Question

Provide some examples of the financial applications of Six Sigma.

Answer 1

Six sigma can be defined as a set of techniques and tools which are implemented in a way that brings in process improvement. The prime purpose of six sigma is to identify and remove defects from the process and improve the quality of the output. Several statistical and empirical methods are used in six sigma with a defined sequence of steps and specific value targets. In recent years, the application of six sigma has been applied to almost each segment of business like sales and marketing, finance etc.

Applications of Six Sigma in Finance:

The application of six sigma methodology has been very successful in the accounting and finance function of an organization. It has brought a significant reduction in the number of errors and defects in the finance department and has helped the organizations to reduce their process time from weeks to days. Benefits of applying six sigma methodologies are as follows:

• Reduction in errors while processing invoices
• Improvement of reconciliation process
• Reduction in documentation errors
• Reduction in complaints
• Reduced cycle time
• Enhanced customer satisfaction
• Improving portfolio strategy
• Reduction in financial risks

Examples of application of six sigma:

1. A healthcare insurance provider implemented six sigma in its accounting department to improve withdrawal accuracy. Before the application of six sigma, rectifying an error in the invoice would take a lot of time as there was much human involvement as well as number of reconciliation checkpoints. Due to this process 60% customer's accounts was undercharged and 40% customer's accounts were overcharged. But after the application of six sigma, the defect rate reached zero and process time was reduced from 1 week to 2 days.
2. JP Morgan, one of the largest banks of USA implemented six sigma in their process which helped them to reduce the expenses, increased the revenue, and overall improved customer's experience which ultimately led to customer satisfaction.
3. Another bank of USA, American express implemented six sigma in 1998 and has successfully reduced their errors and defects to subsequently low levels. The cycle times were reduced which led to overall revenue increase and customer satisfaction.
4. The U.S. Coast Guard Finance department implemented six sigma methodologies in order to create a new process for account payable services which was much standardized and automated. It helped them to reduce the number of defects and errors and led to utmost customer satisfaction.
5. Other companies to implement six sigma for their finance and accounting are:
   • Bank of America
   • Barclays
   • Fidelity
   • Deutsche bank
   • HSBC
   • Citibank