Case Study: Streamlining Finance in a Defense Contractor

case study, finance, lean six sigma, six sigma focus blog

This case study is intended to illustrate the application of Six Sigma methodology within a finance department. The case study relates directly to the Continuing Account Reconciliation Enhancement project undertaken by the finance department of a major U.S. defense contractor. The goal of the project was to streamline and standardize the establishment and maintenance of costing and planning for all business activities within the current financial management process. The business division will be further identified as IDS in this case study.

The Six Sigma team recognized two primary issues for the project. First, there was a need to simplify the current financial process. Secondly, the team envisioned to improve processes with a more timely, complete and accurate data for planning.

The team defined the current problem as “the process cannot produce all Financial Planning and Analysis (FP&A) requirements in the most efficient and effective manner.” The primary objective of the project, therefore, was to streamline and document all cost elements in the planning process for the current financial system.

The team provided two solutions for implementation by the finance department. First, implement all the actions identified through VSM analysis. Second, redesign the process by following the flowchart shown outlined in the case study, which essentially simplified the process by eliminating non-value added steps in the current process.

In addition, the Six Sigma team recommended that all business divisions be required to implement the following actions to enhance financial reporting capabilities:

1. Develop initial cost-element plans by project for both internal and external contracts.

2. Regularly copy cost plans to various FP&A versions for five-year planning, sales forecasting, and bookings forecasting.

3. Update and maintain cost-element plans as new businesses are identified and funding is received.

4. Update and maintain financial plans.

5. Copy updated financial plans to various FP&A versions accordingly.
After implementing the recommended process changes and actions, the following results were achieved:

• Cost-element and financial planning activities for all business divisions were standardized, consistently created and maintained in a centralized database

• Processes were streamlined, documented, and consistently followed throughout the reporting process

• Significant reduction in cycle time was achieved for producing the FP&A reports; specifically, the revised process resulted in 100 hours reduction in cycle time, resulting in cost savings of $130,000 per year or roughly a 64 percent reduction.

Read more detail of this case study here.

Journal of Case Research in Business and Economics
Application of Six-Sigma in Finance