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Six Sigma and Financial Planning

Over the past decade, Six Sigma has emerged as one of the favorite children of corporate America.  And while some may question whether it is the solution for all that ails companies, there is little dispute that it is an outstanding framework to bring fact-based, data-driven problem solving to the decision making process.  Today I’m going to show you how you can apply the basics of Six Sigma to build your personal financial plan.

Let’s start with the problem solving process that Six Sigma uses – normally referred to as DMAIC:

  • D = Define the problem
  • M = Measure the problem
  • A = Analyze the problem for the solution
  • I = Improve the situation/implement the solution
  • C = Control the solution

When I was first introduced to Six Sigma, its simplicity struck me.  In particular, I immediately mapped it to the problem solving process that I normally use:

  • What is the problem? (Define)
  • What are the causes? (Measure)
  • What are the possible solutions? (Analyze)
  • What is the best solution? (Improve/Implement)

The fact that the framework mapped so well AND that it included a “Control” or monitoring provision convinced me very quickly that it was a methodology that could be brought to bear on any problem – including financial planning.

So let’s apply DMAIC to building a financial plan:

  • Define – The financial planning process starts with identifying your goals and objectives. As the old saying goes, if you don’t know where you are going any road will get there.  Defining your objectives and goals is the first step of the financial planning process.
  • Measure – In order to figure out whether you can reach your goals, you need to figure out where you are at. For financial planning this means assessing your current cash flow, tax situation, insurance coverage, estate plans, needs for education funding, your benefits, your charitable giving, your investments, and any other relevant factors related to your current financial situation.
  • Analyze – Once you have taken stock of your current situation, you need to identify the potential solutions. Should you use a 401(k), should you use an IRA, do you need a will or trust, is a 529 a good idea, should you take the high or low deductible health care plan – all these questions and many, many more need to be considered.  While each of them is relatively straight forward, together there is quite some complexity.
  • Improve/Implement – Here you choose the best solution associated with all of the analysis. The irony is that if you do the “D”, “M”, and “A” properly the improvements you need to implement are normally quite obvious.  However, the “I” is often the most challenging as it involves making changes to habits that have been with you for years.  Many people struggle mightily in this phase.
  • Control – Finally we come to what I like to call the discipline in the process. Implementing a solution is fine; HOWEVER, no solution runs on auto-pilot.   And your financial plan cannot run on auto pilot either.  You need to continually check each of the areas (cash flow, insurance, taxes, education, benefits, estate planning, charitable giving, investments, etc.) and make sure that you remain on track

So there you have it.  Whether you are already familiar with Six Sigma or if you have heard about it or wondered what it does/how it works, the above outlines how you can use this powerful problem solving framework to help you build, implement, and maintain a financial plan.

If you have any questions on the process or would like to share your feedback and insights, feel free to reach out to me at any point in time.  I enjoy working with folks to help them implement and execute financial plans that allow them to pursue those things in life that are important to them.

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Curt Stowers

Curt Stowers

Curtis Stowers helps individuals and families across the United States grow their financial assets, particularly in the Naperville, IL region. He is a Certified Financial Planner, holds a Ph.D. in Industrial Engineering from the University of Illinois, and is the founder of F5 Financial.