project selection & scoping overview dan sommers pg: dan this does not appear to be a full hour...

Project Selection & Scoping Overview

Dan Sommers

PG:

Dan this does not appear to be a full

hour of material???

PG:

Dan this does not appear to be a full

hour of material???

2

Objectives

• Explain why effective project selection is so critical

• Project Selection Approach

• Characteristics of a Good Project

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Why is Project Selection So Critical

• Management Can Only Apply Resources (People) to Activities That Support the Business Objectives

• Management Can Only Spend Time on Activities That Support the Business Objectives

• Black Belts Need to Execute Projects Quickly

4

Project Selection Continuum

• Discrete projects are chosen by BBs

• Management brainstorms projects

• Projects are selected from a brainstormed list and mapped back to the strategic goals of the firm

• Strategic goals are determined and projects flow down from these goals based on available data

• Strategic goals are determined and a statistical relationship is determined to describe how the strategic goal is improved by completing the project (CTQ flowdowns)

Worst

Best

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Questions To Be Asked When Evaluating Potential Projects

What is the impact to the business?• What is the linkage to top level goals?

Where Are the Gaps?• What processes are not meeting or exceeding customer

requirements?• How efficient are our processes?• Who is the customer and how will that customer benefit?

What is the impact on the customer?• What areas are causing the most “pain” in terms of customer

satisfaction and loyalty? • What are the largest customer complaints? • What processes are currently causing the defects leading to poor

satisfaction?

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Prioritization• Projects need to be prioritized and phased/scoped

− Direct impact or enabler projects

• Focus on prioritized sub-processes to maximize chances of success

Constraints• What are the constraints that limit maximizing the goals of the

business?• Are the projects focused to remove or exploit constraints?

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Scorecard/Metrics• Have defects/defect opportunities been defined?• Do measures exist?

− Does baseline defect data exist to support project selection?

• Are right things being measured?

Team• Can this project be led by a Black Belt?• Is there management agreement on project, the priority, and

Champion Black Belt assignment for cross-functional projects?• Can you identify team members to start this project?

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Financial• Are projected savings greater than or equal to $250K per year?• Will this project lead to improvements with little or no capital?• Has finance approved project?

Project Management• Can project be completed in 4-6 months?

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Tools• Could process improvements be handled with lean methods or is

six sigma methodology desirable for this project?− Is priority to improve effectiveness or efficiency?− Is process stable enough to support lean efforts?

Research/Internal Benchmarking• Are there similar projects under way or proposed at another

location?− Do differences warrant a separate project?− What are plans for coordination?− Are there opportunities to replicate improvements in other

areas/sites?

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The "4-Whats"

Problem Statement: Customer Satisfaction score for the XY subsystem is 31 percentage points lower than Best-in-Class Benchmark, resulting in a potential lost revenue of $9.6MM!

Customer Satisfaction scores for the XY subsystem are too low

Compared to Best-in-Class Benchmark company (which is at 94%), Customer Satisfaction is at 83%

11% relative Customer Satisfaction gap represents lost revenue & earnings potential

4 points of Customer Satisfaction translates to 1 point of Worldwide market share which equals $3.5MM of revenue

What is too Low?

What is the impact of this gap?

What is the correlation between % Customer Satisfaction and revenue?

What is the total lost potential?

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• Cash Flow, ROE, Customer Satisfaction, Asset Utilization etc.

• Develop Business Unit Specific Flow Downs

• Scope projects to ensure timely executionIV. Scope Projects

V. Complete Project Charter

• Leverage proven project management principles

Project Selection Approach

II. Develop CTQ Flow Downs

I. Identify Strategic Business Priorities

• Examine financials and explore improvement opportunities with subject matter experts

III. Isolate Potential Areas of Focus

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TFS Strategy• Increase margins through operational excellence• Grow revenue faster than industry• Build a more capital-efficient security business• Create a customer-centric, data-driven, process-

focused culture


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I. Link to Strategic Goals

Projects must be aligned to the goals and objectives of the business unit.

No Science Projects!


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Critical to Satisfaction

CostCTC

QualityCTQ

DeliveryCTD

Invoice Right the First Time

Invoice Delivered On-Time

No Waste / Hidden Factory

A/RII. Develop

CTQ Flow Downs

Structured “Top Down” Approach


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Flexible “Bottoms Up” Approach

“Pain Points” Leveragability

Detailed Process Map

Performance Metrics

Low Hanging FruitCOPQ

Work Folder

forwarded to Design

Forward to appropriate

Design Project

Manager

Design work sorted by job type

(Mech, Elect)

Design Project

Manager assigns

Designer

Drawings Prepared

Equipment Ordered(depends on design type and schedule)

Drawing Submitted for AHJ

Approval

Installation

Drawings forwarded

to Constructio

n

Drawings Reviewed by

Senior DesignerDrawings

Complete?

NO

YES

Drawings by Senior Designer?

YES

NO

Drawings Approved?“As is” or

“As Noted”YES

NO

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III. Isolate Potential Areas of Focus

Financial Data

Operational Data

Resource Availability

III. Isolate Potential Areas Of Focus

Executable in 4 months

Don’t “Boil the Ocean”

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IV. Scope Projects

Problem Statement:

• Accounts receivable of $xxxM is $yyyM above the desired level. In addition, $zzzM is spent on administrative costs to address customer invoicing concerns and finance center opportunities.

• Total EBIT opportunity for accounts receivable = $XXXM

CTQ: (Critical To Quality):

• AR DSO

• Administration expenses to address invoicing and finance center concerns

Defect Definition:

• DSO greater than 60 days

• Admin time spent chasing invoicing and finance center errors

Project Objective:

• Improve DSO and invoicing errors

• Realize margin improvement of Y%

• Current Goal:

• DSO <= 60 days

Cost Benefits

• Reduce admin costs by $zzzM

• Cash flow from accounts receivable

Internal/External Client Benefits:

• Improve cash flow

• Build customer relationships

Dependencies:

• Resolving customer quality issues

Progress to Date:

• TBD

IV. Scope Projects A/R

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Month Project was completed (signed off by Steering Committee): Year Project was completed:

Mo. 1 Mo. 2 Mo. 3 Mo. 4 Mo. 5 Mo. 6 Mo. 7 Mo. 8 Mo. 9 Mo. 10 Mo. 11 Mo. 12 Total

000

0 0 0 0 0 0 0 0 0 0 0 0 0

Mo. 1 Mo. 2 Mo. 3 Mo. 4 Mo. 5 Mo. 6 Mo. 7 Mo. 8 Mo. 9 Mo. 10 Mo. 11 Mo. 12 Total000000

0 0 0 0 0 0 0 0 0 0 0 0 0


0 0 0 0 0 0 0 0 0 0 0 0 0


0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0


00

0 0 0 0 0 0 0 0 0 0 0 0 010% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%

0 0 0 0 0 0 0 0 0 0 0 0 0

NOTE: For this purpose year 1 is the first 12 months after project completion.

Year 1 - Forecast

Year 1 - Forecast

Year 1 - Forecast

Year 1 - Forecast

Year 1 - Forecast

Forecast Actual Forecast ActualFinancial Benefits:

- Revenue Improvement (EBIT) 0 0 0 0- Productivity & Cost Savings Benefits 0 0 0 0- Cash Flow Benefits (EBIT) 0 0 0 0

Total Financial Benefits: 0 0 0 0

Project Cost:- Restructuring & Severance 0 0 0 0- IT investment 0 0 0 0- Outside Professional Expenses 0 0 0 0- T & E 0 0 0 0- Other (List): 0 0 0 0 - __________________________ 0 0 0 0 - __________________________ 0 0 0 0

Total Project Cost 0 0 0 0

Return On Investment (ROI) 0 0 0 0

Forecast Actual Forecast ActualNon-Financial Benefits:

Customer Satisfaction & GoodwillEmployee SatisfactionOther (List) - __________________________ - __________________________

Percent (%)

Year 1 Year 2

Section 1 - Summary Project Information

Section 2 - Financial Benefits & ROI

Section 3 - Non-Financial Benefits

Year 1 Year 2

$(000's)

Project Champion:

Six Sigma Project Charter

Project Completion Date (Signed-Off)Project Start Date:

Division / Location:

Project Name / Code: AR - Low Dollar Invoice Collection Rates

Houston

Proj. No:

Name:

Information Technology

Problem Statement:

Project Objective:

Project Benefits:

Project Metric "Y":

Defect Definition:

Financial Summary:

Describe and Estimate Potential Project Leveragability: Amount $M

Year 1 (12 Mos) Year 2 (12 Mos)EBIT Benefits from Revenue Sources 0

Forecast

0

Receivable Dollars Outstanding

Receivable $s > 90days outstanding (included Bad Debt Write-Offs)

EBIT Benefits from Cash Flow SourcesTotal EBIT Benefits

EBIT Benefits from Cost Reduction0010500

Project Implementation CostNet Project Benefits

Six Sigma Project Charter

AR - Low Dollar Invoice Collection Rates

Houston

Process OwnerBU Deployment Champ

Black Belt

0

830018800

000

18800

Role:

71331660044128601859Master Black Belt

David Casares [email protected]@6-sigma.com

Team Makeupe-Mail:Phone:

Alex JamesTBD

Project Information Worksheet

Project Start Date:

Division / Loc./ Cost Ctr.:

Project Name:

Project Completion Date (Signed-Off)

Financial Analyst

Current >90 days AR balance for SG stands at $118.4 MM (dec '02). This amount comprises 30% of the total AR balance. Additonally, $15 MM has been set aside as Bad Debt Reserves. Delays and write-offs are severly impacting SG's cash flow.

Project would look to decrease write-offs in the Bad Debt reserve by 70% and reduce the amount of receivables in the >90 days bucket by 70%. As a result of further analysis we may determine multiple root causes driving bad debt write offs and receivable aging which would then be broken into smaller BB projects leveraged across districts ( contract size, small dollar invoices, retention policy, billing process )

Reduction of the Bad Debt reserves would have a one time EBIT impact to earnings potentially as large as $10.5mm (70% of the $15mm reserve). Reduction of the >90days balance by 70% would lead to a one time cash flow impact of $83MM and EBIT impact of ($8.3MM … assuming WACC 10%). All benefits will be a year one impact.


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Project Evaluation ApproachProject Selection Criteria Yes No

1. Has the project been done already (or in progress)? 2. Is there a pre-determined solution to the project goals? 3. Does this project conflict with other projects? 4. Does this project have a high probability of success? 5. Is project linked/aligned to goals of the business? 6. Does the cost reduction opportunity meet the goals of the business? 7. Has the project been properly scoped? 8. Can starting and end points for the process be defined? 9. Does the Champion have functional control of impacted process? 10. Are metrics available, on Primary Metric – Y, or could they be developed quickly at low cost?

11. Is data collection relatively easy and does the process complete at least one cycle weekly?

12. Is there a “good” measurement system in place (on the Primary Metric – Y)?

13. Are resources available and supportive for this project (Process Owner, team, Champion)?

14. Can you define the defect definition for the project?

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You know you have chosen the right project when:

• You care if it is completed…“skin in the game”

• Linked to the business need and metrics

• Clear “line of sight” and accountability

• Clear financial impact…$250k plus

• Scoped to ensure completion in 4-5 months

• The project has a definable beginning and end

• The project is open to thorough evaluation

• One of many projects building a “cluster of projects”

Characteristics of Good Projects

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Black Belt Training Projects

70% reduction in defects

First-time projects should: • Have high priority• Include opportunities to learn and apply the appropriate

tools • Have a high probability of success• Have commitment of resources• Focus on process with frequent units and defects• Have a measurement system in place • Executable in 4-6 months

Project Prioritization

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• Once the Deployment Champion has 5-12 project ideas, prioritizing may be needed to determine which projects to assign first.

• This approach acknowledges that the prioritization for one business unit may or may not be the best prioritization for another area of the business

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Projects Have Been Prioritized By The Deployment Team

Early six sigma efforts should be geared to maximize chances of success

Applying this strategy is intended to neutralize resistance from within the organization

Feasibility assessments are made by the leadership team and the Champions/Process Owners

• Are projects of low to moderate degrees of difficulty? • Will they have use of resources? • Are they timely?

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One method used to allocate resources to projects is the 2 X 2 matrix. This matrix is one of the simpler approaches, but an approach that has withstood the test of time… where will I get the biggest impact – quickest.

Ease of CompletionHard Easy

Va

lue

Low-Hanging

Fruit!

project selection & scoping overview dan sommers pg: dan this does not appear to be a full hour...

Documents

project managementcan

approved project

project lead

separate project

effective project selection

similar projects

customer benefit

customer satisfaction