly comes up as an area of concern amongst many companies implemeting Six Sigma .
    The reason why Project Selection does come up as a problem area is primarily becasue more often than not they are not really tied up with the main business Objectives.. A good idea to avoid this trap is basically get a funnel of projects from the main business Objectives
    For instance
    If an organisation A has set out 4 main objectives for the year, the get all the Stakeholders of the process into a room brainstorm process / products that need to focussed and implement Six Sigma projects in those areas. The reason why this is important is by doing so it gives all the Six Sigma project owners a holistic picture of how their projects would directly be in line with what the organisation is set out to achieve.
    Now this is true not only for the Six Sigma approach but for any other Quality Initiative that a company sets out on.
    Any projects initiated must tie in with the Business Obejctives

    Now for the second part of your question

    (b)Issues involved with project selection and financial analysis.
    To put it simply What is the kind of investment that I am looking at for either process / product enhancements? &What is my return on Investment?
    The answer to this question lies in the first part wherein you tie up ur project selection to the impact that it creates on the Company Objectives… By putting in ur hard earned dollars in improving a product / service will u be getting the revenues commensurate with it?? , is something which u can easily identify if you do the first part of the exercise right the first time
    Phew !!! I could go on and on but I guess I need to end here ….
    I hope I have been able to clarify atleast some of ur doubt

    Regards and have a great day

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