The Certified Six Sigma Master Black Belt Handbook PDF

Six Sigma Master Black Belt THE CERTIFIED Six Sigma...

Six Sigma Master Black Belt THE CERTIFIED Six Sigma Master Black Belt THE CERTIFIED H A N D B O O K H A N D B O O K THE CERTIFIED T.M. Kubiak Six Sigma This book has been created to reflect the most current thinking among key Six Sigma leaders regarding what should be contained in the ASQ Master Black Belt Body of Knowledge (BoK). For quick reference and ease of use, chapter and section numbering exactly mirrors that of the BoK. Master Black Belt The primary audience for this work is the individual who plans to prepare to sit for the Six Sigma Master Black Belt certification examination. Therefore, this book assumes the individual has the necessary educational background and experience in quality and Lean Six Sigma. Concepts are dealt with briefly, but supplemented with practical examples. Theoretical discussion has been avoided unless such a discussion was necessary to communicate a concept. A secondary audience for the handbook is the quality and Six Sigma professional who would like a relevant Lean Six Sigma reference book. With this audience in mind, some material has been expanded beyond what the Body of Knowledge requires. The CD accompanying the print book and at the end of the e-book versions includes a practice problem set covering each part of the book and a simulated examination that has problems distributed among parts according to the scheme published in the Body of Knowledge. About the Author: T. M. Kubiak currently is the president and founder of Performance Improvement Solutions, an independent consulting firm located H A N D B O O K in Weddington, North Carolina. Previously he was an engagement director for Accenture, a Quality and Productivity executive at Bank of America, T.M. Kubiak the director of Six Sigma for Sears, Roebuck and Company, and for nearly 23 years filled several engineering and Six Sigma leadership roles in various locations with Honeywell International. His roles there included principal engineer; Total Quality advisor; manager, Process Improvement, Supply Management; and program manager/technical senior staff, Six Sigma Plus. Kubiak has received many awards, is frequently published in various journals and magazines, and is a sought-after presenter. He is an ASQ CQE, CRE, CSSBB, and Certified Manager of Quality/Organizational Excellence. In addition, Kubiak is a professional engineer and possesses several additional professional T.M. Kubiak certifications. He is also the co-author of The Certified Six Sigma Black Belt Handbook. H1404 Printed in the United States of America  The Certified Six Sigma Master Black Belt Handbook Also available from ASQ Quality Press: The Certified Six Sigma Black Belt Handbook, Second Edition T. M. Kubiak and Donald W. Benbow The Certified Six Sigma Green Belt Handbook Roderick A. Munro, Matthew J. Maio, Mohamed B. Nawaz, Govindarajan Ramu, and Daniel J. Zrymiak Six Sigma Green Belt, Round 2: Making Your Next Project Better Than the Last One Tracy L. Owens A Tale of Strategic Innovation and Improvement in a Farm-iliar Setting Jim Bowie Lean-Six Sigma for the Public Sector: Leveraging Continuous Process Improvement to Build Better Governments Brandon Cole Office Kaizen 2: Harnessing Leadership, Organizations, People, and Tools for Office Excellence William Lareau Lean for Service Organizations and Offices: A Holistic Approach for Achieving Operational Excellence and Improvements Debashis Sarkar The Executive Guide to Understanding and Implementing Lean Six Sigma: The Financial Impact Robert M. Meisel, Steven J. Babb, Steven F. Marsh, and James P. Schlichting Six Sigma for the New Millennium: A CSSBB Guidebook, Second Edition Kim H. Pries The Quality Toolbox, Second Edition Nancy R. Tague Mapping Work Processes, Second Edition Bjørn Andersen, Tom Fagerhaug, Bjørnar Henriksen, and Lars E. Onsøyen Root Cause Analysis: Simplified Tools and Techniques, Second Edition Bjørn Andersen and Tom Fagerhaug Lean ISO 9001: Adding Spark to your ISO 9001 QMS and Sustainability to Your Lean Efforts Mike Micklewright Root Cause Analysis: The Core of Problem Solving and Corrective Action Duke Okes To request a complimentary catalog of ASQ Quality Press publications, call 800-248-1946, or visit our website at http://www.asq.org/quality-press.  The Certified Six Sigma Master Black Belt Handbook T. M. Kubiak ASQ Quality Press Milwaukee, Wisconsin American Society for Quality, Quality Press, Milwaukee 53203 © 2012 by ASQ All rights reserved. Published 2012 Printed in the United States of America 18 17 16 15 14 13 12 5 4 3 2 1 Library of Congress Cataloging-in-Publication Data Kubiak, T. M. â … The certified six sigma master black belt handbook / T. M. Kubiak. â …â …p. cm. â … Includes bibliographical references and index. â … ISBN 978-0-87389-805-8 (hard cover : alk. paper) â … 1. Quality control—Statistical methods—Handbooks, manuals, etc.â ‡ I. Title. â … TS156.K8237 2012 â …658.4’013—dc23 2012007056 ISBN: 978-0-87389-805-8 No part of this book may be reproduced in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Publisher:â ‡ William A. Tony Acquisitions Editor:â ‡ Matt T. Meinholz Project Editor:â ‡ Paul Daniel O’Mara Production Administrator:â ‡ Randall Benson ASQ Mission: The American Society for Quality advances individual, organizational, and community excellence worldwide through learning, quality improvement, and knowledge exchange. Attention Bookstores, Wholesalers, Schools, and Corporations: ASQ Quality Press books, video, audio, and software are available at quantity discounts with bulk purchases for business, educational, or instructional use. For information, please contact ASQ Quality Press at 800-248-1946, or write to ASQ Quality Press, P.O. Box 3005, Milwaukee, WI 53201-3005. To place orders or to request ASQ membership information, call 800-248-1946. Visit our website at http://www.asq.org/quality-press. Six Sigma Maturity Model is a registered trademark of Instantis. â ‡ Printed on acid-free paper  For Darlene, my wife: The world is no longer as it was and will no longer be as it is. The only constant and consolation I find and know is you. I no longer know a time before you. We have always been; we act as one; we think as one. An arched brow, a brief glance, a thought conveyed. Even apart, we remain together. Our past lives together; our current lives together; and our future lives together. For there will never be a goodbye, there will only be... us.  Table of Contents List of Figures and Tables................. å°“.................. å°“............... xii Preface................. å°“.................. å°“.................. å°“............ xx Acknowledgments................. å°“.................. å°“.................. å°“... xxiii Part Iâ … Enterprise-Wide Planning and Deployment............ 1 Chapter 1â … Strategic Plan Deployment................................... 2 SWOT................. å°“.................. å°“.................. å°“........ 2 PEST................. å°“.................. å°“.................. å°“......... 5 Hoshin Kanri................. å°“.................. å°“.................. å°“.. 7 Traditional Strategic Planning Approach................. å°“.............. 13 Chapter 2â … Strategic Plan Alignment.................................... 18 Strategic Deployment Goals................. å°“.................. å°“....... 18 Project Alignment with Strategic Plans................. å°“................ 23 Project Alignment with Business Objectives................. å°“........... 26 Chapter 3â … Deployment of Six Sigma Systems............................ 28 Governance................. å°“.................. å°“.................. å°“... 28 Assessment................. å°“.................. å°“.................. å°“... 33 Resource Planning................. å°“.................. å°“............... 41 Resource Development................. å°“.................. å°“........... 47 Execution................. å°“.................. å°“.................. å°“..... 50 Measure and Improve the System................. å°“.................. å°“.. 51 Chapter 4â … Six Sigma Methodologies.................................... 53 DMAIC................. å°“.................. å°“.................. å°“....... 54 DFSS................. å°“.................. å°“.................. å°“......... 59 Lean.............................................................. 63 Business Systems and Process Management................. å°“........... 65 Chapter 5â … Opportunities for Improvement.............................. 70 Project Identification................. å°“.................. å°“............. 71 Project Qualification................. å°“.................. å°“.............. 73 Stakeholder Engagement................. å°“.................. å°“.......... 78 Intervention Techniques................. å°“.................. å°“.......... 82 Creativity and Innovation Tools................. å°“.................. å°“.... 83 Chapter 6â … Risk Analysis of Projects and the Pipeline..................... 88 Risk Management................. å°“.................. å°“................ 88 vii viii Table of Contents Pipeline Creation................................................... 97 Pipeline Management................. å°“.................. å°“............ 99 Chapter 7â … Organizational Design...................................... 100 Systems Thinking................. å°“.................. å°“................ 100 Organizational Maturity and Culture................. å°“................. 104 Organizational Cultural Change Techniques................. å°“........... 108 Chapter 8â … Organizational Commitment................................. 113 Techniques to Gain Commitment................. å°“.................. å°“.. 113 Necessary Organizational Structure for Deployment................. å°“... 115 Communications with Management................. å°“.................. 119 Change Management................. å°“.................. å°“............. 123 Chapter 9â … Organizational Finance and  Business Performance Metrics...... 126 Financial Measures................. å°“.................. å°“............... 126 Business Performance Measures................. å°“.................. å°“... 137 Project Cash Flow................. å°“.................. å°“................ 141 Sarbanes–Oxley Act................. å°“.................. å°“.............. 143 Part IIâ … Cross-Functional Competencies...................... 147 Chapter 10â … Data Gathering............................................ 148 Voice of the Process................. å°“.................. å°“.............. 148 Voice of the Customer................. å°“.................. å°“............ 149 Chapter 11â … Internal Organizational Challenges.......................... 157 Organizational Dynamics................. å°“.................. å°“......... 157 Intervention Styles................. å°“.................. å°“............... 173 Interdepartmental Conflicts................. å°“.................. å°“....... 177 Chapter 12â … Executive and Team Leadership Roles........................ 183 Executive Leadership Roles................. å°“.................. å°“........ 183 Leadership for Deployment.......................................... 186 Part IIIâ … Project Management............................... 195 Chapter 13â … Project Execution........................................... 196 Cross-Functional Project Assessment................. å°“................. 196 Executive and Mid-Level Management Engagement................. å°“.... 199 Project Prioritization................. å°“.................. å°“............. 201 Chapter 14â … Project Oversight and Management.......................... 202 Project Management Principles................. å°“.................. å°“.... 202 Measurement................. å°“.................. å°“.................. å°“.. 212 Monitoring................. å°“.................. å°“.................. å°“.... 214 Project Status Communication................. å°“.................. å°“..... 215 Supply/Demand Management................. å°“.................. å°“..... 217 Corrective Action................. å°“.................. å°“................ 218  Table of Contents ix Chapter 15â … Project Management Infrastructure.......................... 219 Governance Methods and Tools................. å°“.................. å°“.... 219 Performance Measurement................. å°“.................. å°“........ 222 Chapter 16â … Project Financial Tools...................................... 225 Budgets and Forecasts................. å°“.................. å°“............ 225 Costing Concepts................. å°“.................. å°“................ 226 Part IVâ … Training Design and Delivery....................... 235 Chapter 17â … Training Needs Analysis.................................... 236 Human Resource Strategic Plan................. å°“.................. å°“.... 236 The Importance of a Training Needs Analysis................. å°“......... 237 Defining the Extent and Nature of the Job................. å°“............. 238 Purposes of and Types of Training................. å°“.................. å°“. 239 Tools and Techniques for Conducting a Training Needs Analysis.......... 240 Chapter 18â … Training Plans............................................. 245 Aligning Training to Strategy................. å°“.................. å°“...... 245 The Importance of Training and Education................. å°“............ 246 The Importance of Training Plans................. å°“.................. å°“.. 246 Training Plans Are Not a Panacea................. å°“.................. å°“.. 247 Components of an Effective Training Plan................. å°“............. 248 Applying the Training Plan................. å°“.................. å°“........ 249 Multidisciplinary Training................. å°“.................. å°“........ 251 Chapter 19â … Training Materials and Curriculum Development............. 256 Adult Learning Theory................. å°“.................. å°“........... 256 Integration................. å°“.................. å°“.................. å°“.... 273 Training Delivery................. å°“.................. å°“................ 274 Chapter 20â … Training Effectiveness Evaluation........................... 285 Terminology....................................................... 285 Validation and Evaluation Models................. å°“.................. å°“.. 286 Mager’s Learning Objective Principle................. å°“................. 288 Tips for Developing Measures................. å°“.................. å°“..... 289 Measurement Issues................. å°“.................. å°“.............. 289 Data Collection Methods................. å°“.................. å°“.......... 290 Isolating the Effects of Training................. å°“.................. å°“.... 291 Part Vâ … Mentoring Responsibilities.......................... 293 Chapter 21â … Mentoring Champions, Change Agents, and Executives........ 294 Project Reviews................. å°“.................. å°“.................. 294 Project Sizing................. å°“.................. å°“.................. å°“.. 299 Communications................. å°“.................. å°“................. 304 Feedback................. å°“.................. å°“.................. å°“...... 305 x Table of Contents Chapter 22â … Mentoring Black Belts and Green Belts....................... 306 Individuals................. å°“.................. å°“.................. å°“.... 306 Technical Reviews.................................................. 309 Team Facilitation and Meeting Management................. å°“........... 310 Chapter 23â … Mentoring Non-belt Employees.............................. 315 Part VIâ … Advanced Measurement Methods  and Tools.......... 317 Chapter 24â … Measurement Systems Analysis (MSA)....................... 318 Propagation of Errors................. å°“.................. å°“............. 318 Attribute (Discrete) Measurement Systems................. å°“............ 320 Variables (Continuous) Measurement Systems................. å°“......... 335 Process Capability for Nonnormal Data................. å°“............... 347 Chapter 25â … Measuring and Modeling Relationships  Between Variables.... 353 Autocorrelation and Forecasting................. å°“.................. å°“... 353 Multiple Regression Analysis................. å°“.................. å°“...... 370 Logistic Regression Analysis................. å°“.................. å°“...... 384 Model Fitting for Nonlinear Parameters................. å°“............... 391 General Linear Models (GLM)................. å°“.................. å°“..... 399 Components of Variation................. å°“.................. å°“.......... 408 Simulation................. å°“.................. å°“.................. å°“.... 414 Linear Programming................. å°“.................. å°“............. 417 Reliability Modeling................. å°“.................. å°“.............. 423 Qualitative Analysis................. å°“.................. å°“.............. 429 Chapter 26â … Design of Experiments (DOE)............................... 431 Factor Analysis................. å°“.................. å°“.................. 431 Complex Blocking Structures................. å°“.................. å°“...... 434 Other DOE Approaches................. å°“.................. å°“........... 438 Chapter 27â … Automated Process Control (APC) and Statistical Process Control (SPC)....................................................... 451 Terminology....................................................... 451 Advantages of Automated Process Control................. å°“............ 452 Basic Control Systems................. å°“.................. å°“............ 452 Part VIIâ … Appendices...................................... 455 Appendix 1â … ASQ Code of Ethics (May 2005)............................. 457 Appendix 2â … ASQ Certified Master Black Belt (MBB) Body of Knowledge (2010).................................................... 459 Appendix 3â … Control Chart Combinations for Measurement Data.......... 470 Appendix 4â … Control Chart Constants................................... 472 Appendix 5â … Constants for A7, B 7, and B 8................................. 475 Appendix 6â … Factors for Estimating r X................................... 480  Table of Contents xi Appendix 7â … Control Charts for Count Data.............................. 481 Appendix 8â … Binomial Distribution Table................................ 482 Appendix 9â … Cumulative Binomial Distribution Table.................... 486 Appendix 10â … Poisson Distribution Table................................ 491 Appendix 11â … Cumulative Poisson Distribution Table..................... 499 Appendix 12â … Standard Normal Distribution Table....................... 506 Appendix 13â …Cumulative Standard Normal Distribution Table............ 509 Appendix 14â … t Distribution Table....................................... 512 Appendix 15â … Chi-Square Distribution Table............................. 514 Appendix 16â … F(0.99) Distribution Table................................. 517 Appendix 17â … F(0.975) Distribution Table................................ 521 Appendix 18â … F(0.95) Distribution Table................................. 525 Appendix 19â … F(0.90) Distribution Table................................. 529 Appendix 20â … F(0.10) Distribution Table................................. 533 Appendix 21â … F(0.05) Distribution Table................................. 537 Appendix 22â … F(0.025) Distribution Table................................ 541 Appendix 23â … F(0.01) Distribution Table................................. 545 Appendix 24â … Equivalent Sigma Levels, Percent Defective, and PPM Values..................................................... 548 Appendix 25â …Glossary of Lean Six Sigma and Related Terms.............. 550 Appendix 26â … Glossary of Japanese Terms............................... 619 Bibliography................. å°“.................. å°“.................. å°“....... 623 Index................. å°“.................. å°“.................. å°“............. 635 CD-ROM Contents PracticeExamQuestions.pdf PracticeExamAnswers.pdf SimulatedExamQuestions.pdf SimulatedExamAnswers.pdf  List of Figures and Tables Table 1.1 SWOT analysis matrix for Example 1.1...................å°“............. 3 Table 1.2 SWOT analysis matrix for Example 1.2...................å°“............. 4 Table 1.3 PEST analysis matrix for Example 1.3...................å°“.............. 6 Figure 1.1 Fundamental principles and concepts of hoshin kanri.................. 8 Figure 1.2 The hierarchy of plan deployment...................å°“................. 9 Figure 1.3 Generalized hoshin kanri process flow...................å°“............ 10 Figure 1.4 The deployment of objectives/targets through means................... 11 Figure 1.5 Target/means deployment process for Example 1.4...................å°“.. 11 Table 1.4 Example of a typical hoshin kanri strategy deployment form............ 13 Figure 1.6 The traditional strategic planning process...................å°“.......... 14 Table 1.5 Comparing strategic, tactical, and operational plans...................å°“. 15 Table 1.6 An example of traditional strategic planning...................å°“....... 16 Figure 2.1 Critical considerations when developing strategic deployment plans..... 19 Figure 2.2 Driving results through alignment...................å°“................ 24 Figure 2.3 Breaking the alignment between strategy and projects.................. 26 Figure 2.4 Achieving alignment from projects to strategies to objectives............ 27 Figure 3.1 A common governance structure within a single organizational unit..... 29 Figure 3.2 Nested governance structures within a complex organizational unit..... 30 Figure 3.3 The many roles of Lean Six Sigma governance...................å°“...... 30 Figure 3.4 A Lean Six Sigma deployment team structure...................å°“...... 31 Table 3.1 Example of a RACI matrix...................å°“..................å°“..... 32 Table 3.2 An organizational maturity model for a manufacturing organization..... 34 Table 3.3 The Instantis Six Sigma Maturity Model...................å°“........... 36 Figure 3.5 A comparison of the phases of two maturity models...................å°“. 37 Table 3.4 The Cazar readiness assessment model...................å°“............ 39 Table 3.5 Critical cultural characteristics for an organizational assessment......... 40 Figure 3.6 Balancing and maintaining a trained workforce...................å°“.... 42 Table 3.6 Summary of key deployment questions related to candidates and costs/benefits...................å°“..................å°“................ 48 Table 3.7 Key characteristics associated with internal versus external training..... 49 Figure 3.7 Decomposing a megaproject into multiple phases...................å°“... 52 Figure 4.1 Selecting the proper project methodology...................å°“.......... 53 xii  List of Figures and Tables xiii Figure 4.2 DMAIC in a dream world...................å°“..................å°“...... 54 Figure 4.3 DMAIC in the real world...................å°“..................å°“....... 55 Table 4.1 Common tools used in define phase...................å°“................ 57 Table 4.2 Common tools used in measure phase...................å°“.............. 57 Table 4.3 Common tools used in analyze phase...................å°“.............. 58 Table 4.4 Common tools used in improve phase...................å°“.............. 58 Table 4.5 Common tools used in control phase...................å°“............... 59 Figure 4.4 The DFSS family of methodologies...................å°“................ 60 Table 4.6 Comparing DMAIC and DFSS methodologies...................å°“...... 60 Table 4.7 Common tools used in DFSS...................å°“..................å°“... 61 Table 4.8 Common tools used in Lean...................å°“..................å°“.... 64 Figure 4.5 Business process management life cycles...................å°“........... 66 Table 4.9 BPM life cycle definitions...................å°“..................å°“...... 67 Figure 4.6 Integrating Lean Six Sigma and BPM...................å°“.............. 69 Figure 5.1 Managing the project flow from creation to completion................. 70 Figure 5.2 The project identification process...................å°“................. 72 Figure 5.3 Example of a value driver analysis...................å°“................ 73 Figure 5.4 The project qualification process...................å°“..................å°“ 74 Figure 5.5 Example of a project charter document...................å°“............ 76 Table 5.1 A simple form for completing a stakeholder analysis...................å°“ 79 Figure 5.6 Alternate example of a stakeholder analysis...................å°“........ 80 Table 5.2 Example of an influence–importance stakeholder table................. 81 Table 5.3 Example of an impact–cooperation stakeholder table...................å°“ 81 Table 5.4 Idea creation tools and techniques and the creation process............. 85 Table 6.1 Potential types and forms of risk that could affect an organization....... 89 Table 6.2 Example of a simple risk assessment matrix...................å°“........ 90 Figure 6.1 Example of a project risk assessment document...................å°“..... 91 Table 6.3 Example of quantifying risk...................å°“..................å°“.... 93 Table 6.4 Example of a simple portfolio analysis matrix...................å°“...... 95 Table 6.5 Example of a project selection and/or prioritization matrix.............. 96 Table 6.6 Charting impact versus effort...................å°“..................å°“.. 96 Figure 6.2 The project selection process...................å°“..................å°“... 97 Figure 6.3 The project prioritization process...................å°“................. 98 Figure 7.1 A simplified systems thinking relationship diagram...................å°“ 103 Table 7.1 Common organizational roadblocks and possible solutions............. 106 Table 7.2 Key guidelines regarding change...................å°“................. 109 Figure 7.2 A force field analysis diagram...................å°“..................å°“.. 111 Figure 7.3 A force field analysis for Example 7.5...................å°“.............. 111 Figure 8.1 Maintaining a cohesive, centralized Lean Six Sigma organization........ 116 Figure 8.2 Example of an organizational structure that includes the Lean Six Sigma department buried in the organizational structure............... 118 xiv List of Figures and Tables Figure 8.3 Example of an organizational structure that includes the Lean Six Sigma department reporting to the CEO...................å°“........... 118 Figure 8.4 One possible Lean Six Sigma department structure..................... 119 Figure 8.5 The communications trilogy...................å°“..................å°“.... 121 Figure 9.1 Traditional quality cost curves...................å°“..................å°“.. 129 Figure 9.2 Modern quality cost curves...................å°“..................å°“.... 129 Table 9.1 Internal rate of return calculation for Example 9.3...................å°“... 133 Figure 9.3 A graphical approach to the break-even point...................å°“...... 136 Figure 9.4 Example of a cash flow stream...................å°“..................å°“.. 142 Table 9.2 Cash flow calculations in tabular form...................å°“............. 143 Figure 10.1 Examples of common listening posts...................å°“.............. 150 Figure 10.2 Examples of media used for listening posts...................å°“........ 151 Table 10.1 Sources of customer data...................å°“..................å°“....... 151 Figure 10.3 The iterative relationship—simple, but critical...................å°“...... 154 Figure 10.4 Example of a closed-loop system for integrating VOC and VOP.......... 155 Figure 11.1 Organizational change curve...................å°“..................å°“... 160 Figure 11.2 Forces opposing cultural change...................å°“..................å°“ 162 Figure 11.3 Fitting tools into the organization’s identity...................å°“........ 162 Figure 11.4 Maslow’s hierarchy of needs...................å°“..................å°“.... 163 Figure 11.5 The seven inborn human needs...................å°“..................å°“. 163 Table 11.1 Hertzberg’s satisfiers and dissatisfiers in the workplace................. 164 Figure 11.6 The managerial grid...................å°“..................å°“........... 166 Table 11.2 Kahler’s interaction styles...................å°“..................å°“...... 167 Figure 11.7 Situational leadership model...................å°“..................å°“... 169 Table 11.3 Goleman’s leadership model based on emotional intelligence............ 171 Table 11.4 Heron’s types and categories of intervention........................... 173 Table 11.5 Heffner’s communication styles...................å°“..................å°“. 175 Figure 12.1 Dimensions of management support...................å°“.............. 184 Figure 12.2 Example of an action plan document...................å°“.............. 189 Figure 13.1 Projects aligned to functional groups for Example 13.2.................. 197 Figure 13.2 Project sequence as determined without regard to relationships between projects...................å°“..................å°“.............. 198 Figure 13.3 Activity network diagram illustrating predecessor–successor relationships...................å°“..................å°“................. 198 Figure 13.4 Project sequence as determined with regard to relationships between projects...................å°“..................å°“.............. 198 Table 13.1 A structure for linking multiple projects to strategies for Example 13.2.... 200 Figure 14.1 The components of any project...................å°“..................å°“. 203 Figure 14.2 The balanced quadrant...................å°“..................å°“........ 203 Table 14.1 The relationship of the project stages to the life cycle phases............. 205 Table 14.2 Constructing a communications plan...................å°“.............. 207  List of Figures and Tables xv Figure 14.3 A generalized work breakdown structure...................å°“.......... 207 Figure 14.4 Various performance indicators—a graphical approach................. 215 Figure 15.1 A generalized project management governance structure............... 220 Figure 15.2 An expanded view of the project management governance structure..... 220 Figure 16.1 Determining hard versus soft cost savings...................å°“......... 227 Figure 16.2 Expanding the definition of cost avoidance to include efficiency savings...................å°“..................å°“..................å°“.... 228 Figure 16.3 Expanding the definition of cost savings to include revenue growth...... 229 Figure 16.4 Expanding the definition of cost savings to include working capital...... 230 Table 16.1 Examples of savings by category...................å°“..................å°“ 232 Figure 17.1 The training needs analysis process...................å°“............... 240 Figure 18.1 Aligning training with strategy...................å°“..................å°“. 245 Table 18.1 A comparative analysis between training and education................ 247 Table 18.2 Example of a mastery grid...................å°“..................å°“..... 250 Table 18.3 Example of a training plan in matrix summary form...................å°“ 250 Table 18.4 Example of a training plan in expanded format...................å°“..... 252 Table 18.5 Training plan sort: curriculum, target group, and course................ 253 Table 18.6 Training plan sort: target group, course, and skill...................å°“... 254 Table 18.7 Training plan sort: skill, target group, and course...................å°“... 255 Table 19.1 Tolbize’s training preferences of adult learners by generation............ 257 Table 19.2 Carnes’s training preferences of adult learners by generation............ 258 Table 19.3 Training strategies for dealing with generational differences............ 259 Table 19.4 Implications of the “power distance” dimension on training............. 260 Table 19.5 Implications of the “uncertainty avoidance” dimension on training...... 260 Table 19.6 Implications of the “relationship with others” dimension on training..... 261 Table 19.7 Implications of the “emotional gender roles” dimension on training...... 261 Table 19.8 Implications of the “time horizon” dimension on training............... 262 Table 19.9 Hofstede’s quadrant analysis of “power distance” versus “uncertainty avoidance” dimensions...................å°“..................å°“........ 262 Table 19.10 Hofstede’s quadrant analysis of “emotional gender roles” versus “relationship with others” dimensions...................å°“............. 263 Table 19.11 Hofstede’s analysis by the “time horizon” dimension...................å°“ 263 Table 19.12 Theory highlights of the functionalistic theories of learning.............. 265 Table 19.13 Theory highlights of the associationistic theories of learning............. 266 Table 19.14 Theory highlights of the cognitive theories of learning.................. 267 Table 19.15 Theory highlights of the constructivist theories of learning.............. 268 Table 19.16 Theory highlights of the neurophysiological theories of learning........... 268 Table 19.17 Theory highlights of other various theories of learning................. 269 Figure 19.1 Kolb’s experiential learning model...................å°“................ 269 Figure 19.2 Creating the line of sight from course to strategy...................å°“.... 273 Figure 19.3 Retention rates based on delivery method and degree of participation.... 275 xvi List of Figures and Tables Figure 20.1 Hamblin’s training evaluation timeline...................å°“............ 287 Table 20.1 Important components of a learning objective...................å°“...... 289 Table 20.2 Suggested data collection methods for each of the five levels............ 290 Table 21.1 A brief summary of the tollgate process...................å°“............ 296 Table 21.2 Additional questions to be asked by the champion during tollgate reviews...................å°“..................å°“..................å°“.... 298 Figure 21.1 Example of project scoping using the cause-and-effect method— Y = f(X) format...................å°“..................å°“............... 301 Figure 21.2 Example of project scoping using the cause-and-effect method— process mapping decomposition format...................å°“........... 302 Figure 21.3 The project assignment process...................å°“..................å°“. 303 Figure 21.4 Ramu’s criteria for assigning Black Belts to projects..................... 303 Figure 22.1 Example of a career progression ladder for Lean Six Sigma belts......... 308 Figure 22.2 Team stages...................å°“..................å°“..................å°“ 311 Table 24.1 Data for Example 24.3...................å°“..................å°“......... 323 Table 24.2 Data for Example 24.4...................å°“..................å°“......... 326 Table 24.3 ANOVA table for Example 24.4...................å°“..................å°“. 326 Table 24.4 Attribute agreement analysis data for Example 24.5...................å°“. 331 Figure 24.1 Minitab session window for Example 24.5...................å°“.......... 332 Figure 24.2 Graphical results of the attribute agreement analysis for Example 24.5.... 334 Table 24.5 Attribute gage study data for Example 24.6...................å°“......... 334 Figure 24.3 Graphical results of the attribute gage analysis for Example 24.6......... 335 Figure 24.4 Accuracy versus precision...................å°“..................å°“..... 336 Figure 24.5 Blank GR&R data collection sheet...................å°“................. 339 Figure 24.6 GR&R data collection sheet with data entered and calculations completed...................å°“..................å°“..................å°“.. 340 Figure 24.7 Blank GR&R report...................å°“..................å°“........... 342 Figure 24.8 GR&R report with calculations completed...................å°“......... 343 Figure 24.9 Minitab session window: GR&R study—ANOVA method............... 345 Figure 24.10 Gage R&R study—ANOVA method: components of variation............ 346 Figure 24.11 Minitab session window: GR&R study—control chart method: source tables for Example 24.9...................å°“..................å°“......... 346 Figure 24.12 Graphical results of the GR&R study—control chart method: control charts by operators (appraisers) for Example 24.9...................å°“.... 347 Figure 24.13 Examples of a Weibull distribution for various values of the shape parameter...................å°“..................å°“..................å°“.. 349 Table 24.6 Temperature data for Example 24.10...................å°“............... 350 Figure 24.14 Normal probability plot of temperature data shown in Table 24.6........ 350 Figure 24.15 A graphical summary of the data shown in Table 24.6.................. 351 Figure 24.16 Nonnormal process capability analysis based on the Weibull distribution...................å°“..................å°“..................å°“ 351 Figure 24.17 Weibull probability plot with fitted parameters...................å°“..... 352 Table 25.1 Data for Example 25.1 with differences calculated based on a lag of 12.... 357  List of Figures and Tables xvii Figure 25.1 A trend analysis for the data in Table 25.1 to determine the extent of seasonality...................å°“..................å°“..................å°“. 358 Figure 25.2 A graph of the ACF for the data in Table 25.1........................... 358 Table 25.2 Minitab session window output for Example 25.1...................å°“... 359 Table 25.3 An example of how the central moving average is computed............ 359 Table 25.4 Data for Example 25.2...................å°“..................å°“......... 361 Figure 25.3 Trend analysis for Example 25.2 with a linear and additive trend model...................å°“..................å°“..................å°“..... 362 Figure 25.4 Trend analysis for Example 25.2 with a quadratic and additive trend model...................å°“..................å°“..................å°“..... 362 Figure 25.5 Decomposition analysis for Example 25.2. Trend analysis............... 363 Figure 25.6 Decomposition analysis for Example 25.2. Detrended data.............. 364 Figure 25.7 Decomposition analysis for Example 25.2. Decomposition of residuals.... 365 Figure 25.8 Decomposition analysis for Example 25.2. Adjusted data................ 366 Figure 25.9 Decomposition analysis for Example 25.2. Forecasts for residuals........ 367 Figure 25.10 Decomposition analysis for Example 25.2. Time series decomposition..... 367 Figure 25.11 Decomposition analysis for Example 25.2. Component analysis for residuals...................å°“..................å°“..................å°“... 368 Figure 25.12 Decomposition analysis for Example 25.2. Seasonal analysis for residuals...................å°“..................å°“..................å°“... 368 Figure 25.13 Decomposition analysis for Example 25.2. Residual plots................ 369 Figure 25.14 ACF of residuals for Example 25.3...................å°“................. 371 Figure 25.15 PACF of residuals for Example 25.3...................å°“................ 371 Figure 25.16 Minitab session window for Example 25.3 with forecasts................ 372 Figure 25.17 Times-series plot for Example 25.3 with forecasts...................å°“... 373 Figure 25.18 Residual plots for Example 25.3...................å°“..................å°“. 373 Table 25.5 Data for Example 25.4...................å°“..................å°“......... 378 Table 25.6 Data for Example 25.4...................å°“..................å°“......... 378 Table 25.7 Data for Examples 25.5 and 25.6..................å°“..................å°“. 380 Figure 25.19 Minitab session window for Example 25.5...................å°“.......... 381 Figure 25.20 Normal probability plot for Example 25.5...................å°“.......... 382 Figure 25.21 Histogram plot of standardized residuals for Example 25.5.............. 382 Figure 25.22 Plot of standardized residuals versus fits for Example 25.5.............. 383 Figure 25.23 Minitab session window for best subsets for Example 25.6............... 383 Table 25.8 Data for Example 25.7...................å°“..................å°“.......... 386 Figure 25.24 Minitab session window for Example 25.7...................å°“.......... 387 Figure 25.25 Delta chi-square versus probability plot for Example 25.7................ 388 Figure 25.26 Delta chi-square versus leverage plot for Example 25.7.................. 388 Table 25.9 Data for Example 25.8...................å°“..................å°“......... 389 Figure 25.27 Minitab session window for Example 25.8...................å°“.......... 390 Table 25.10 Data for Example 25.9...................å°“..................å°“.......... 392 Figure 25.28 Minitab session window for Example 25.9...................å°“.......... 393 xviii List of Figures and Tables Table 25.11 Differences between linear and nonlinear regression...................å°“ 395 Table 25.12 Data for Example 25.10...................å°“..................å°“......... 396 Figure 25.29 Minitab session window for Example 25.10...................å°“......... 397 Figure 25.30 Nonlinear fitted line plot for Example 25.10...................å°“........ 398 Figure 25.31 Residual plots for Example 25.10...................å°“..................å°“ 398 Table 25.13 A comparison of various statistical techniques to the GLM.............. 400 Table 25.14 Data for Example 25.11...................å°“..................å°“......... 402 Figure 25.32 Minitab session window for Example 25.11...................å°“......... 403 Figure 25.33 Minitab residual plots for light output for Example 25.11................ 404 Figure 25.34 Minitab plot of residuals versus variable temperature for Example 25.11.. 404 Figure 25.35 Minitab plot of residuals versus variable glass type for Example 25.11.... 405 Table 25.15 Data for Example 25.12...................å°“..................å°“......... 406 Figure 25.36 Minitab session window for Example 25.12...................å°“......... 406 Figure 25.37 Minitab residual plots for NMosquito for Example 25.12................ 408 Figure 25.38 Example of a nested hierarchy...................å°“..................å°“.. 409 Table 25.16 The relationship between parent and child at each level of the nested hierarchy...................å°“..................å°“..................å°“.. 409 Table 25.17 Data for Example 25.13...................å°“..................å°“......... 411 Figure 25.39 Components of variation equations for Example 25.13.................. 411 Table 25.18 Excel computation table for Example 25.13...................å°“.......... 412 Figure 25.40 Graphical comparison of components of variation for Example 25.13...... 414 Figure 25.41 The general form of a linear programming model...................å°“... 418 Figure 25.42 The general form of the simplex tableau...................å°“............ 418 Figure 25.43 The simplex algorithm flowchart...................å°“..................å°“ 419 Figure 25.44 The simplex tableaux for Example 25.14...................å°“............ 422 Figure 25.45 Common reliability system configurations...................å°“......... 425 Table 25.19 A comparison of the Duane and AMSAA growth models............... 428 Figure 26.1 A basic factor relationship diagram (tree diagram)...................å°“.. 432 Figure 26.2 A factor relationship diagram—fully randomized design............... 433 Figure 26.3 A factor relationship diagram—fully randomized design with two replicates...................å°“..................å°“..................å°“.. 433 Figure 26.4 A factor relationship diagram—fully randomized design with repeats...................å°“..................å°“..................å°“.... 434 Figure 26.5 Randomized complete block design...................å°“............... 436 Figure 26.6 Balanced incomplete block design...................å°“................. 436 Figure 26.7 Latin square design...................å°“..................å°“........... 437 Figure 26.8 Greco-Latin square design...................å°“..................å°“..... 438 Figure 26.9 Example of a response surface...................å°“..................å°“.. 439 Figure 26.10 Example of a contour plot...................å°“..................å°“...... 440 Figure 26.11 Shifting to a higher-order fitted response surface model near the region of the optimum...................å°“..................å°“......... 440 Table 26.1 Formulas for RSM first- and second-order models...................å°“... 441  List of Figures and Tables xix Figure 26.12 First-order fitted response surface model moving along the path of steepest ascent...................å°“..................å°“................ 441 Figure 26.13 Comparison of the first-order and second-order fitted response surface models...................å°“..................å°“............... 442 Table 26.2 Example of using the signal-to-noise ratio...................å°“.......... 444 Table 26.3 Example of Taguchi’s inner and outer arrays...................å°“........ 445 Figure 26.14 Example of the inference space for a three-component model............ 447 Figure 26.15 Example of a three-component model with lower bounds............... 447 Figure 26.16 Split-plot design for Example 26.2...................å°“................. 450  Preface I am pleased to present the first edition of The Certified Six Sigma Master Black Belt Handbook. It has been created to reflect the most current thinking among key Six Sigma leaders regarding what should be contained in the ASQ Master Black Belt Body of Knowledge that was first released in 2010. As with all ASQ certification–based handbooks, the primary audience for this work is the individual who plans to prepare to sit for the Six Sigma Master Black Belt certification examination. Therefore, this book assumes the individual has the necessary educational background and experience in quality and Lean Six Sigma. Concepts are dealt with briefly, but supplemented with practical examples. I have intentionally avoided theoretical discussion unless such a discussion was necessary to communicate a concept. As always, readers are encouraged to use additional sources when seeking much deeper levels of discussion. The citations provided in the references will be helpful in this regard. Undoubtedly, practicing Master Black Belts will find much of this material new, particularly in Part IV Advanced Measurement Methods and Tools. Some of the tools discussed in this part are simply not part of most Master Black Belt curriculums. Therefore, many of you will discover the Body of Knowledge to be challenging. However, it will provide the opportunity to expand your learning horizons and hopefully grow as Master Black Belts. A secondary audience for the handbook is the quality and Six Sigma pro- fessional who would like a relevant Lean Six Sigma reference book. With this audience in mind, some material has been expanded beyond what the Body of Knowledge requires. I am confident that readers will find these additions useful. As you might expect, chapter and section numbering follows the same method used in the ASQ Six Sigma Master Black Belt Body of Knowledge. This has made for some awkward placement of discussions (for example, project selection, priori- tization, and alignment, and various project management concepts), and in some cases, redundancy of discussion still exists. Whenever possible, though, I have tried to reference the main content in the handbook and refer the reader there for the primary discussion. I thought the ease of access for readers, who might be struggling with some particular point in the BOK, would more than offset these disadvantages. Further, to minimize redundancy, I have designed this handbook to serve as a companion volume to The Certified Six Sigma Black Belt Handbook. Consequently, I have assumed the reader is familiar with that book and refer to it many times throughout this book. However, I have also duplicated many of the appendices xx  Preface xxi from The Certified Six Sigma Black Belt Handbook in this book to reinforce its useful- ness as a stand-alone reference. As you read this book, you may wonder why I have chosen to use “Lean Six Sigma” in place of “Six Sigma” in most instances. The answer is simple! The Black Belt and Master Black Belt bodies of knowledge discuss Lean, and the real- ity is that a practitioner must be competent in both. Further, the terminology also reflects the integrated nature of these tools and techniques. Readers have often sent me e-mails questioning why I use only Minitab for my examples. It’s because the preponderance of users use Minitab. For those who do not, data have been provided for every example, thus allowing users to parallel examples using their software of choice. As you can imagine, much of the material dealing with soft skills and related topics can be quite voluminous. Consequently, it was important that I considered either the most commonly used or most well known tools, techniques, or theories. In some cases, the material was so diverse that I found I needed to summarize key thoughts or characteristics. Therefore, you may not find your favorite tool, tech- nique, or theory. However, if a significant omission exists, please feel free to con- tact me at [email protected]. Please note that in some cases, your answer where a numerical solution is required may not completely agree with those given in the examples. In many instances, I found that discrepancies could be attributed to the following: use of computers with different bits, the number of significant digits accounted for by the software used, the sequence in which the arithmetic was performed, and the propagation of errors due to rounding or truncation. Therefore, I urge the reader to carefully consider the above points as the examples are worked. However, I do recognize that errors occasionally occur and thus have established a  LinkedIn page that will permit readers to recommend suggestions, additions, corrections, or deletions, as well as to seek out any corrections that may have been found and published. The LinkedIn address is http://www.linkedin.com/groups/ Certified-Six-Sigma-Master-Black-4320830. On occasion, I have received complaints from readers regarding relevance of the examination questions. Usually, these are from those who have not passed the examination. I believe it is critically important to note that I do not have an awareness of the examination questions. This is by design and is intended to maintain the integrity of the ASQ certification process. Those who have a role in developing the examination questions are barred from writing ASQ handbooks for two years. This is part of the arms-length process. Furthermore, questions are added to the examination database at prescribed intervals by new question devel- opers. Additionally, the question set varies from examination to examination. The questions I provide are those that I see as reasonably potential questions based on the subject matter provided in this handbook. Finally, the following is a short description of the supplementary material included on a CD with the print book and at the end of the e-book versions: A practice problem set covering each part of the book. I suggest the reader study a particular part and then do the supplementary  problems for that part. xxii Preface A simulated examination that has problems distributed among parts according to the scheme published in the Body of Knowledge. After attaining success with all parts, the reader may complete the  simulated examination to confirm mastery of the ASQ Six Sigma Master Black Belt Body of Knowledge. Good luck! —T. M. Kubiak  Acknowledgments T his was a difficult project, and I could not have completed it successfully without much-needed support. First and foremost, there is my wife, Darlene. Darlene served as my proofreader for the entire project. I am deeply appreciative of her patience and of her keen eyes. She could find an extra space or missing period at fifty paces. Of course, there was always a smile on her face as she eagerly pointed out my mis- takes, in red ink no less. Special thanks go to Jim Bossert, Joe Basala, and Greg Watson for their sup- port in interpreting the body of knowledge. Their input brought clarity to me. I, in turn, hope that I have successfully captured that clarity and transferred it to the book you are now holding. Also, I would like to thank Jim, in particular, for his ongoing show of support and encouragement. Many thanks go to Bruce Sheridan for materials he provided regarding the use of hoshin kanri. Bruce is an expert in hoshin kanri and the author of the  Quality Press book, Policy Deployment: The TQM Approach to Long-Range Planning. I would like to express my deepest appreciation to Minitab Inc. for providing me with the use of Minitab 16 and Quality Companion 3 software, and for per- mission to use several examples and graphics from these software programs. This software was instrumental in creating and verifying examples used throughout the book. Also, I would like to thank Wolfram Research for their support in providing Mathematica, software that has unbelievable computing capability. Finally, I would like to thank the Quality Press management staff for their outstanding support and exceptional patience while I completed this project. —T. M. Kubiak xxiii  Part I Enterprise-Wide Planning Part I and Deployment Chapter 1 Strategic Plan Deployment Chapter 2 Strategic Plan Alignment Chapter 3 Deployment of Six Sigma Systems Chapter 4 Six Sigma Methodologies Chapter 5 Opportunities for Improvement Chapter 6 Risk Analysis of Projects and the Pipeline Chapter 7 Organizational Design Chapter 8 Organizational Commitment Chapter 9 Organizational Finance and Business Performance Metrics 1  Chapter 1 Strategic Plan Deployment Part I.A Describe strategic planning tools and methods (hoshin kanri, SWOT, PEST, etc.) and their utilization in developing enterprise planning. (Apply) Body of Knowledge I.A W estcott (2006) defines strategic planning as the process by which an organi- zation establishes long-term goals and objectives and the actions neces- sary to achieve them. Strategic planning is fundamental to the success of any organization. It provides direction and unifies the organization and its work- force with a common focus. Without it, organizations often wander about aimlessly expending significant human and capital resources before eventually failing. There are various methods and processes used to accomplish enterprise-wide strategic planning. Some of these are effective; some are not. This chapter will dis- cuss several key tools used as input to the strategic planning process. These tools, including the SWOT and PEST analyses, are used to force an organization to look deeply within itself and to understand the external factors that influence its abil- ity to be successful. In addition, several strategic planning methodologies will be presented. These methodologies include hoshin kanri and the traditional approach used by most organizations. No one approach is the best. Organizations must determine which is best suited for both their environment and culture. SWOT A SWOT analysis is an effective strategic planning tool applicable to an organiza- tion or project objective. SWOT stands for: strengths, weaknesses, opportunities, and threats. It is attributed to Albert Humphrey from Stanford University during the 1950s and 1960s. Strengths and weaknesses are identified with respect to the internal capa- bilities of an organization. They provide an introspective view. Strengths and weaknesses should not be considered opposites. This will become apparent in the example below. 2  Chapter 1: Strategic Plan Deployment 3 Strengths address what the organization does well. This might be: research and development, production, marketing, acquisitions, partnering, and so on. Strengths need to be assessed fairly and objectively to bring credibility to the SWOT analysis. Part I.A Weaknesses address the organization in terms of skills, capabilities, and com- petencies. For example, an organization continually fails to deliver its products to Example 1.1 A private higher-education institution has experienced declining enrollment for four consecutive years, particularly from the two major cities in the state where it is located. This declining enrollment has impacted profitability. The president is feeling pressure from the board of directors, which wants answers as to why the enrollment levels are declining. The industrial engineering department has proposed a Lean Six Sigma proj- ect aimed at improving the enrollment rate for students from these two cities. As the department prepares to make probability estimates for its risk analysis, it first produces the SWOT analysis shown in Table 1.1. Analysis of the SWOT matrix provides insight for the president and board of directors that was not previously known. Viewed collec- tively in the SWOT format, it serves as valuable input to the institution’s upcoming stra- tegic planning process. Table 1.1â … SWOT analysis matrix for Example 1.1. Strengths Weaknesses High academic entrance requirements Print communications for prospective students are bland and generic Strong general education program Recruitment staff is too passive in Internal High percentage of full-time faculty contacting prospective students Fundraising goals are being met each Uneven implementation of assessment year and program review methods Well-designed internship and study Student-centered customer focus is not abroad opportunities recognized throughout the institution Opportunities Threats Metropolitan area location has population The number of traditional-age prospective advantages students is expected to decline Area corporations offer tuition With the cost of education escalating, External reimbursements community colleges have recently become viable competitors Reputable business program with a global studies focus is not marketed as well as it Public universities have undertaken could be significant marketing efforts to position themselves as comparable in experience to private colleges  4 Part I: Enterprise-Wide Planning and Deployment its customers on time. This might be due to a lack of skill, incapable processes, or poor training of employees. Note: A weakness should never be improved at the expense of a strength! On the other hand, opportunities and threats provide the organization with Part I.A an extrospective view. Quite simply, we are trying to identify opportunities for Example 1.2 Connie is the owner of the two stores that comprise the Brides on a Budget Boutique. She met with her two store managers to commence their first strategic planning pro- cess. After an intense three-hour meeting, the SWOT analysis depicted in Table 1.2 was developed. Table 1.2â … SWOT analysis matrix for Example 1.2. Strengths Weaknesses We are trend leaders in both cities in Connie is the only person who which the stores are located understands the billing system Both locations are ideal for their market Because of taking advantage of a niche (high traffic, multi-store malls) manufacturers’ “closeout,” the business Internal currently shows a negative cash flow Customer retention indicates extreme loyalty and a high referral rate Inventory obsolescence tends to be higher than others in the industry Customer surveys and media coverage acknowledge the superb personalized customer service provided by personnel of both stores Opportunities Threats Assess the products carried to determine Malls have both been bought from original which products are most profitable and owners, and a rent increase is rumored which should be dropped Refurbishing of downtown areas is Examine the potential of new approaches attracting customers away from the malls External to marketing Malls are becoming hangouts for unruly Explore alliance opportunities with other teenagers and could be a distraction for mall-store owners brides-to-be Consider presenting a “fashion show” An increasing number of crimes committed in the malls is affecting the Consider opening an outlet store for attraction of potential buyers “previously owned” bridal wear Adapted from the Certified Manager of Quality/Organizational Excellence: Module 2, Exhibit 2-5, ASQ’s  Foundations in Quality Learning Series. 2005. Milwaukee: ASQ.  Chapter 1: Strategic Plan Deployment 5 the organization to grow to new levels, and threats to the organization that will impede its progress. Threats are often barriers to an organization’s growth and can represent a competitive disadvantage. When analyzing a SWOT, the question to ask is, “How can the organization Part I.A leverage its strengths and improve its weaknesses to take advantage of the oppor- tunities while mitigating or eliminating the threats?” PEST An analysis similar to SWOT is the PEST analysis, which brings together four envi- ronmental scanning perspectives that serve as useful input into an organization’s strategic planning process: Political. This perspective looks at political stability, threats of wars, regulatory issues, tax considerations, labor problems, laws, and so forth. For example, as this book is being written, we have: – Political stability. Mid-term congressional elections have shifted the dominating party from Democratic to Republican in the U.S. House of Representatives. – Threat of wars. The war in Afghanistan continues; arguably, the war in Iraq is over; an unstable ruler of North Korea recently died and leadership was assumed by his hardliner son; Iran is clamoring for its own nuclear weapons and attempting to threaten the world’s oil supply; and terrorist bombings are rampant. – Regulatory issues. The recent financial meltdown has resulted in strengthening the power and authority of regulatory agencies. – Tax considerations. In an attempt to stimulate the economy, the federal  government has proposed special depreciation considerations designed to motivate organizations to purchase capital equipment. – Labor problems. Eight and a half percent unemployment continues to strain our government welfare systems, and public pension legacy issues continue to mount. – Laws. Broad-sweeping healthcare and financial reform laws were passed that will have significant impact to both organizations and individuals. Economic. This perspective looks at currency exchange rates,  market conditions, unemployment rates, inflation factors, interest rates, and so forth. Current examples include: the U.S. dollar against other major international currencies, rates of unemployment in the United States and in other major countries of the world, almost zero percent inflation, low GDP growth rates in the developed world, outsourcing to low-cost nations such as India, China, and those of Southeast Asia, and, in some cases, negative interest rates on bonds.  6 Part I: Enterprise-Wide Planning and Deployment Social. This perspective looks at education considerations,  demographics, health factors, cultural implications, and so forth. Current examples include: the widening educational gap between the United States and other first-world countries, and shifting demographics such that “baby Part I.A boomers” are now the largest group, and consequently place the biggest strain on the U.S. healthcare system. Technological. This perspective looks at new technology developments, rate of technological change, cost impact of technology, and so forth. Example 1.3 A nonprofit organization seeks to improve quality of life for citizens in a neighborhood by upgrading storm sewers. Its PEST analysis would look similar to Table 1.3. Once these perspectives have been identified and conveniently summarized in the PEST matrix, they can be systematically addressed. Table 1.3â … PEST analysis matrix for Example 1.3. Political Economic The proposal will be competing with An increase in real estate taxes for two other projects for public money years will be necessary to cover the costs of the upgrade The neighborhood must have adequate representation on the governing bodies Environmental costs will be associated with increased stream and river pollution Other neighborhoods will be improved that occurs from the ponded storm water as a result of the proposal, so they should support it The current situation allows storm water to infiltrate the sanitary sewer system, which impacts all users Social Technological People in the affected neighborhood tend Several studies have been commissioned to feel disenfranchised and mistreated by by the various stakeholders and have the government decision makers, which yielded conflicting results may impact attitudes toward others New pipe-TV techniques are now Lack of an adequate storm sewer available system has led to an increasing trend of gastrointestinal illnesses as the population increases and more demand is placed on the existing sewer system  Chapter 1: Strategic Plan Deployment 7 Current examples include stem cell research; animal cloning; genetic manipulation of corn, beets, soybeans, and so on; and the introduction of 3D television with a steeper price reduction curve than previously seen for plasma and LCD television sets. Part I.A Hoshin Kanri Hoshin kanri, a Japanese term, is a top-down, bottom-up, systematic and structured strategic planning process that engages all levels of the organization while creat- ing measurable and aligned goals that imbue the concept of continuous improve- ment through use of the plan–do–check–act cycle. (Note: Some sources will cite the plan–do–study–act [PDSA] cycle.) The term hoshin kanri has been translated many different ways. For exam- ple, Akao (2004) decomposes “hoshin kanri” into its four basic syllables to help explain its meeting: Ho—direction Shin—focus Kan—alignment Ri—reason He further indicates that “ho + shin” translates to “shining metal,” “compass,” or “point the direction.” Similarly, “kan + ri” means “management” or “control.” Perhaps the loose translation is that it aligns an organization toward achieving a common goal. Although King (1989) agrees that “hoshin” means “shining metal” and “pointing the direction,” he does not mention, “compass.” However, he states that “hoshin” is translated as “policy” or “target and means.” Likewise, he agrees that “kanri” means “management” or “control” and translates it as “planning.” King suggests another literal translation for “hoshin kanri” as “target and means man- agement.” He further notes that “hoshin kanri” is sometimes referred to as “policy management,” “policy control,” or “management by policy.” As is evident from the above, “hoshin kanri” is known by many different names: Hoshin planning Policy deployment Policy management Policy control Management by policy And perhaps a few others we have yet to uncover. The fundamental processes, principles, and concepts of hoshin kanri differ among authors such that it became necessary to synthesize these into the elements of a common process and to extract the basic principles and concepts that most authors agree on.  8 Part I: Enterprise-Wide Planning and Deployment Figure 1.1 represents the underlying principles and concepts upon which hoshin kanri is built. Most authors agree that the process focuses on the  development of both long-term and mid-term plans, while some authors suggest a focus on short-term plans as well. Long-term plans are usually 2–5 years; mid- Part I.A term plans are from 1–2 or 3 years; and short-term plans are generally 1 year long and are commonly called the annual or operational plan. Another key aspect of Figure 1.1 worth highlighting is the idea of “alignment/ focus.” Hoshin kanri is, essentially, all about organizational alignment. It creates both vertical and horizontal alignment, thus establishing focus throughout the entire organization. Figure 1.2 depicts an example of the hierarchy of plan deployment in an organi zation. Notice that plans may be deployed either through individuals or organiza- tional structures. In fact, plans may be deployed to cross-functional teams as well, thus creating horizontal alignment. Figure 1.3 illustrates a generalized hoshin kanri process flow. Key inputs to the planning process are the SWOT and PEST analyses discussed earlier in this  chapter. These analyses help provide both internal and external perspectives. Also, customer, employee, and shareholder input is specifically sought. The weight of these inputs can carry significant influence on the planning process. Additional stakeholder (for example, community, suppliers, partners) input may be added, as the organization deems appropriate. Alignment/ focus Accountability, Reviews/ ownership, and organizational empowerment learning Long-term Metrics/ over targets/ short-term dashboards Hoshin