Six Sigma for Investing: Delusions of Adequacy - CIFPs

50 Pages·2008·3.56 MB·English

Six Sigma for Investing:
Delusions of Adequacy
Chris Jenkins, CIMA®
Vice President
Independent, Bank & NYSE Division
Franklin Templeton Distributors, Inc.
What Are Your Clients’ Expectations?
S&P/TSX - December 1997 to December 2007
$28,000
$24,000
$20,000
$16,000
$12,000
$8,000
Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07
Dealer Use Only Source: Source: S&P/TSX, Globe Hysales
The Impact of Real Returns
January 1987 to December 2006
Investor Return vs. Investment Return1
11.8%
4.3%
3.0%
S&P 500 Average Equity Inflation
Index Fund Investor's
Annualized Return
1.“Quantitative Analysis of Investor Behavior,” Dalbar, Inc., 2007. The S&P 500 is an unmanaged index; one cannot
Dealer Use Only
invest directly in an index.
Jumping Out of the Market Could Cost Money
The risk is missing the day the market begins recovering
S&P/TSX – 10 Years Ending December 31, 2007
Average Annual Return Growth of $10,000
Fully Invested 9.47% $24,720
Missed 10 Best Days 5.26% $16,660
Missed 20 Best Days 1.91% $12,061
Missed 30 Best Days -0.96% $9,090
Missed 40 Best Days -3.35% $7,154
Missed 50 Best Days -5.48% $5,755
Missed 60 Best Days -7.43% $4,706
Dealer Use Only Source: Bloomberg as of December 31, 2007. Distributions are reinvested.
Six Sigma
(cid:131) Uses data and statistical analysis to measure and improve a
company’s operational performance
(cid:131) Identifies and eliminates “defects” in manufacturing and service-
related processes
Six Sigma Statistical Goal
(cid:131) 3.4 defects per million opportunities or 99.99966% perfection
Dealer Use Only
Industry Defects
Industries operating at 97% or a level below Six Sigma,
could lead to the following results:1, 2
(cid:131) 5,000 incorrect surgical procedures per week
(cid:131) 20,000 articles of mail lost per hour
(cid:131) 200,000 incorrect drug prescriptions each year
(cid:131) One hour of unsafe drinking water per month
(cid:131) Two long or short landings at a major airport each day
(cid:131) 50 newborn babies dropped each day
1. Source: Rath & Strong in Motion; www.rathstrong.com.
Dealer Use Only 2. Source: USA Today; “Feds to Unleash Six Sigma on Terrorism,” 10/31/02.
Case Study: GE
Delivery time of its plastic products
Existing Process Improved Process
20 17
15 2
10 5
30 12
5 4
16 Days 8 Days
Average Cycle Average
50% Improvement
Dealer Use Only Source: Jack –Straight From the Gutby Jack Welch with John Byrne. Copyright 2001. Published by Warner Books.
Case Study: GE
Customer Expectation: 8 Days
Improved Process
17
2
5
12
4
8 Days
2 (-6) 8 (+9) 17
Six Days Nine Days
Early Late
Dealer Use Only Source: Jack –Straight From the Gutby Jack Welch with John Byrne. Copyright 2001. Published by Warner Books.
The Idea of Six Sigma
Customers Feel the Variance, Not the Average
“Often, our inside-out view of the business is based on average or
mean-based measures of our recent past. Customers don’t judge
us on averages, they feel the variance in each transaction.
Six Sigma focuses first on reducing [investment] variation and then
on improving capability.”
“Customers value consistent, predictable business [investments] that
deliver world-class levels of quality. This is what Six Sigma strives to
produce.”
Dealer Use Only Source: www.ge.com/sixsigma.
Case Study: GE
Reduce the
Variance
7
9
9
8
7
8 Days
Dealer Use Only 1. Source: Jack –Straight From the Gut by Jack Welch with John Byrne. Copyright 2001. Published by Warner Books.