Governance, Risk, and Compliance Handbook: Technology, Finance, Environmental, and International Guidance and Best Practices

CHAPTER 15

THE USE OF SIX SIGMA IN OPERATIONAL RISK AND REGULATORY COMPLIANCE: REDUCTION IN VARIABILITY

Brett Trusko, PhD, Master Six Sigma Black Belt

15.1 WHAT IS SIX SIGMA?

15.2 THE SIX SIGMA METHODOLOGY

(a) Define

(b) Measure

(c) Analyze

(d) Improve

(e) Control

15.3 THE HARD TOOLS OF SIX SIGMA

15.4 THE SOFT TOOLS OF SIX SIGMA

15.5 CONCLUSION

Six sigma is often used as a catalyst for compliance and as a best practice in operational risk management, which is at the core of many compliance protocols. The criticality of compliance for numerous reasons, including physical and financial loss as well as the risk to the reputation and financial going concern of a company, means that companies are becoming more serious about the control that is obtained from adopting, or at a minimum utilizing, the tools of six sigma.

At the root of six sigma is the need to reduce variation in business processes. In fact, the term sigma refers to a standard deviation; for those who still remember their college statistics, the chance of a defect under a normal curve at six standard deviations is a number approaching zero. In the case of a company that must meet compliance requirements and is at risk for fines, or worse, less deviation means better consistency in reporting and thereby less risk for the company.

Many companies that are required to meet the regulatory compliance to reduce risks have also been interested in six sigma, and are finding that the two programs are complementary. Six sigma has ...