LeanSigma Belt Training

Finance Module
 LeanSigma: Value Driven Improvement

The primary focus of LeanSigma projects is to provide…

VALUE

TO THE
Customer Shareholder
Is willing to pay for Is willing to invest

THROUGH BENEFITS
waste reduction
elimination of rework
reduction of raw material use
productivity improvement, etc…
… with little or no capital investment
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 Managing the Causal Connections to Value

Process Business
X’s Y’s Y’s
To get the sustainable results we want we measure and manage the X’s which Drive
the Process Y’s which Drive the Business Y’s
„ Growth of Franchise
„ X1 . . . XN „ Process Y’s Value
„ Independent „ Dependent „ Positioning

„ Root Cause „ Defect How do we Translate „ Blended Growth

& Measure This? Rate
„ Root Cause „ Effect
„ Best in Class Cost
„ Key Lever or Process „ Key Process Outcome Structure
Variable
„ Best in Class „ Investor Satisfaction
„ Control Process Capability „ Employee Value
„ Monitor Exchange
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 The DuPont Model:
Generating value through LeanSigma

Project Financial Benefits

Revenue Operating Margin Working Capital Asset Efficiency

Value Drivers

General
Price Receivables Real Estate & Equipment Company
Volume Selling & COGS Inventory
Realization & Payables Infrastructure & Systems Strength
Admin

Generating revenue by Reducing costs Reducing costs Reducing Improved

enabling expansion of associated with associated with costs reporting
customer base, development Operating Expenses, items impacting associated capabilities,
of new revenue streams, including Customer cash flow, with fixed tax efficient
retention and growth of Interaction, Corporate / including Raw costs and structures,
existing customers. Shared Services, Product Material, WIP, depreciation Planning
Development, Material Finished Good, processes,
Leveraging income
and Production, Accounts, Notes improved
generating assets
Logistics, Distribution and Interest. Analysis,
Price Optimization and Service Delivery

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 Benefit Categories

Benefits can be classified according the following categories:

Category Description Examples

DIRECT Directly impacts the Income Statement or • Cost Reduction

Balance Sheet. The benefit is proven to • Improved margin
be attributed to, caused and realized • Revenue growth
through the action and recommendations
of the project.

INDIRECT Intangible in nature and do not meet any • Cost Avoidance

of the set criteria for attribution, causality • Cash Flow Improvement
or realization. • Cycle time reduction
• Unutilized Capacity
Require a subsequent action on the part of Improvement (manpower/
management to be realized OR, cost equipment/space)
avoidance benefits that have not yet been
proven to be in the current budget or
forecast.

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 Identifying Direct Benefits

Attribution Causality Realization

The identified benefit The change to the The expense, asset,

will directly result from Income Statement or revenue or liability is
the actions or Balance Sheet was part of the current
recommendations of caused by the actions MDS structure. That
the project team. or recommendations is, the project will
of the project team. impact items that we
currently, own, pay for
or receive. If the item
is planned, forecasted
or theoretical, it is not
Direct in nature

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 Example: Energy Management
Objective: Decrease consumption on electricity while maximizing Environmental and
regulatory goals.

Process Metrics Drivers Financial Metric

Metric kWHr Rate Hydro Cost ($)

Cost per Sq. Ft Sq. Footage
Source of data Calculation Monthly Invoices, Real Nordion GL: Electricity
Monthly Invoices Estate Plan Cost
Baseline 20.2M kWHr $0.09 / kWHr $1.83M
$0.325 / sq.ft / month 471K sq. ft
Projected 19.1M kWHr $0.09 / kWHr $1.72M
$0.300 / sq.ft / month 471K sq. ft
Improvement 1.1M kWHrs (5% red’n) ---- $110,000
$0.02 / sq.ft / month
Attribution

Causality

Realization

Benefit Category Asset Efficiency: Real Estate and Infrastructure

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 Example: ClearCore
Objective: Reduce the # of unplanned modules in the code base.

Process Metrics Drivers Financial Metric

Metric Lines of Code Programmer hours Labour

Source of data Clearcore program Timesheets SCIEX-Engineering

Baseline 3-5 errors in last 12 mths Programmer hours 50k/error/quarter

Projected 0 Programmer hours 0

Improvement 50k/error/quarter

Attribution

Causality

Realization

Benefit Category INDIRECT- COGS

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 Project Expenses

Labour - Internal Labour - Internal

Labour - Consulting Labour - Consulting

Equipment Equipment

Project Costs Materials Ongoing Costs Materials

One-time Recurring costs

Travel Travel
costs associated with
incurred as the
a result of Other Other
implementation
conducting of the solution
the project Computer (HD/SW) Depreciation

Computer (HD/SW)

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 Project Finances in EnterpriseTrack

BLUE = DMAIC cycle BLACK = Realization

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 Entering project expenses into ET

Expenses Type Oracle EnterpriseTrack

Labour - Internal ---- Enter Project Hrs into ET, rollups will be
converted to $ based on average salary
Labour - Consulting IProcurement Enter consulting spend by month

Equipment IProcurement Enter equipment spend by month

Materials IExpense Enter materials spend by month

Travel IExpense Enter travel spend by month

Computer (HD/SW) IProcurement Enter computer spend by month

All dollars should be listed, by default, according to the location currency (i.e if
your project takes place in London, financials should be captured in pounds)

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 The Role of the Finance Representative

RECOGNIZE DEFINE MEASURE ANALYZE IMPROVE CONTROL REALIZE

Provide expertise Involved in every stage of Ensure that the
in the the DMAIC process and projected benefits
identification, provide an audit check of have been realize,
definition and benefit and cost and are properly
quantification of assumptions at defined accounted for in
the expected points through a project's EnterpriseTrack,
benefits from a timeline (typically Toll Gate and that future
LeanSigma project reviews). forecasts for the
and validate the impacted
required costs business units are
associated with a adjusted.
project.

It is important to note that the Finance Rep is not the decision maker when it comes to
which projects to work on, or whether we proceed forward on a project. They do
provide valuable input to the VSO, who ultimately does make these decisions.

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 Financial Responsibilities of the Belt & Finance Rep
BELT
z Work with the Finance Rep. to establish
financial benefits associated with the project
z Enter projected financials in EnterpriseTrack
z Update financial projections as required
throughout the DMAIC cycle
z Enter actual benefits realized and costs incurred
during DMAIC cycle
z Establish ongoing financial tracking mechanism
for hand-off to process owner
z Finalize projected financials
z Track actual financials relative to projections for
first 3 months of realization (Track Monthly)
z Once actuals have been validated and have
stabilized, ownership of ongoing tracking of
financials is handed off to the Process Owner
z Responsible for maintaining supporting financial
documentation for each project in which they
are involved.
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FINANCE REP
z Act as a resource to VSOs and Black Belts in support of their
efforts to define and prioritize projects.
z Ensure that the financial management of the LeanSigma
project is per the LeanSigma Handbook.
z Assist Black Belts in identifying project financial metrics and
project impact.
z Train and assist Black and Green Belts as needed in
completing financials for incorporation into the project
tracking system.
z As projects evolve and assumptions change, work with Black
and Green Belts to update the financial information.
z Work with the Black and Green Belts to validate project
completion and financial results. Provide final update to the
project tracking system for agreed upon financial impact.
z Assist Black and Green Belts to ensure that proper and
adequate documentation exists to substantiate forecasted
project benefits.
z May be called upon to explain, reconcile or report financial
results to management.
z Participate in project meetings as required.
 Financial Validation Workflow
During the Project: Upon Project Close (Realization):
Financial Rep.
unlocks month
and Adjusts
Financials if
Belt enters Actuals
Forecasted
Financials are
required
and adjusts
projections (first 3

Global Finance
Financial Rep.
reviews Project
Financial Rep.
Validates
months)
locked and
Rep Locks Month
upon month end
Financials
(Actuals &
Finances (Time
Stamp Recorded)
snapshot created
to compare
Forecasted)

planned to actual

Define an Idea
(Opportunity) and
High Level Workflow
Submit it

Update
Update Project Deliverables by Follow Roadmap
BELT Idea routed to
an owner
Create Project
Basics (Charter) assigning owners Methodology
& due dates.

Accept Initial
Proposal

VSO / Create Proposal.

Further Define & Accept Assign Initial Team Approve & Lock Request Tollgate
Opportunity Evaluate the idea Idea Members. Evaluate Proposal Review
Owner the proposal.

Request Request Financial

Sign-offs validation
Deployment
Leader,
Review and
Mgr, MBB, Grant Sign-Offs
Sign-off
Executive
Sponsor

FINANCE
REP Validate Finances

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 Ongoing Measurement

z In cooperation with the Value Stream Owner, Black Belt, Green Belt,
the Finance Representative identifies the financial measurement of
the defect that is being eliminated or reduced.
z The Belt decides the method to be used to determine that the defect
has been eliminated or reduced, and the method must be
documented.
z The Finance Representative and the Belt determine the method to
be used to monitor and verify the tracking of the benefit during the
Realization Phase of the project.
z After 3 months of Realization and verification that the benefit has
been actualized, is predictable (i.e. stable) and is measurable, the
Process Owner will assume ownership of monitoring of the process
and financial benefit for the remaining period of Realization.
z Should the actual financial benefit vary by more than 10%, the
Process Owner should notify the VSO, Finance Rep and Belt to
determine if an adjustment to projections is required

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 Financial Tracking Timeline
Recognize Define Measure Analyze Improve Control Realize

Black Belt
M1 &
Identified
BenefitsIdentified M2 Process Owner
M3 With

Confirmed
Tracked&&Confirmed
Finance Rep

Validation
BenefitValidation
Validated
M4

BenefitsValidated
Note: Capture M5 If actuals
IndirectBenefits
Quantified
&&Quantified

and validate M6 are + / –

Process
any “actual” M7 10% from
Owner

BenefitsTracked
benefits and projection,

FinalBenefit
M8 (monitored
notify VSO,
Benefits
costs prior to M9 monthly)
Direct&&Indirect

realization M10 belt and

M11 Finance
Final

Benefits
M12 Rep to
reassess
Direct

Finance Rep
closes project
after 12 months &
accounts for
benefits in future
Accuracy 70% 80% 90% 90% budgets

If benefits change >-20%, revalidate the project with VSO & Finance Rep

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 Notes on Balance Sheet Improvements:
Reducing Working Capital

z Some LeanSigma projects will yield improvements that are

reflected in the Balance Sheet.
z For instance, inventory reductions are desirable and have a
positive impact upon efficiency of the operation. The impact
is reflected as an asset reduction on the balance sheet. As
such, liquidity of the business is improved, working capital is
reduced, and either financing costs of funding the business
are reduced or return on an investor's investments are
improved.
z Benefits identified as being related to the Balance Sheet will
be reviewed by the Finance Representative with the Belt to
ensure appropriate treatment.
z Typically these benefits are quantified by applying a cost of
capital % to the asset reduction generated

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 Notes on Cross Divisional Benefits

z In instances where a LeanSigma project initiated at one division will produce

benefits at another division or a multiple business unit initiative is launched, the
Value Stream Owner, Finance Deployment Leader and the respective Finance
Representatives will jointly determine which Value Stream Owner will be
responsible for the project.
z Once the VSO is agreed to, she/he will assign the project to one of their Black
or Green belts. At this time, any shared costing agreement will be decided.
z There can only be one owner for a project and there should be no duplication
of projects or double counting of benefits. Projects may be replicated (if
environments are similar enough) and the benefits can be counted at all
locations where replication takes place.
z When this is done, the Finance Representative for that project coordinates with
the Finance Representative at the other division to determine how the benefits
are going to be tracked. The two Finance Representatives establish a
mechanism for reporting benefits. However, the validation of the benefits
through the Realization phase must be done by the Finance Representative
who is assigned to the Value Stream Owner who owns the project.

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 Finance Rep. Contact List

Group Finance Phone Number

Representative
Corporate/Global Fernando Pica 416-675-6777 x 2573
Services

Diagnostics Olga Ciumaciova 416-675-6777 x 2320

Nordion Debbie Dooher 613-592-3400 x 2178

Pharma Services Peter Abram 610-239-7900 x 638

Sciex Fernando Pica 416-675-6777 x 2573

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