Hypothesis testing Archives - 6sigma https://6sigma.com/tag/hypothesis-testing/ Six Sigma Certification and Training Wed, 23 Aug 2017 23:00:06 +0000 en-US hourly 1 https://6sigma.com/wp-content/uploads/2021/03/cropped-favicon-blue-68x68.png Hypothesis testing Archives - 6sigma https://6sigma.com/tag/hypothesis-testing/ 32 32 Six Sigma and KPIs: Customer Profitability Score https://6sigma.com/21564-2/ https://6sigma.com/21564-2/#respond Wed, 23 Aug 2017 23:00:06 +0000 https://6sigma.com/?p=21564 While it’s important to attract new customers, it’s equally important to see if they generate profit. Today, we look at customer profitability score and how it can help your business get ahead. Customers contribute differing amounts and value throughout your purchasing cycle. Customers who make positive contributions to your company’s profit have a high CPS. […]

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While it’s important to attract new customers, it’s equally important to see if they generate profit. Today, we look at customer profitability score and how it can help your business get ahead. Customers contribute differing amounts and value throughout your purchasing cycle. Customers who make positive contributions to your company’s profit have a high CPS. These are the customers you rely on, and it’s important to differentiate them from your none-value-adding customers. Failing to do so can lead to overspending and poor decision-making, as you will continue to target customers who simply aren’t interested. By identifying and retaining the right customers, you can increase profit. Read on and learn you can use this essential KPI with Six Sigma!

 

Calculate Your Customer Profitability Score

To calculate your customer profitability score, simply subtract the cost of supporting a customer from the revenues they generate for you. CPS is a highly useful decision-making tool, one that is pivotal when customer-company value exchanges are in flux. The company-customer relationship is often volatile, fluctuating in response to new information. Customers don’t always value the same things, with changing needs affecting profitability. Monitoring your value stream with Six Sigma provides insight into how you can manage changes to CPS. Moreover, it can also shed light on the value of new business versus the cost of lost business. Using Six Sigma techniques like root cause analysis, affinity diagrams, DMAIC, and hypothesis testing, you can do the following:

 

  • Select customers to target that would benefit the company.
  • Separate customers to retain from customers to drop.
  • Decide which customers to cross-sell, plus what products to sell to them.
  • Set prices for products and services.
  • Set sales compensation rates and reward program entitlements.
  • Recognize customer behaviors that generate or destroy value.

 

Multiple types of value determine customer profitability. If you are to make the most of CPS, we recommend getting to know each one.

 

Historical Value

Historical value derives from long-term company-customer relationships. It is most useful when ranking your customers regarding value, plus when selecting targeted marketing groups. Similarly, historical value also impacts on your assessment of pricing and budgeting.

 

Current Value

Current value comes from short periods of time, usually the current or previous month, as this coincides with reporting cycles. It tends to be highly volatile, as cyclical relationship factors don’t always register within such specific time frames. The benefit of current value is that it underscores the effects of changes in the customer relationship compared to previous values.

 

Present Value

Present value looks to the future, specifically at revenue and cost streams of current customer business. It projects future revenues and costs, helping to model the impact of price and service decisions before you implement them. Using it effectively requires patience, but the payoff is worth the effort.

 

Lifetime Value

Lifetime value also focuses on the future, while acknowledging projected revenue and cost streams from existing business and prospective customers. Implementing lifetime value requires insight into your customers’ repurchase behavior. Similarly, it also entails the likelihood of the customer increasing or reducing their future business with you. Lifetime value is the optimal customer value measurement and is appropriate for just about any decision-making situation. If you can use it effectively, you can maximize profit and increase customer exposure.

 

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Handling Difficult Six Sigma Projects like a Professional https://6sigma.com/handling-difficult-six-sigma-projects-like-professional/ https://6sigma.com/handling-difficult-six-sigma-projects-like-professional/#respond Wed, 23 Aug 2017 19:37:17 +0000 https://6sigma.com/?p=21560 When projects don’t go as planned, your frustration can lead to you being overwhelmed.  Suddenly finding yourself knee-deep in implementation problems and process issues can shake your confidence. But when the going get’s tough, stand your ground, and stay level-headed. Remember, you’re a Six Sigma professional, so use what you know to overcome problems. The […]

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When projects don’t go as planned, your frustration can lead to you being overwhelmed.  Suddenly finding yourself knee-deep in implementation problems and process issues can shake your confidence. But when the going get’s tough, stand your ground, and stay level-headed. Remember, you’re a Six Sigma professional, so use what you know to overcome problems. The key to handling difficult projects like a professional is simple. Act methodically and efficiently, and don’t be afraid to listen to others’ advice (including ours). Here’s how you can work through difficult Six Sigma projects and turn them into a resounding success!

 

Before You Begin

Planning is integral to Six Sigma project work. Remember, if you fail to prepare, prepare to fail. Before you commence any project work, ensure you have a sufficient plan to guide you through it. This should include your itinerary, as well as the strategies, techniques, and solutions you intend to employ. When working within a short time frame (weeks or months), it’s important you push yourself to create an effective plan.

Shorter time frames may seem like the easier option, but a lot can go wrong in a short time. Whereas, long-term Six Sigma projects allow you more time to course-correct if something goes wrong. With short-term projects, it’s imperative you take a disciplined and thorough approach to planning will ensure you don’t go off track.

Planning your project properly is beneficial for numerous reasons. Namely, it enables you to determine scope and outcomes. It also allows you to predict any would-be road bumps, and to measure, test, and correct visible problems before you begin. We’ve seen highly promising projects fail due to minor oversights snowballing into massive problems without project leaders realizing. When it comes to Six Sigma project work, you can’t afford to wing it.

 

In the Thick of It

Learning to leverage your Six Sigma tools effectively hones your creativity, allowing you to develop innovative solutions to problems you encounter. As a Six Sigma professional, you should know how to use your selection and decision-making tools to identify viable solutions. Don’t let yourself fall prey to intellectual snobbery. The answer isn’t always obvious. In fact, it’s sometimes a case of the more creative your solutions, the better. But, on the other hand, complex solutions aren’t always appropriate. Don’t forget about Occam’s Razor, i.e., the simplest answer is most often the right one. Don’t jump on your first idea, as it’s not always the most optimal solution. You should always approach problems from multiple angles to determine how to proceed. Once you understand the problem, you have the best chance of finding the right solution. The most common mistakes made in this area are.

 

Helpful Tools

We recommend applying hypothesis testing beforehand, to decide how to proceed, and DMAIC once the project has commenced. Hypothesis testing, while relying on data to first suggest a hypothesis, is primarily speculation. It helps to give ideas a test-run first, as doing so draws attention to problems that may crop up later. DMAIC, on the other hand, produces a data-centric understanding of problems you discover, on which you can then act. It’s essential to act quickly on short-term Six Sigma projects, and DMAIC provides all the tools for you to make short work of difficulties as they arise.

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Glossary of Six Sigma Terms: Letters G – I https://6sigma.com/21000-2/ https://6sigma.com/21000-2/#respond Fri, 21 Apr 2017 22:39:36 +0000 https://6sigma.com/?p=21000 G
  • Gage R&R.

    When conducting the Measurement stage of DMAIC, Six Sigma Belts often use Gage R&R to evaluate their measurement systems’ accuracy. The R&R stands for repeatability and reproducibility, and the technique focuses on determining if you will receive multiple similar results from your measurement systems. Gage R&R comes out of […]

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    • Gage R&R.

      When conducting the Measurement stage of DMAIC, Six Sigma Belts often use Gage R&R to evaluate their measurement systems’ accuracy. The R&R stands for repeatability and reproducibility, and the technique focuses on determining if you will receive multiple similar results from your measurement systems. Gage R&R comes out of the belief that you should categorize total measurement systems error in two different ways, repeatability and reproducibility. When using Gage R&R, you measure error with the following standard deviation, depending on your data. You can represent your data in a hierarchical diagram, like a family tree. The first box should contain your observed total for variation. The diagram should continue downward, part variation on one side and measurement system variation on the other. The latter should then split off toward repeatability and reproducibility.

     

    • Gantt Chart.

      The Gantt chart is a type of chart used to display a breakdown of the tasks. You should list each task according to your priorities over time. Which tasks do you need to complete first? Number the first column for each task you are required to complete. The next should be labeled Activity and split into rows. Split he next section into columns for each month, week, or day, depending on your timeframe. Represent the length of time it takes (or should take) to complete a task using a horizontal color-coded line. You can use Gantt charts in process improvement projects and other team-based projects to organize and assign tasks. Project leaders, Black Belts, typically draw up Gantt charts for the rest of the team. Although even team members with others working under them, like Green Belts, may be required to make a Gantt chart.

     

    • Gap Analysis.

      You will often have to analyze data in Six Sigma work, such as the gap between current performance and potential performance. This is where Gap Analysis should is useful. It is a strategic approach to can help you develop a plan to close the gaps between your two thresholds. Gap Analysis is also effective for other uses, such as analyzing product and market share. For Six Sigma practitioners, Gap Analysis is most often used to analyze the gap between current product performance and customer requirements.

     

    H

    • Hill Climbing.

      Black Belts and Green Belts use hill climbing in Experimental Design. Hill climbing helps determine the process settings that give you the maximum and minimum responses. Despite the name, hill climbing isn’t as strenuous as it sounds. You begin by carrying out an initial experiment. If it does not deliver either the maximum or minimum responses, then you find the path of steepest ascent and descent. Once you have this data compiled, you can then carry out another test at an interval point along your process path, continuing until it starts to ascend or descend. Then, an additional experiment around the highest point on the path will tell you if this is the maximum or minimum response. If you still haven’t found the path of steepest ascent by this point, all you have to do is continue until you do. It can take time, but hill climbing is very effective. Provided your curvature is not significant, then the experiments you conduct can be first order designs with center points. When your curvature becomes significant near the optimum, however, then you should change to response surface designs.

     

    • Histograms. 

      Histograms are a type of data tool in Six Sigma. Any Six Sigma practitioner may use a histogram when analyzing data values. This may include Black Belts, Green Belts, or Yellow Belts. Histograms work in process improvement projects or team-based activities. Histograms are graphical displays of your distribution of values for specific data sets. A histogram looks like a common bar chart, with an X and a Y axis, and bars of varying lengths representing your data. Each axis should be labeled appropriately, for instance, processing time and how many claims you have received.

     

    • Hypothesis Testing.

      You can divide hypothesis testing into two complementary claims. If your test was to determine whether a process mean equals zero or not, you could describe them as follows.  H0 (the mean equals zero – the null hypothesis) and H1 (the mean equals something other than zero – the alternate hypothesis). When testing to determine the probability of events occurring, hypothesis testing can be of great use to Six Sigma practitioners. When conducting intermediate to high-responsibility process improvement work, Green Belts or Black Belts will usually be most likely to use hypothesis testing. It is highly effective as it allows you to determine the likelihood of observed results, but only when the first claim, H0 is true. You should refer to your probability as the p-value. The smaller the p-value, the less feasible your null hypothesis.

     

    I

    • Interest-Based Bargaining.

      Interest-based bargaining will likely to come into play for team-based process improvement. IBB is a style of negotiation that focuses on finding a utilitarian solution. One that will serve the needs and interests of all the parties involved. In other words, a mutually beneficial negotiation, or win-win situation. Black Belt Six Sigma practitioners are usually required to negotiate with company champions, management, etc. As such, they are most likely to use interest-based There are five key characteristics to IBB, which are as follows:

     

    • You should avoid bargaining over positions.
    • Ensure the two negotiators are separated from the problem.
    • You should focus on the interests, rather than the positions involved.
    • Part of your negotiation should involve finding opportunities for mutual benefit.
    • You should use objective criteria when selecting an appropriate resolution to the problem.

     

    • Interrelationship Diagram.

      Interrelationship Diagrams are a type of affinity diagram. You can use them for team-based process improvement work. Anyone can make one, from Black Belts to Yellow Belts, though group leaders will usually take the reins. To use an interrelationship diagram, you first need to gather your ideas together.  Then group them in a circular pattern on a whiteboard or flip chart. Then, draw arrows from each circle to other related ones, to show the relationships between each idea. Think about cause and effect, how each idea influences other ideas and is influenced by them. The arrows that lead to and away from each idea should be counted and tabulated. The highest number of away arrows from particular ideas represent your most important drivers. If you have a large number of arrows heading towards a particular idea, this suggests critical outcomes to take note of, as well as potential measures of success.

     

     

     

     

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