It has long been a human propensity for individuals to function solely within their personal "silo"—as opposed to working cross-functionally with others who are in their own but very different silos. When collaborative cooperation is practiced, results can be outstanding!
Consider some of the results that can be achieved.
Innovative solutions can be discovered.
Customers—internal and external—are better served.
Costs are reduced.
Revenues are increased.
Risk management tools and processes have worked well over the decades; however, the use of the highly effective tools of quality management (now referred to as "Lean Six Sigma" or LSS) can take risk management outcomes to a new and higher level.
Risk management is a system. Systems are composed of one or more processes—usually, the latter. LSS is also a system composed of multiple processes, but one of its overriding purposes is to improve processes continuously within an organization so that better results can be achieved, lower costs incurred, and fewer employee hours required. Another purpose (lean) is to prevent waste.
Doesn't that also sound like the goals of risk management? Why not also employ some of the proven "tools" of LSS that can make our work as risk managers even more effective—and possibly even easier? First, a little historical background on LSS.
Dr. W. Edwards Deming was an effective yet somewhat obscure statistician who became famous and highly respected by virtue of his pioneering work in quality management that ultimately evolved into LSS. After World War II, Dr. Deming helped Japanese automobile manufacturers dramatically improve the quality of their products and, at the same time, lower their production costs. The US "Big Three" auto manufacturing CEOs were said by Dr. Deming to have ignored his overtures to learn about his quality disciplines. CEOs of Toyota, Honda, and others in Japan welcomed his ideas. The rest is history.
To Ford's credit, it ultimately applied these principles and best practices and then extensively advertised as "Quality Is Job One!"
Dr. Deming's fame catapulted once NBC televised a 1-hour documentary, If Japan Can … Why Can't We? The answer was, of course, "we" failed to understand quality management, and as a consequence, domestic car sales suffered severely while Japan's new car sales exploded.
So, What Is LSS?
Six Sigma is a separate concept from Lean. It is recognized as a widely accepted and extensively practiced organizational discipline because of the following.
Systems are continuously improved.
Costs are consistently lowered.
Defects are minimized by this data-driven discipline.
One LSS standard is that a process should produce no more than 3.4 defects per million opportunities. Another way to say this is: the goal is to reduce variation in all systems and processes. (Does that sound like risk control?)
This raises an additional point. We have long spoken in terms of "policies and procedures." This is appropriate in a legal context. However, in management practices, it's better to speak and think in terms of "systems and processes." Each system is composed of one or more processes. Each process has an input and an output. Whoever receives the output is a "customer"—internal or external. Both types of customers matter. All too often, internal customers are overlooked.
Lean is an entirely separate (yet compatible) discipline. Its primary purpose is to eliminate waste. Lean also works to maximize value from the customer's perspective while doing so with as few resources as possible.
Although many larger organizations have factored LSS into their corporate cultures, smaller businessowners also can do so and enjoy increased success as well. How to integrate LSS into your organization requires an understanding of the all-important, proper use of data as well as the effective use of LSS tools. The major tool is a series of processes called DMAIC—an acronym for the following.
Define the project.
Measure the current situation.
Analyze to identify root causes.
Improve by identifying solutions.
Control by monitoring and sustaining each solution.
Other tools include process maps; brainstorming; bar and pie charts; Pareto charts; balanced scorecards; strengths, weaknesses, opportunities, and threats (SWOT) analyses; and any others you may find helpful. Not all tools are needed at any one time to help avoid losses, lower costs, and save employee hours, among other benefits of combining Lean Six Sigma and risk management.
Counsel is available in most communities from those certified as Six Sigma Black Belts or Master Black Belts—or you can do it all on your own through books and the Internet. Many universities offer classes, with many available online.
Risk managers should seriously consider LSS as an ongoing part of their duties and organizational culture. As we emerge from COVID-19 and take a fresh look at all our operations in our risk management duties, this is an ideal time to integrate LSS tools and processes into your risk management systems.
Then see what happens (favorably, of course) to your total cost of risk!
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI.
Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion.
If such advice is needed, consult with your attorney, accountant, or other qualified adviser.