Lean Six Sigma Lessons to Improve CPA Firms

Most firms have been exposed to improvement methodologies including Kaizen, Strategic Brainstorming, Process Management, and Just Do It, which many consultants and partners already utilize with clients. Lean Six Sigma establishes continuous process improvement via the DMAIC methodology which stands for Define, Measure, Analyze, Improve, and Control. It is optimally applied when there are problems with workflow continuity and product variation, which describes most firm’s tax production processes today. Below we describe components of the Lean Six Sigma toolkit which firms should be aware of and consider applying to improve their organization.

DEFINE: The first step in the DMAIC process is to put together a project charter that defines the problem the firm is trying to solve in terms of measureable results, such as “reducing 1040 tax workflow by four days by the end of extension season.” Lean Six Sigma goals should meet “SMART” criteria in that they must be Specific, Measureable, Attainable, Relevant, and Time bound to be complete. Once a project charter is defined and the optimum team is selected, they should begin by charting the current tax workflow “as-is” either on a flip cart or using digital tools such as Visio or PowerPoint. Lean Six Sigma utilizes “SIPOC” to define the specific elements of all workflow processes, which consist of Suppliers, Inputs, Processes, Outputs, and Customers.

By further segmenting the flowchart by staff roles and the approximate time for each step, the firm will get a clearer idea of what processes work and those that cause bottlenecks. The next Lean Six Sigma step is to evaluate the process from the viewpoint of the customer and to focus on those steps that truly add value, which is not a common approach for accountants who tend to focus on their own processes based on the “old way” of doing things that they were familiar with. Focusing on adding value to clients and defining those items that are critical to quality (CTQ), another key Lean Six Sigma focus helps the firm define the optimal approach to their LSS project.

MEASURE: The focus of the LSS measure phase is to identify and clearly define the key indicators of a successful tax process such as minimizing the total tax production cycle days or the time it takes to complete each step of return production. Today’s workflow tools can easily track each process step and LSS tools such as histograms and run charts can help visualize current timelines, whereas tools such as Pareto and pie charts ensure the team is focusing on those items which create the biggest opportunity for improvement.

LSS training helps firms differentiate between continuous types of data (actual hours/days to complete) and discrete data (whether the step was complete or not) and then provides tools to quantify this information so the firm can verify progress is actually being made. This is where the technical aspects of LSS start to kick in and statistical analysis software such as SigmaXL and MiniTab can create control charts that identify whether a production process is under control or not, and how much variation is in the process, which identifies the sigma level (See Six Sigma sidebar). Hiring a LSS Black Belt and/or having a team member certified as a green belt can provide access to such analytic tools.

ANALYZE: The analyze phase of LSS incorporates process and data analysis techniques to verify the root causes of problems and keeps the firm from prematurely jumping to inappropriate solutions. LSS uses tools such as Affinity Diagrams and Fishbone Diagrams, which allow the firm to visually identify the cause and effect of flaws in a production process, and the relatively simple act of asking “why” something happens five times in a row, allows for in depth analysis and fairly effective brainstorming. Another effective LSS tool is to perform a Lean Process Analysis which charts the time it takes to perform each step of the workflow and identify which steps (and what % of the total process time) add value from our client’s perspective, instead of performing steps “because we have always done it that way!”

According to “Lean” manufacturing, any process steps that do not add value from a customer perspective should be viewed as waste and targeted for reduction or elimination. Lean Analysis techniques also incorporate the organization of each accountant’s work area to maximize efficiency. We’ve all seen the antithesis of this, a tax reviewer’s office piled with random tax returns. Lean’s “5s” promote individual efficiency by Sorting work in a prioritized fashion, Simplifying access so needed files are at your fingertips, Standardization of files and bookmarks so anyone can review another’s work, Shining which is keeping you work area clean, and the Self-Discipline of each employee to continually strive to do better. Again, the Lean Six Sigma provides tools that can be applied by accountants effectively in their firms, and the statistical software tools previously discussed in the Measure phase can be used to validate any recommendations.

IMPROVE: The focus of the fourth phase of LSS is to generate solutions beginning with advanced brainstorming techniques including brainwriting, anti-solutions, developing analogies, and considering solutions with the “Six Thinking Hats” approach. Approaching a problem from a different viewpoint promulgates different solutions and the six hats has participants focus on solutions that fall in alignment from the angles of: creativity, emotion, pure facts, optimism, criticism, and process control. LSS also promotes benchmarking our processes against other hallmark services or industries to see how they can be applied within our firms (i.e. an Indy pit crew against the scanning department in your firm).

One of the next steps of the Improve phase is to document the proposed solutions on the flow chart as the system is “to-be” so that firm personnel can visualize the improved process and then to pilot the improved process to work out issues and further document them. A helpful component of this phase for CPAs is to produce a cost-benefit analysis which identifies the hard and soft benefits against direct and indirect project costs so expected financial results can be measured including an anticipated time to break even.

CONTROL: The final phase of process is put controls in place to ensure that the new process is utilized and that people adhere to these controls, which is referred to within LSS as a Process Monitoring Plan. Using a tax workflow system forces personnel to use one system that is the “firm’s” system instead of creating special processes to appease each reviewer/partner. When tied to dashboards that visually depict the results on a day to day basis, firms can actively monitor what is going right and get early warning when there are issues. Firms have long had key performance indicators that monitored those items that were important but in most cases these were backwards looking. With today’s integrated dashboards and process control charts, those KPIs can be charted so they are updated in near real time and can be more predictive.

CONCLUSION: Lean Six Sigma tools and resources add additional capabilities to a firm’s ability to successfully evaluate and improve their production processes, so firms should take the time during the off season to learn about them add them to the other process improvement resources in their toolkit.

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Roman H. Kepczyk, CPA.CITP is Director of Consulting for Xcentric, LLC and works exclusively with accounting firms to implement today’s leading best practices and technologies. Roman is also author of “Quantum of Paperless: A Partner’s Guide to Accounting Firm Optimization” which is available at Amazon.com and a Certified Lean Six Sigma Black Belt.