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206 Part II • Descriptive Analytics

Sigma, s, is a letter in the Greek alphabet that statisticians use to measure the
variability in a process. In the quality arena, variability is synonymous with the number
of defects. Generally, companies have accepted a great deal of variability in their
business processes. In numeric terms, the norm has been 6,200 to 67,000 defects per
million opportunities (DPMO). For instance, if an insurance company handles 1 million
claims, then under normal operating procedures 6,200 to 67,000 of those claims would
be defective (e.g., mishandled, have errors in the forms). This level of variability
represents a three- to four-sigma level of performance. To achieve a Six Sigma level of
performance, the company would have to reduce the number of defects to no more
than 3.4 DPMO. Therefore, six sigma is a performance management methodology
aimed at reducing the number of defects in a business process to as close to zero
DPMO as possible.

the DMAiC performance Model
Six Sigma rests on a simple performance improvement model known as DMAIC. Like
BPM, DMaic is a closed-loop business improvement model, and it encompasses the
steps of defining, measuring, analyzing, improving, and controlling a process. The steps
can be described as follows:
1. Define. Define the goals, objectives, and boundaries of the improvement activ-
ity. At the top level, the goals are the strategic objectives of the company. At lower
levels—department or project levels—the goals are focused on specific operational
processes.
2. Measure. Measure the existing system. Establish quantitative measures that will
yield statistically valid data. The data can be used to monitor progress toward the
goals defined in the previous step.
3. Analyze. Analyze the system to identify ways to eliminate the gap between the
current performance of the system or process and the desired goal.
4. Improve. Initiate actions to eliminate the gap by finding ways to do things better,
cheaper, or faster. Use project management and other planning tools to implement
the new approach.
5. Control. Institutionalize the improved system by modifying compensation and
incentive systems, policies, procedures, manufacturing resource planning, budgets,
operation instructions, or other management systems.
For new processes, the model that is used is called DMADV (define, measure,
analyze, design, and verify). Traditionally, DMAIC and DMADV have been used primarily
with operational issues. However, nothing precludes the application of these methodolo-
gies to strategic issues such as company profitability. In recent years, there has been a
focus on combining the Six Sigma methodology with other successful methodologies. For
instance, the methodology known as Lean Manufacturing, Lean Production, or simply as
Lean has been combined with Six Sigma in order to improve its impact in performance
management.

Balanced scorecard Versus six sigma

While many have combined Six Sigma and Balanced Scorecard for a more holistic
solution, some focused on favoring one versus the other. Gupta (2006) in his book titled
Six Sigma Business Scorecard provides a good summary of the differences between the
balanced scorecard and Six Sigma methodologies (see Table 4.1). In a nutshell, the main
difference is that BSC is focused on improving overall strategy, whereas Six Sigma is
focused on improving processes.

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