The core of Six Sigma is reducing and/or eliminating waste or defects through process improvement. Beyond the initial process improvement efforts, it is about ensuring that standards are set in place that ensures that processes are perpetually improved. This is what is usually referred to as continuous improvement – without this, all Six Sigma projects will be rendered mute over time.

And why go through all this trouble of improving processes? To make sure that value flows through each process unhindered, all the way to the customer.

In order to improve a process, its performance has to be measured. You have probably heard the saying that what cannot be measured cannot be managed. It is in the measurement of performance that KPIs are important to Six Sigma.

What is a KPI?

Before we talk about how KPIs are important to Six Sigma, let’s define what they are. A KPI or key performance indicator is any numerical value that can tell an organization how well it is performing when it comes to achieving its goals. Organizations usually have goals that they wish to achieve, and KPIs tell them what progress they have made so far versus how much more progress they need to make to achieve their goals.

It is believed that KPIs are an invaluable tool for an organization’s decision-makers. By looking at the KPIs, they can tell if the performance they see is expected or below expectations. If the performance is below expectations, then leadership will make the appropriate decision to get the organization back on track. 

And the decisions are likely to lead to successful outcomes since they will be highly informed decisions. 

How to come up with good KPIs?

Now that you know what a KPI is, let us look at how one can come up with good KPIs. While this is not an exhaustive list, you are likely to come up with a good one if the KPI has the following characteristics:

• A good KPI has to be measurable, otherwise, there is no way it can be called a KPI.
• It also has to be related to the organization’s strategic objectives at that time, otherwise, you will end up measuring an irrelevant KPI.
• The KPI needs to be in line with the customers’ requirements and demands
• It has to be simple and well defined.
• It needs to be assigned to an owner; someone who is responsible for reporting and measuring it.
• The KPI needs to be assigned to an individual, team or department that is capable of making sure positive outcomes are achieved from measuring the KPI.

How are they important to Six Sigma?

The question of how KPIs are important to Six Sigma is all about picking the right project to work on. When the performance of an organization is measured, KPIs reveal whether certain targets are being met or not. By looking at which targets are not being met, an organization can identify the processes that need to be improved and start working on the appropriate Six Sigma project to meet those targets.

Without knowing which targets to aim for through the KPIs, it can be all too easy to work on irrelevant projects. Once this happens, the organization will not achieve its goals, and a lot of time, effort and money would have been wasted for nothing.

Besides that, measuring KPIs in Six Sigma projects tells the organization if the improvements efforts are leading them towards their goals. If not, then the Green Belt or Black Belt can take the appropriate action to ensure everything is on track. And by continually measuring the performance of projects, KPIs can also ensure that continuous improvements efforts are being followed through in the organization

Conclusion

As you can see, KPIs are also an essential part of Six Sigma. They ensure the Six Sigma projects being worked on are the right ones and are helping the organization achieve its goals. Overall, it is hard to see how Six Sigma can even be effective without KPIs.

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Managing a hotel and ensuring its success has got to be among the most challenging jobs in the world, simply because of the huge volume of responsibilities that are required. Because you are responsible for so many people and departments, it could be tough for you to find time to evaluate your overall performance.

This is where Key Performance Indicators (KPIs) for hotels come in. They are a selection of the measurements that matter the most for a business in the hospitality industry that wants to enjoy lasting success.

Online Ratings

Today, online reviews of hotels have become much more important than many hoteliers might realize. If you have not started to pay attention to the management and responses to online reviews of your hotel, you should quickly realize that online reviews play a big part in the overall reputation of your establishment.

Because more and more vacationers trust hotel reviews from sources like TripAdvisor and Expedia when making bookings, it is in your best interest to get as many reviews as you can. The value of online reviews is twofold: many guests choose hotels based on the online reviews of an establishment, and they also offer vital feedback on weaknesses that can help you make improvements.

Occupancy Rate

Put simply, a hotel’s occupancy rate is a reference to how many units are occupied at a given time in comparison to the hotel’s total available units, and is expressed as a percentage. It is one of the hotel industry’s most popular KPIs and is commonly used in revenue management to highlight how much of the space that a hotel has available is actually in use.

In general terms, people who work in the hotel industry shoot for a high occupancy rate, as it is often indicative of space that has been used efficiently. It is important to take note, however, that the occupancy rate needs to be considered alongside other indicators such as revenue per available room and average daily rate, since the ultimate goal is not necessarily to have 100% occupancy, but to maximize hotel revenues.

Average Daily Rate (ADR)

This is yet another indicator that is widely used in the hotel industry for purposes of revenue management. The most essential characteristic of ADR is that it can help to reveal the average daily income of occupied rooms. In this way, the ADR can give you a clearer current picture of your establishment’s operational performance, allowing you to make comparisons with other hotels that have similar characteristics.

That being said, the Average Daily Rate does not offer you a true account of your hotel’s overall performance. This is because this metric does not consider the revenue realized from the hotel’s other sources or their expenses such as house use accommodation or complimentary rooms.

Revenue per Available Room (REVPAR)

RevPAR is a critical performance indicator commonly used in the industry for purposes of assessing a hotel’s business and financial performance. In essence, RevPAR compares two vital indicators of a hotel’s business: the average daily rate as well as the hotel’s capacity to fill the available rooms. This metric is essential in revenue management, since it provides a snapshot of current performance and gives an indication of how much guests may be charged for the hotel rooms.

As much as possible, hotels should aim for an increase in their RevPAR, since an increase is normally an indication of improved revenue, occupancy, or both. Nevertheless, since this KPI is calculated per room, you may find that larger hotels may have a lower RevPAR figure but higher revenue overall.

Conclusion

The critical performance indicators outlined above are just a few of many that are applied to the hotel business, but are definitely the most relevant in today’s age of highly connected customers. Measurement of the performance of your establishment is the first step you can take on the road to making meaningful improvements to your business processes.

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It’s easy to collect information about the way your organization is running, especially nowadays with the help of modern technology. And yet, collecting too much data without actively thinking about what exactly it represents, can quickly lead to problems with productivity and more. You have to know how to identify the data points that really matter and focus on them exclusively, and that’s the whole reasoning behind the idea of KPIs or Key Performance Indicators.

Identifying the KPIs of Your Organization

Simply put, a KPI is a factor that holds a lot of weight in determining the current status of your organization. It’s highly dependent on the specific type of work that your company does, and every organization needs to develop its own set of KPIs, even between two companies in the same industry. Correctly identifying those points and focusing on them in your data collection and analysis is an important first step to ensuring that your organization is managed in a lean way.

The most basic example of a KPI is the output rate of the production facility. How many products are you putting out each day? What about each week or month? Collect that data and have it available in an easily accessible way, and soon enough you’ll start to see some patterns opening up in front of you.

Another good point for analysis is the downtime of different components of the organization. This includes both people, machines, tools, and entire departments. If a certain part of the company is spending a lot of time in wait, this could indicate an underlying issue that’s not immediately visible through other KPIs.

Working with an Up-To-Date List

As the organization evolves and grows, the list of its KPIs will change, sometimes frequently. It’s important to keep evaluating the current operations of the company and keep the list up to date, otherwise you’re not only going to miss out on some potential improvements, but you may very likely end up in a situation where you’re working against the benefit of the organization without even knowing it.

Sometimes old KPIs will become obsolete and irrelevant as the company’s operations are changing, and that’s fine. You don’t have to keep every point on the list forever, and in fact, this will probably start to be a bit detrimental to your ability to make sense of all this information at some point. And on that note, you should definitely think about the way you’re using modern technology and how you can utilize it to better evaluate the data you’ve collected.

Harnessing the Potential of Modern Technology

When you’re working with a lot of data, most of which is numbers, you can benefit a lot from using a modern digital solution to wrangle all of those bits. A well-designed database schema, for example, can allow you to easily locate the critical pieces of data that you need in your research, and it can help you aggregate the data you’ve collected through your operations as well.

You can also use modern gadgets all around the production floor to ensure that you’re tracking the performance of all machines and workers correctly, although it can take some time to set that system up correctly, and it can be expensive too, depending on the size of your organization and the way your operations are structured. If you’re in doubt, get a consultation from an expert with a lot of experience in this area and let them set up this aspect of the organization for you, as a mistake can end up being quite costly.

Conclusion

Understanding KPIs and how to analyze them correctly can have a huge impact on the way you’re running your organization. When you know exactly what you can expect from each action you’re taking, and know how it should impact the whole system of the organization, this can help you be much more confident in developing the company and pushing it forward with each new choice you’re making. But, as we said above, it’s also quite important to ensure that your KPIs are always kept up to date, as otherwise you may start making wrong decisions without even realizing it at some point.

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Ask yourself, do you want to deliver faster Six Sigma projects that don’t overstep your budgeting parameters? Then it’s essential for you to outline a detailed plan in your project charter. Your plan will act as your guide through the rough waters of process improvement.

Key performance indicators are highly useful tools here, enabling you to identify precisely which actions benefit you as a company. As such, there are numerous KPIs to help you on your Six Sigma journey, one of which we look at today: Project Cost Variance (PCV). Join us and learn how you can use PCV to deliver Six Sigma projects on time and on budget.

Stay Focused with Project Cost Variance

It’s important to know that Six Sigma relies on the measurement and analysis of process issues. Controlling problems allows you to create solutions that prevent them from recurring, benefitting the business in the long- and short-term. Without a strong plan to follow, you’re likely to lose sight of your goals and business needs. Losing track of your priorities will only send you veering off budget towards slow delivery times. Moreover, this doesn’t just impact you, but also your customers, who depend on you for quality products and services. If customers don’t see any value in your services, or if they see you as unreliable, they’ll take their business elsewhere. For you, this is detrimental, but Six Sigma can help. First, however, we must define cost variance.

What is Does Cost Variance Mean?

A cost variance is the amount by which your project exceeds or falls under your maximum budget. Cost variance is one of two key areas that you should monitor throughout your project, the other being schedule variance, i.e., how early or late you are to meet project deadlines. You can use the following equations to calculate both cost and schedule variance:

• Cost Variance = BCWP (budgeted cost of work performed) – ACWP (actual cost of work performed)
• Schedule Variance = BCWP – BCWS (budgeted cost of work scheduled)

What is Project Cost Variance?

PCV is the process of evaluating your project’s financial performance. You should compare the budget you agreed before starting the project with the actual amount you spend. You can calculate PCV by finding the difference between BCWP and ACWP. Your ideal project cost variance should be when your BCWP equals the same as your ACWP. Your project cost variance provides otherwise unavailable insight into your finances throughout the scope of your project. Using it to your advantage allows you to monitor when and where you breach your budget. When you use PCV together with DMAIC, you can actively control your finances, targeting areas for improvement, like overspending. The result is a more focused, efficient, and successful project.

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Six Sigma Finance: What Six Sigma Can Do

Recognizing and isolating any problem can be difficult, often due to the many complexities and intricacies of design involved. But, Six Sigma can make things easier. Don’t underestimate Six Sigma when it comes to improving business processes. It can create cost-effective solutions by locating waste where it has accumulated. Once you’ve eliminated the waste, you can take steps towards continuous improvement. However, it’s not as easy as you’d think to identify your problems. It’s often just as difficult as correcting them. Six Sigma comprises an array of tools and techniques to simplify process improvement and increase efficiency. Six Sigma Belt practitioners tend to use a combination of devices in their work, such as DMAIC.

The Trouble with Six Sigma for Finance

Six Sigma can create significant cost savings for companies in the finance industry. But, applying Six Sigma here is tricky as financial institutions like banks don’t use the same processes as manufacturing companies. The products and services they create and offer are also different, which means their opportunity areas are often difficult to measure. However, it’s not difficult as you’d think to modify Six Sigma to serve the finance sector.

Use Your Key Performance Indicators and Realize Measurable Results

When using Six Sigma metrics, it’s important to point them at the right area, if they’re to be effective. Use your KPIs effectively, and you’ll see massive improvements in your results. Try to maintain some objectivity for your KPIs, but not too much that they’re too specific or rigid. Similarly, don’t make them too subjective either, as this will prevent you from measuring or evaluating them. Our advice, use the SMART test, to assess your KPIs regarding specificity, measurable-ness, attainability, realism, and timeliness. Remember, if you want practical data you can apply to finance, you’re going to have to leverage your KPIs effectively.

Six Sigma Training for Finance

The needs of any business change over time, just as they do in the financial industry. Take our advice to ensure you’re prepared to adapt for any eventuality. What is our advice? Training. There is a huge demand for Six Sigma Green Belts and Six Sigma Black Belts in finance. Don’t fall behind, take advantage of what the market wants. Make sure you can provide it. There are plenty of training options targeted specifically at applying Six Sigma to the finance sector, so act now. With the right training and certification, you can bolster your chances of success when searching for that ideal job. Your earnings potential is also likely to go up too! If you want to meet the changing needs of your financial institution consistently, then finance-based Six Sigma training should not be taken lightly.

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