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!
John Pryor, CPCU, ARM, AAI, AIS, is a risk management
consultant. He has written articles on risk management and general management
locally and nationally, including a series on
Dr. Deming's 14 Points as applied to the insurance industry for
IRMI.com.