23 B Risk Management, Theory of Constraints and Process Improvement

I include risk management in this course because poor risk management is the second highest contributor to failure in projects or in major changes in operations for manufacturing and service organizations. (Don’t forget that team dynamics is the primary contributor to failure in such activities.) A second reason for including risk management is that inexperienced managers are the ones that typically ignore risk management or just give it lip service. If you are going to be an effective leader you must understand and practice sound risk management. Risk management is the topic of the following lecture.

I include theory of constraints because it is often left out of treatments of control and in some traditional approaches to manufacturing this failure leads to promoting techniques that are inappropriate and cause inefficiencies. The lecture following risk management is an introduction to theory of constraints and I hope it leads the student to further study of this important topic.

The remainder of this course addresses that portion of control that deals with what is typically called process improvement or quality improvement. The objective of the process improvement part of control is to assess work processes and to make continuous improvements to these processes so that employees’ jobs are easier and more cost efficient due to fewer and fewer quality problems and to reduced use of resources; including labor, materials and maintenance.

There are many versions of process improvement in use. Six Sigma and total quality management (TQM) are two popular versions. Kaizan is a Japanese term for continuous improvement and many organizations use this term to describe their process improvement work. Sometimes Kaizan is used to simplify processes without gathering data and some quality gurus are critical of non-data driven process improvement. Another term used by manufacturing organizations is Lean. Lean is using a set of tools or methods that improves manufacturing processes by eliminating waste and errors. Some organizations combine Lean and Six Sigma into Lean Six Sigma. Whereas both Six Sigma and TQM are proven to be effective I favor TQM, or data driven Kaizen if you prefer the Japanese term. Let me give short descriptions of the two approaches and then discuss the reasons I favor TQM.

Six Sigma thoroughly trains a small number of people and then empowers these trained specialists to work with other workers and managers to improve processes throughout the enterprise. These specialists get titles according to the amount of training they have received, e.g. those with extensive training are usually called black belts or master black belts. An experienced manager is selected to manage the specialists and their process improvement activities. Other managers are given overview training so that they know what to expect and what is expected of them.

In the version of TQM that I have practiced all employees in the enterprise, workers and managers, receive about 50 hours of basic training in process improvement techniques. A very few receive additional training in special techniques and serve as a resource to all the workers and managers. After training, all workers and managers are empowered to work on process improvement of the processes they own, i.e. the processes they use in their day to day work. There is a coordinator to authorize teams and facilitate access to any data needed by the teams or to the specialists that provide analysis beyond the capabilities of the team. The authorization is necessary to prevent workers from getting involved in several teams at once and impacting productivity by spending too much time on process improvement at the expense of process execution.

Either of these approaches is effective and if your enterprise is already involved in one of these or a related approach then stick with it. If your enterprise is not yet involved in process improvement then I strongly recommend the TQM approach. The advantage of TQM is that it empowers every employee to control processes they own. This empowerment results in two benefits compared to approaches like Six Sigma that empower only a few specially trained personnel. First, empowering employees to have control over their own processes is highly motivating. It is one of the things required for employees to reach Maslow’s highest level of needs fulfillment, i.e. self-actualization. Second, employees at any level know more about the processes they own than their supervisors, or any specialist, because they are more intimately involved with the processes. They feel, smell, hear and experience details of their process that supervisors or specialists do not experience. They are better at recognizing what aspects of their processes need improvement first, second and so on. They are also better at developing improvement approaches because often they have been thinking about better ways to do their job for a long time. They are inclined to look for improvements that make their job easier as well as more cost effective.

The disadvantages of the Six Sigma type approaches from my experience are that sometimes the workers resent outside experts coming to change their work processes and the outside experts aren’t as familiar with the work processes as are the employees that own the processes. I have observed that the process owners tend to create simple and effective improvements whereas the highly trained experts tend to go for elegant and expensive improvements, but not necessarily any better improvements. Another disadvantage is that the experts attack the most important processes first and work their way through enterprise processes a few at a time, depending on how many experts there are. With TQM all processes are subject to attention at any time. The process owners naturally prioritize processes they own but even simple processes get attention that are unlikely to be addressed in a Six Sigma approach until all higher priority processes have been addressed.

An apparent disadvantage of TQM is that all employees must be trained and therefore the training costs tend to be higher than for Six Sigma, assuming only a few employees are given the full Six Sigma training. I believe this extra cost is more than offset by the more comprehensive attack on process improvement that TQM achieves and from the increase in employee motivation that results from empowering employees to have control over their own processes. TQM also requires a more careful introduction to empowering employees after they have been trained. There must be boundaries to the empowerment and these boundaries must be carefully communicated to the employees as they are empowered. Otherwise employees adapt their individual definitions of empowerment and some naturally expand the boundaries beyond what is acceptable in an efficient enterprise that is under control. Obvious examples of items employees are not empowered to change include recipes, standards and accounting rules; changes of which must be handled very carefully and usually with management involvement.

Exercise

This is an introductory lecture and no exercise is required unless the student is unfamiliar with text book methods of control for manufacturing, projects and service organizations and with the differences between financial accounting and management accounting. If you aren’t familiar with these methods of control and cost management then take the time now to learn the basics. It is important to effective process improvement that changes to processes do not violate sound basic principles. It may be frustrating to put this course on hold while you study other subjects for several weeks but it is beneficial in the long term. If you are familiar with these basics then go on to the next lecture.

If you find that the pace of blog posts isn’t compatible with the pace you  would like to maintain in studying this material you can buy the book “The Manager’s Guide for Effective Leadership” at:

http://www.amazon.com/Managers-Guide-Effective-Leadership-Organizations/dp/1449000673/ref=sr_1_2?ie=UTF8&qid=1346946310&sr=8-2&keywords=Joe+Jenney

or hard copy or for nook at:

http://www.barnesandnoble.com/s/Joe-Jenney?keyword=Joe+Jenney&store=book

or hard copy or E-book at:

http://bookstore.authorhouse.com/Products/SKU-000269270/The-Managers-Guide-for-Effective-Leadership.aspx