Role for Design of Experiments in Financial Operations Page 1 of 3 Role for Design of Experiments in Financial Operations 9/24/2

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B y Kimberly Watson-Hemphill and Bill Kastle Bookmark This Page New from iSixSigma Email This Page Most Master Black Belts would probably cite design of Black Belt Return on experiments (DOE) as the most underused statistical tool Investment Research Format for Printing Free Newsletters! in financial services. Yet, designed experiments are a Report Cite This Article Sign Up Now! favorite tool of statisticians and Six Sigma practitioners Website Response Time Manage Subscriptions working in general business environments because they Project Example Submit an Article

are an extremely efficient way of identifying what matters Using Design for Six New To Six Sigma? Read More Articles in a process and what does not. That means businesses Sigma Research Report Six Sigma Q&A can focus their energies on the factors that really make a Cert. Practice Test difference in effectiveness (quality, cost, customer satisfaction) and efficiency Related Tools & Problem Solving Wizard (speed). Articles

ISSSP Info z Three Romeos and a Ldrshp. Conf. Arizona What distinguishes design of experiments is that: Juliet - An early Brush Ldrshp. Conf. Mexico with DOE

z Multiple factors are tested simultaneously for greatest efficiency. (Compare z DOE: The ‘Power Tool’ that to the traditional change-only-one-thing-at-a-time approach taught in Six Sigma IQ Home of the Analyze and most grade schools.) Improve Phases 6σ Conferences z The results can pick up interactions between factors (how one factor influences another), something that is difficult to detect by other means. z Most Practical DOE Explained (with a Channels z The experiment can provide a model of the process which can be used to Template) conduct trade-off studies and reach an optimum solution. iSixSigma Main Europe Discussion Forum The reason grade school science experiments were limited to only one variable at a Healthcare time is because in those experiments there is no way to isolate the effects of one "Six Sigma was a perfect fit for manufacuturing, an Software / IT factor from those of another. DOE resolves that issue by using a particular kind of environment with a large statistical analysis that allows differentiation among changes caused by different volume of process data. Innovation factors – even when all the factors are changed at the same time. When it comes to applying Outsourcing/Offshoring that same methodology to the commercial side the fit is Business Process Mgt A typical designed experiment will involve anywhere from three to eight factors, less than perfect...how each of which are tested in a specific combination at two setting, or "levels." (Some would you even apply DOE?" Quality Directory designs allow more factors and more levels, but these are used less frequently.) Contribute to this Discussion Recent Articles Ads by Google Certifications/Awards Setting Up the Experiment Consultants As an example of DOE in use, here is how a designed experiment helped a financial services company improve Culture Evolution its application process. The bank was experiencing a 60 percent reprocessing (rework) rate on applications due to incomplete information provided by the customer. The project team trying to solve this processing problem Methodologies suspected that three factors might affect whether an application was complete: News & Events

Organizations z The type of application Statistics & Analysis z How much detail was provided in the instructions z Whether additional examples were provided Tools & Templates Affinity Diagram The team decided to study the application process in two locations, so in all there were five factors included in the Brainstorming experiment, each of which had two levels: Six Sigma Calculators Cause & Effect A = Application Type: Loan versus Lease Online DOE B = Region: Midwest versus Northeast

FMEA C = Description: Current versus Enhanced (additional explanation provided) Glossary D = Example: Current versus Enhanced (additional examples added) Black Belt Histogram E = Neg. Example: None versus Yes (example added of what not to put in the blanks) Certification $995 Kano Analysis Organizing Data The experiment involved 16 trials, or runs, each with a different combination of factor settings. As shown in the Green Belts $395 - table below, for example, the first run tested Loan applications in the Midwest, with the current level of description Out Of The Box and a negative example provided. The 12th run looked at Lease applications in the Northeast with the current Payment Plans! Pareto level of description, additional examples, but not negative examples. The response (y) measured by the team was Poka Yoke the percent complete of each application. The table shows both the experiment design and the results (the "Avg. Process Mapping % Complete" column). www.sixsigmaonline.org Project Charter QFD/House of Quality Run App. Neg. Avg. % Std. Scatter Diagram Order Type Region Description Example Example Complete Dev. SIPOC Software 1 Loan Midwest Current Current Yes 46.5 8.4 Support & Restraint 2 Lease Midwest Current Current None 47.2 9.2 Voice of the Customer 3 Loan Northeast Current Current None 40.5 5.9 Free Whitepapers 4 Lease Northeast Current Current Yes 49.8 6.2 Quick Access 5 Loan Midwest Enhanced Current None 60.2 8.6 Advertise on this site Help 6 Lease Midwest Enhanced Current Yes 65.8 8.9 Search

http://finance.isixsigma.com/library/content/c050223a.asp 9/24/2007 Role for Design of Experiments in Financial Operations Page 2 of 3

Advertise Here 7 Loan Northeast Enhanced Current Yes 58.5 5.8 Article Archives 8 Lease Northeast Enhanced Current None 57.2 6.1 Newsletter Archives Black Belt 9 Loan Midwest Current Enhanced None 88.7 8.7 Training User Feedback 10 Lease Midwest Current Enhanced Yes 81.4 8.5 Get a raise. Black Please suggest site Belt candidates improvements. 11 Loan Northeast Current Enhanced Yes 83.9 6.3 now bring home 12 Lease Northeast Current Enhanced None 79.3 5.7 $123,880 annually. www.trainingforQuality.com 13 Loan Midwest Enhanced Enhanced Yes 91.6 8.4

Send [ larger form ] 14 Lease Midwest Enhanced Enhanced None 99.3 8.6 15 Loan Northeast Enhanced Enhanced None 96.3 5.8 Lean six sigma 16 Lease Northeast Enhanced Enhanced Yes 94.2 5.9 Improve Business Performance Reduce Costs and Results of the Experiment Eliminate Waste Of the five factors originally studied, only two of them proved to influence the percent complete: www.bmgi.com

z Whether an example was provided (Factor D) z How much description was provided (Factor C) Six Sigma Certification What did not matter was Region (the completion rate was the same in both the Northeast and Midwest); Novice to black belt Application Type (the completion rate was the same for both loans and leases); and Neg. Example (showing people what not to do did not affect completion rate). in 8 weeks, 100% online. Request free info. These results are captured in Figure 1, where the steepness of the lines indicates the strength of the relationship. www.professional-certifica The lines for Description and Example change a lot, while the lines for the other three factors are nearly flat.

Figure 1 Six Sigma Programs Lean Six Sigma Certification Online, Onsite and Open Enrollment www.6sigma.us

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Ads by Google As noted above, the DOE also reveals interactions between factors – that is, whether one factor affects another. Six Sigma Look at Figure 2, for example. What it shows is that having a negative example made things worse in the Midwest but improved rates in the Northeast. (In statistical terms, this means there is an interaction between Neg. Example Doe and Region.) Lean MFG Lean Thinking Figure 2

From these results, the team concluded that for both types of applications:

z The same forms and process would be used in both regions, since the results were the same. z It would help to provide enhanced descriptions and examples for certain fields.

By studying the results of the interactions closely, the team determined that negative examples did not help significantly when there were positive examples. And since the team had decided to use the positive examples, it would not pay to also develop negative examples.

The new forms increased the application completeness from 60 percent to more than 95 percent, virtually eliminating reprocessing and significantly reducing the cycle time for the loan and lease application process. The additional capacity that was made available as a result of the improved process allowed the business to generate additional revenue without increasing headcount.

Conclusion: Give DOE a Try Many companies avoid using design of experiments in part because it sounds complicated. Actually, the example shows that the basic setup is straightforward. All that is needed is to select the factors to test and identify different levels for those factors. It is advisable to work with a Black Belt or Master Black Belt trained in DOE to help pick out the factors and levels. That expertise will make sure the company gets the most from its investment of time and effort. A Black Belt also can help analyze and interpret the results – a process which can go quickly with statistical analysis software that is readily available.

Most people who use DOE once become instant converts because the results usually have immediate practical

http://finance.isixsigma.com/library/content/c050223a.asp 9/24/2007 Role for Design of Experiments in Financial Operations Page 3 of 3

application. It shows which process or design factors have the biggest impact on quality, speed, performance or delivery. That translates into better decisions.

About the Authors: Kimberly Watson-Hemphill is a Master Black Belt with George Group and lead author of their Design for Lean Six Sigma curriculum. She has trained and coached hundreds of Black Belts and Master Black Belts throughout North America and Europe. She has a background in all areas of Lean Six Sigma, new product development and project management, and has worked with Fortune 500 companies in both service and manufacturing industries. She can be reached at [email protected]. Bill Kastle is a vice president at George Group and has helped guide Lean Six Sigma initiatives at major corporations. He is co-author of the book What Is Lean Six Sigma? He has conducted executive training at Fortune 500 companies such as Alcan, Geico, Xerox, ITT Industries and DuPont-Merck. For more than 15 years, he has helped teams at all levels apply Lean and Six Sigma tools to respond to their customer needs. Mr. Kastle can be reached at [email protected].

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