Six Sigma Leveraged FP&A

Copyrighted Material © ALL Rights Reserved by KasHenry Inc.

Six Sigma Leveraged FP&A

Dr. Kasthuri Henry, MBA, CTP, Six Sigma Black Belt

President, KasHenry Inc

Copyrighted Material © ALL Rights Reserved by KasHenry Inc. Copyrighted Material © ALL Rights Reserved by KasHenry Inc.

Corporation & Corporate Culture

• A corporation is an artificial legal person devoid of character, ethical or otherwise – The employees of the corporation are the embodiment of character that

lends itself towards building the corporate character

– Corporate brand is merely a logo in the absence of assurance brought about by employees

– Each employee is the living brand of the corporation epitomizing the value proposition of the corporation and lending authenticity to its mission

• Therefore Corporate Performance Management SHOULD be approached holistically to build a winning culture

2


Sustained Economic Value Creation • Strategy is the game plan to create sustained economic value

– In the presence of Market Forces – With the ability to meet VRIO standards (J. Barney) – Leveraging ERM and Governance Culture through people with authenticity

Program and its Features Valuable? Rare?

Costly to Imitate?

Organizationally based and

leveraged by the organization?

Competitive Implications

Economic Performance

No ------ ------ ------

Competitive

Disadvantage Below Normal

Yes No ------ ------

Competitive

Partially Normal

Yes Yes No ------

Temporary

Competitive

Advantage

Above Normal -

Short Term

Yes Yes Yes Yes

Sustained

Competitive

Advantage

Above Normal -

Long Term

Program/Service

Resource Based View (RBV) of the Organization

3


Stakeholder Community Dependency

• All stakeholders of a corporation are a subset of the society hosting the corporation

• Anything that affects society therefore will ultimately impact the corporation

• Effective Corporate Performance Management will be mindful of the mutual dependency with the understanding that

“The lives we sustain will be that of ours”

& “Who we are will speak so loud that no one will hear our message”

4


Balancing Corporate Governance

Balancing Good Governance will be integral to responsible Corporate Performance Management as Stewards of the organization

“Corporate governance is concerned with

holding the balance between

economic and social goals and

between individual and communal goals..

the aim is to align as nearly as possible the interest of

individuals, corporation, and society” - Sir Adrian Cadbury, 1999

Good Governance will aid in the effective Enterprise Wide Risk Management, in turn helping overall performance improvement

5


Balancing ERM Across the Organization

Makomaski J and Vance B, 2007, p. 10

Enterprise Risk Management for Dummies, written under the auspices by Risk and Insurance

Management Society, Inc.

Cross Functional and Emerging View of Risks

Legal Financial Business/ Operational Safety/ Audit

Strategy Security

• Civil • Fuel • Brand • Technology • Safety • Fraud

• Criminal • Interest • Reputation • Info Security • Environment • Disclosure

• Regulatory • ForEx • Service • e-Business • Emp. Safety • Process Risks

• Contractual • Insurance/ • Alliances • Continuity • Security • Fin. Controls Financing

• Expansion • Revenue

Functional Risk View

Many companies have deep functional risk identification and management; the challenge is to address cross functional and forward looking “horizon” risks.

6


Role of FP&A • The basic function of the FP&A department is to perform

budgeting and forecasting to keep the company on track toward its financial goals in concert with and without compromising – Organizational Mission – Strategic Vision – Organizational Reputation – Customer & Employee Loyalty – Investor & Stakeholder Confidence – Corporate Governance & Regulatory Compliance

• Therefore the FP&A teams should be change agents who understand the entire business process and possess a suite of soft & hard skills to – Continually Influence Good Growth – Continually Educate and Expand the Firm’s Thinking

7


FP&A Team as Value Integrators

• Value-centric strategy deployment partners

Strategy Alignment

Planning & Forecasting

(Plan)

Financial & Management

Reporting (Do)

SWOT, KPI & Benchmarking

Analysis (Check)

Management Decision & Execution Support

(Act)

- Henry, Gordon & DeYoung, JAABC, 2009

Law .vs. Ethics

Integrity Unbiased Reliable Consistent Moral

Code and Value-Centric

Behavior cannot be legislated

8


Continuous Improvement of Good Growth • Not all growth is good growth • Accountants don’t differentiate between good revenue that

sustains business from bad revenue that destroys

Good Growth

• Respects stakeholders & mission congruent • Strengthens the business through employee loyalty to drive

customer loyalty • Creates value for customers & socially responsible • Example: Amazon, South West & Costco

Bad Growth

• Misleads stakeholders & inconsistent with mission • Gradually erodes business from the inside out by destroying

employee morale & customer loyalty • Extracts value from customers & socially irresponsible • Example: Financial Sector, Telecom, Travel Industry

9 Source: FP&A as Strategy Focused Change Agents, Strategic Finance (2011) By Dr. Kasthuri Henry


Driving Growth Via Promoters

Good growth produces Promoters who drive economic benefits; Bad growth spawns detractors and economic costs

FP&A should understand this concept to influence good growth and sustainable economic benefits

10


Understanding the Business Drivers • Performance Management requires FOCUS

– Identify the fundamental business drivers

– Through Root Cause Analysis via FPA and avoid superficial explanation becoming proxy for analysis

• Build the FP&A value chain on the foundation of business drivers to evolve in to Driver Based Planning Organization – Become a “Learning Organization”

– Capable of continually developing Change Agents

– Encompassing the ability to both shape and control change

• Focus on a HOLISTIC manner using the Balanced Score Card Techniques – Optimize for Balanced Growth without placing Financial growth ahead of

Internal Business Processes, Learning & Development , and Customers

11

Applying Continuous Improvement to FP&A

12

Define

Measure

Analyze

Improve

Control

Project Charter

Business Case Opportunity Statement

Goal Statement Project Scope

Project Plan

• Define project plan From – To

• Measure the current Process From – To

• Analyze the data From – To

• Improve the process From – To

• Control the process From – To

Team Members

• Project Sponsor:

• Process Owner:

• Project Leader:

• Project Team:

1. Project selection and financial justification Discount Rate 8%

Year Cost (US $) PV of Costs Year Cost (US $) PV of CostsProject Implementation Cost Project Implementation Cost

Yr-1 Costs Yr-1 CostsYr-2 Costs Yr-2 CostsYr-3 Costs Yr-3 CostsYr-4 Costs Yr-4 Costs

NPV of Banking Costs -$ NPV of Banking Costs -$

Year Expected PV of Cost Savings

2007 -$ 2008 -$ 2009 -$ 2010 -$

-$

Integration No Integration

Notes: Notes:

2. Project charter development and approval


13

Copyrighted Material © ALL Rights Reserved by KasHenry Inc.

Define

Measure

Analyze

Improve

Control



14

Define

Measure

Analyze

Improve

Control

2. Effects Analysis and Action Generate

0%

10%

20%

30%

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70%

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90%

100%

0%

5%

10%

15%

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25%

30%

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

Cum

. Rel

. Fre

q.

Rel.

Freq

.

Pareto Diagram



15

1. Process Capability Assessment: Verify Critical Inputs/Root Cause

2. Improvement Action Assessment: Optimize Critical Inputs/Root Cause

Define

Measure

Analyze

Improve

Control



16

1. Selecting the Appropriate Control Chart

2. Assess Effectiveness of Improvement Effort and for Ongoing Control

Define

Measure

Analyze

Improve

Control


Always Asking “Why”?

Yes

Keep doing what is

working

No

Do you want to

improve results? Yes

No

Change Something

Are you

satisfied with the results?

17


Team work is the only way • FP&A as the change agent must drive collaborative

partnership teams without picking sides to effectively drive change

18


Final Word from the Pros

When solving problems, dig at the roots instead of just hacking at the leaves.

~Anthony J. D'Angelo, The College Blue Book

A bad system will beat a good person every time. ~W. Edwards Deming

Watch the little things; a small leak will sink a great ship.

~Benjamin Franklin

The world we have created is a product of our thinking; it cannot be changed without changing our thinking.

~Albert Einstein

There is nothing so useless as doing efficiently that which should not be done at all.

~Peter F. Drucker 19

2011 AFP National Conference – Boston Six Sigma Leveraged FP&A: Web Links & Worksheets Presented by Dr. Kasthuri Henry, MBA, CTP, Six Sigma Black Belt

1. Project selection and financial justification

Discount Rate 8%

Year Cost (US $) PV of Costs Year Cost (US $) PV of CostsProject Implementation Cost Project Implementation Cost

Yr-1 Costs Yr-1 CostsYr-2 Costs Yr-2 CostsYr-3 Costs Yr-3 CostsYr-4 Costs Yr-4 Costs

NPV of Banking Costs -$ NPV of Banking Costs -$

Year Expected PV of Cost Savings

2007 -$ 2008 -$ 2009 -$ 2010 -$

-$

Integration No Integration

Notes: Notes:

Define

Measure

Analyze

Improve

Control


2. Project charter development and approval

Project Charter

Business Case

Opportunity Statement

Goal Statement

Project Scope

Project Plan

Define project plan From – To

Measure the current Process From – To

Analyze the data From – To

Improve the process From – To

Control the process From – To

Team Members

Project Sponsor:

Process Owner:

Project Leader:

Project Team:


1. Process Map

(i) Current Process Flow Chart

(ii) Suggested Process Flow Chart

2. Measuring the Process: Illustrating the lack of consistent trend and volatility

warranting improvement

Define

Measure

Analyze

Improve

Control


Thank you!

Contact Dr. Kasthuri Henry (Phone) 224-595-7418 (eMail) [email protected]

20

mailto:[email protected]


1. Cause and Effect Analysis

Management Man Method

Measurement Machine Material

Lack of StrategicFocus (24)

Skill Gaps (5)

SEPA Knowledge (8)

Lack of Collaboration (0)

Streamlined standard transactional process (15)

Lack of TechnologyIntegration (2)

Transactional Volume (2)N/AIdentify Technology

platform for integration (1)

Set-up Real-time Multi-bankReporting Interface (2)

Effect (Y)

Lack of SEPA ready Strategic Banking Partnership (10)

Transactional Cost (1)

# of Bank Accounts (26)

Lack of dedicated resource to drive project (4)

Define

Measure

Analyze

Improve

Control


2. Effects Analysis and Action Generate

# Cause Vote Cumulative Votes1 # of Bank Accounts 26 262 Lack of Strategic Focus 24 503 Streamlined stadard transactional process 15 654 Lack of SEPA ready Strategic Banking Partenrship 10 755 Employee SEPA Knowledge 8 836 Skill Gaps 5 887 Lack of dedicated resource to drive project 4 928 Trasactional Volume 2 949 Set-up Realtime Multi-bank Reporting Interface 2 96

10 Lack of Technology Integration 2 9811 Transactional Cost 1 9912 Identify Technology platform for itegration 1 100

Total Votes acroiss all Causes 100

80% of the Causes

0%

10%

20%

30%

40%

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60%

70%

80%

90%

100%

0%

5%

10%

15%

20%

25%

30%

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

Cum. Rel. Freq.

Rel. Freq.

Pareto Diagram


1. Process Capability Assessment: Verify Critical Inputs/Root Cause

2. Improvement Action Assessment: Optimize Critical Inputs/Root Cause

Define

Measure

Analyze

Improve

Control


1. Selecting the Appropriate Control Chart

2. Assess Effectiveness of Improvement Effort and for Ongoing Control

Define

Measure

Analyze

Improve

Control


Some Introductory Links :

http://asq.org/new‐to‐quality/index.html

http://asq.org/learn‐about‐quality/basic‐concepts.html

http://asq.org/learn‐about‐quality/basic‐concepts.html

http://asq.org/new‐to‐quality/first‐steps/books.html

http://asq.org/new‐to‐quality/first‐steps/case‐studies.html

http://asq.org/learn‐about‐quality/history‐of‐quality/overview/overview.html

Documents

Six Sigma Leveraged FP&A