Lean HR

Six Sigma Philosophy

Process Improvement
Transactional HR Processing
Paul Rains. MIPP.
Objectives of Workshop
To understand a little more about Six Sigma.
To understand some of the Lean Tools and
Techniques that can be used to improve HR
processes.
To understand why it is relevant to the type of
work that you all do.
Recent Research by PSL,
on-line Assessment Specialists
46% of organisations still do not measure the success of their HR
processes according to research by online assessment specialist
PSL.

PSL carried out research with organisations to investigate where HR
departments saw their focus 12 months from now.

There is a growing pressure on the HR function to be able to
demonstrate the added value that it is capable of delivering, said
Dave Millner, Director of Consultancy at PSL. It is critical that HR
can demonstrate tangible results and express its contribution to the
organisation in hard business terms.


What is Six Sigma?
Six Sigma can be described
in a lot of ways
A business philosophy & strategy adopted by
companies who are recognised leaders in world class
quality.
Fact based decision making. An integrated part of a
management system.
Customer focused (Customer critical-to-quality
factors) determine where we should focus our quality
improvements.
Continuous improvement methodology used to
improve business processes and products.
Utilisation of powerful statistical tools.
Statistical measure of process capability.
Definition of Six Sigma
Six Sigma is a goal for process
improvement that forces us to put our
vision of quality in numerical terms (i.e
3.4 defect parts per million or
99.99966% good)
A more practical definition is Data
driven problem solving
Darts Exercise
Process Variation
Variation is measured
by the range of the
process.
The less variation the
tighter and more
accurate the process.


Distance
F
r
e
q
u
e
n
c
y
480 400 320 240 160 80
30
25
20
15
10
5
0
Mean 262.4
StDev 100.1
N 319
Histogram Of Where Darts Landed
Why Does it Work?
It measures the VARIATION in a process.
Brought about by Poor Process Design.
Brought about by Environmental Conditions.
Brought about by People.
Brought about by Different Systems.
Brought about by Skills and Behaviours.
Brought about by Measurement Systems.
Is it Relevant for
Transactional Services?
It can be used for any process
It can be used for any type of data
Continuous data
Elapsed time to Recruit an Employee.
Count data
Number of Incorrect Sickness Entries per month.
Number of internal Job Applications.
Attribute data
Proportion of late / incomplete paper work.
Percentage of payslip errors in a month
99% Yield in other Industries
POST OFFICE - 20,000 lost letters per hour.
BAA 2 short landings per day at every Airport.
NPOWER 7 Hours a month without Electricity.
NHS 200,000 wrong prescriptions per year.
In HR
HR DEPT 20,000 EMPLOYEES 200 incorrect
payments per month.
99% is not Good Enough!
-10
0
10
20
30
40
50
60
1 2 3 4 5 6 7
-10
0
10
20
30
40
50
60
1 2 3 4 5 6 7 8 9
-10
0
10
20
30
40
50
60
1 2 3 4 5 6 7 8 9
How do you get Six Sigma
Performance?
Existing Process
Reduce variation
Increase Tolerance
Yield 99.73%
Yield 99.99996%
Yield 99.99996%
Common Issues in HR / Payroll
that are Process / Data Driven
Late / Missing Paper work
Incomplete / Inaccurate paper work
No authorisation / No employee id / wrong
data
Duplicate keying
Input (keying in) Errors
Wrongly assigned
Transposition Errors
Completeness Errors
Example Problem & Goal
Statements for HR / Payroll
Problem Statement
In the last calendar year over 250 Leaver Notification
forms were received after the payroll had run,
therefore too late to process, resulting in X hours re-
work, additional BACS costs of Y and un-
recovered Gross overpayments of Z.
Goal Statement
To reduce the number of late Leaver Notification
forms by 95%
Cost of Poor Quality (COPQ)
Refers to all costs associated with the
problem.
Usual Suspects
Re-work, Checking, Testing, Duplicate Keying,
Errors, complaints
Hidden
Expediting costs, low morale, loss of focus, down
time.
Appraisal
This refers to any process, system or procedure that exists
only to look for problems. How often do you do something
then immediately check it?
Prevention
This refers to systems and procedures that are designed to
prevent things going wrong. Whilst beneficial they should be
included in the COPQ
Internal Failure
Problems that occur within the business that may not
impact the customer directly
External Failure
Cost of any error that reaches the customer. These failures
can become very significant
Types of Cost of Poor
Quality
Who are your Customers?
VOC - What do they Want?
Employees HMRC Budget
Holders
Pensions
Department
Health Care
Provider
To be paid
accurately and on
time
A P45 when an
employee leaves
the company
A list of staff costs
for their particular
cost centre each
pay period
Details of Pension
contributions
deducted and
Pensionable
Earnings for each
pay period for each
scheme member

A list of active
scheme members
with their cover
levels and the cost
of that cover
A pay statement
informing them
what they have
been paid
The money you
have collected
from each
employee in
Income Tax and
National Insurance
Contributions
Form P60 by 31
st

May each year
Information
regarding the
number of days /
occurrences staff
have been off sick
in that particular
month
A list of scheme
members who
have changed
cover levels
A contract of
Employment letter
when joining your
company
A record of every
employees,
Earnings, Income
Tax and National
Insurance
contributions for
the tax year
A list of scheme
members who
have left
A list of scheme
members who
have left
A P45 when an
employee leaves
the company
A List of any staff
that will shortly be
entitled to Long
Service Awards
Critical to Quality Tree (CTQ)
Under Payment
The aim of a CTQ tree is to provide clarity around the aspects of the
Voice of the Customer, in this case resolving their under payment.
No cost Quick
Easy
to
report
To be
kept
updated
Issue
manual
payment
Fix
the
issue
Fixed
1
st
time
Record
payment
on payroll
Fixed
right
VOC DELIVERY
Specifications
(Underpayment)
Easy to Report To be
kept
updated
Issue
manual
payment
Fix the issue
No Cost Quick Record
on
Payroll
Fix
Right
Fix 1
st

Time
Provide
24/7 free
telephone
number
Calls
answered
within 5
rings
Customer
contacted
every 24
hours with
update
Issue
within 48
hours of
error
being
reported
No re-
occurrenc
e of issue
next time.
One
enquiry to
discover
the root
cause of
the issue

Key Performance Indicators
(Underpayment - KPIs)
CTQs Calls
answered
within 5
rings
Customer
contacted
every 24
hours with
update
Issued
within 48
hours
One
Enquiry to
discover
the root of
the issue
No re-
occurrence
of issue
next time
Continuous
or Count
KPIs
Time to
Answer
call
Time to
provide
update
Time to
Issue
payment
Number of
Enquires
made
Number of
re-
occurrence
s of same
issue
Attribute
KPIs
% calls
answered
within 5
rings
% updates
made
within 24
hours
% of
payments
issued
within
48hrs
% of errors
resolved
with one
Enquiry
% of Errors
with no re-
occurrence
Examples of Measures (KPIs)
in HR Administration / Payroll
The % of incorrect payments each month.
The % of late paper work each month.
Elapsed time to complete the New Starter
process.
The % of P45s not issued in the same month
the employee leaves the company.
The % of SSP1 Forms issued after the 23
rd

continuous week of sickness.
Elapsed time to complete a recruitment cycle.
The Number of software faults not fixed first
time.
Example of an Operational
Definition
KPI Name: Software Fault Resolution Time
What does the KPI represent: The time elapsed
between a user reporting a fault and the Help Desk
informing the user the fault is fixed.
Process Diagram: See next slide
Detailed Information:
Process start - the date / time (in dd/mm/yyyy hh/mm/ss)
that the help desk receive the call
Process end the date / time (in dd/mm/yyyy hh/mm/ss)
that the help desk make the call or send the email to
inform the user the fault is fixed.
Process Diagrams
User Reports
Fault
Helpdesk
Diagnose Fault
Inform Software
Developers
Inform User
Fault
Fixed?
N
Y
KP1 KP2
KP1- Time taken to fix
fault

KP2- Percentage Of
Faults not Fixed
First Time
Process Mapping
(New Starter)
Receive
Paper work
Check Paper
work
Set up HR
Record
Identification
enclosed?
One of the most common purposes of process mapping is to
help identify the re-work loops in a process.
Offer letter
signed?
Names of
Referees
enclosed?
Medical
Form
enclosed?
FSA Check?
Y Y Y
Y Y
30% 25% 15% 5%
Why LEAN Techniques Work
Research shows there is between 30%
and 80% waste in Transactional HR
Processes
A typical / average UK HR / Payroll service
operation operates at a Sigma Level of 4,
whilst best in class would be at 5 or over.

HUGE OPPORTUNITY TO IMPROVE
Value Added Analysis
All activities add COST but only a few
add VALUE
THREE TESTS
Would the customer be interested or care
about this activity or being willing to pay for it?
Does the activity physically change the output
or is it a necessary pre-requisite to doing so?
Is the activity carried out right first time?
All these HR / Payroll activities
add Cost but which add Value?
Fixing a Software Fault?
Completing a Job Reference for a former
employee?
Keying in new starter information into the HR
System from the Recruitment System?
Expediting the non-payment of Overtime?
Re-printing a Contract of Employment Letter?
Printing a P45 for a leaver?
Chasing up missing information on a new starter
form?
Issuing a copy P60?
The Law of the Market
Customer Critical-to-Quality defines the standards and
prioritises improvement activities
The Law of Flexibility
The velocity of the process is proportional to the flexibility of
the process
The Law of Velocity
The velocity of any process is inversely proportional to the
amount of work in progress
The Law of Focus
20% of the activities in a process cause 80% of the delay
The Law of Complexity and Cost
The complexity of a service can add more non-value added
costs and WIP than either poor quality or slow speed
processes.
5 Laws of a Lean Process
Law of Focus
Reasons For Late Paperwork
0
10
20
30
40
50
60
70
80
90
100
T
o
o

B
u
s
y

t
o
C
o
m
p
l
e
t
F
o
r
m
A
w
a
i
t
i
n
g
A
u
t
h
o
r
i
s
a
t
i
o
n
R
e
t
u
r
n
e
d

t
o
E
m
p
l
o
y
e
e
L
o
s
t

i
n
T
r
a
n
s
i
t
F
o
r
g
o
t
Non Value Adding Activities
NVA = Waste
90%
10%
Add Cost only
Add Value
Value Added Work
Work that adds value in the eyes of the customer.
Non Value Added Work
Delays / Waste / rework / checking.
Required Waste
Waste that the customer does not necessarily pay for,
but is needed for accounting / legal / statutory
purposes.
From this we can calculate the Process
Efficiency Cycle.
Value Stream Mapping
Time Map
Time Value Stream Mapping
for New Starter Process
New Starter
Appointed
Line Manager
fills out form
Send Form to
HR
HR issue offer
letter & Starter
pack
Employee returns
documents
HR check docs
and chase up
missing info
HR send out Job
references
HR Issue
Medical Form
HR inform Line
Manager of DOS
HR create record
on HR system
Employee Starts
0.5 2 0.5
1 15 0.5 0.5
0.5 0.5
12
2 2 2
= (Value Added Time) / Non Value
Added Time
= (4 Days) / 35 Days
= 4 / 35
= 11.43%
Process Efficiency Formula
Type of Application Typical Cycle
Efficiency
World Class
Efficiency
Business
Processes
(Services)
10% 50%
The Waste of Over Processing.
The Waste of Waiting.
The Waste of Transportation.
The Waste of Over Production.
The Waste of Motion.
The Waste of Errors / Rejects / Defects.
The Waste of Inventory.
7 Deadly Wastes
Trying to add more value to a service than your
Customers require or will pay for
Ties up Resources
Uses additional materials
Fills the process with un-required work
Hides the problems
Increases Lead Time
Question - How well does what you do fit with
your customers requirements?
The Waste of Over
Processing
Any delay between one Process / Step / Activity
ending and the next beginning
Waiting increases lead time and reduces throughput
Breakdowns
Shortage of materials, information or other resources
Set ups and preparation
Rejects & Errors
Over production and doing things not required
Question Have you accurately mapped your
processes to identify the above?
The Waste of Waiting
Unnecessary movement of materials or
information
Every move:
Takes time
Creates a queue
Creates return loops
Usually seen as people walking excessively
Question Have you mapped transport
into your process map?
The Waste of Transportation
Production of service outputs beyond what is
needed
Paper work
Consequential Processes
Poorly designed process
Testing
Inspection / Checking
Question Have you identified all the activities
that should be right first time?
The Waste of Overproduction
Needless movement of people
Workplace layout
Office ergonomics
Constant switching between different systems
Question When was the last time the
layout / ergonomics were examined?
The Waste of Motion
Any work in progress (WIP) that is in
excess of what is required to produce for
the customer
Ties up working capital
Increases lead time (cycle time)
Hides problems and breeds complacency
Question What processes are in place to
identify excessive inventory?
The Waste of Inventory
Any aspect of the service that does not conform
to the customers needs
Missing Information
Materials
Labour
Resource Capacity
Process documentation
Question Have you completed a value stream
map that includes reject corrections?
The Waste of Rejects
New Starter Process
Line
Manager
Employee
HR Admin
Payroll
Receive Form Check Form is Form Ok? Input Data
Send doc
Doc Ok?
Check Details Input Data
No
Send to Payroll
Yes
Check Form
Complete Form
Send to
Employee
Form OK? Sign Form
Return to Line
Mnager
Pass to HR
Admin
Pay Employee
No`
Yes
Value Stream Mapping
Process Mapping
Inputs in HR / Payroll that
could affect Outputs
Late / No paper work.
Incomplete paper work.
Time spent transferring paper work from
department to department.
Time spent obtaining additional information from
other departments to complete a task.
Duplicate Keying
Poor initial data input quality requiring re-work.
Checking.
Use LEAN Tools and Techniques
to
Identify HR Processes that are inefficient or
ineffective.
Build a business case to implement Workflow,
Manager and Employee Self Service.
Prepare a business case showing the maximum
return on Investment (ROI) to procure a new HR
IT System or develop and existing one.
Prepare a SRS to improve manual non-value
adding processes.
Colleagues
(ASP) HRMS SYSTEM

Outputs
Inland
Revenue
EDI

HR SSC Service Delivery Model
Line
Managers
Finance
System
HCM
Payslips
P60s
MI
Transactional HR
Services
Changes Starters Leavers
Fleet
Provider
MSS / ESS
Inputs

Data Warehouse

Web Recruitment
Absence CPD
Pension
System
T&A
System
P11D
System
P11Ds
TRS
HR
Metrics
Flex
Bens
In Conclusion
HR / Payroll processes can be improved
using Lean six sigma tools and techniques
by :-
Identifying the Cost of Poor Quality.
Understanding the VOC
Reducing the Non Value Added activities.
Reducing Waste and implementing Leaner
processes.
Can you think how you might improve a
process in your department?
For More Information
www.transacthr.com
Email: paul.rains@transacthr.co.uk