Six Sigma in the Finance Department

Dec. 10, 2011
Companies need to measure their financial processes as closely as they do their production processes.

Manufacturers are judged by the quality of their products, and for many of them the margin of error is very small. The well-known Six Sigma measurement, for instance, is defined as no more than 3.4 defects per million opportunities, and to achieve that end, manufacturers focus on five areas: define, measure, analyze, improve and control (DMAIC). Six Sigma is highly precise and takes the guesswork out of a company's quality efforts on the production line.

Could Six Sigma be equally effective in the finance department? Kasthuri Henry, a Six Sigma black belt and president of consulting firm KasHenry, thinks so. But it starts from an acknowledgment on the part of senior management that not all growth is good growth. "Accountants don't differentiate between good revenue that sustains business and bad revenue that destroys," she observes. Good growth, she says, strengthens the business through employee loyalty, which drives customer loyalty and creates value for the customers. Bad growth erodes the business from the inside out, destroying employee morale and customer loyalty.

We Have Met the Enemy..."The most important threat to the United States is what we're doing to ourselves right now to our economy."
-- political analyst David Gergen, quoting senior military and State Department officials

Since the financial planning and analysis department is tasked with keeping the company on track toward its financial goals, these people "should be change agents who understand the entire business process and possess soft and hard skills to continually influence good growth, and continually educate and expand the company's thinking," Henry says.

A DMAIC process for the finance department isn't fundamentally different than what companies are already using to measure their production process. What's needed, she points out, is the desire on management's part to drive quality into every area of a company, not just the plant floor. Good corporate governance, she says, will result in overall performance improvement throughout the company.

Yes to Deficit Reduction, No to More Stimulus

While Washington debates what steps to take to prop up the still fragile economy, a poll of senior corporate finance executives reveal a mind-set that "enough is enough." Seventy-nine percent oppose the idea of another round of stimulus efforts, and of that number 42% think deficit reduction should be the top priority for policymakers. Only 21% think additional fiscal stimulus is necessary.
The poll, conducted at last month's annual meeting of the Association for Finance Professionals in Boston, found a high level of uncertainty among survey respondents, with four out of five attributing the slow recovery to such factors as aversion to risk given the current environment, weak consumer demand, uncertain current/future regulatory environment and rising health care costs. Other survey results include:

  • 47% of finance professionals whose company payrolls increased over the previous year
  • 44% who believe their payrolls will increase over the next 12 months
  • 44% who say their companies will increase its pace of capital investment over the next year
  • 26% who say the United States has become less attractive as a destination to invest for growth over the past year
  • 11% who say the United States has become more attractive as a destination for investment over the past year

Source: Association for Financial Professionals

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