The risks to be considered in a Lean Six Sigma Analysis

Lean operates on the principles of removing wastes of any process, thus accelerating the velocity and reducing process costs.  It basically focuses on speed.  Six Sigma operates on the principles of reduction of variations and improvement of process yield.  It basically focuses on quality of any given service or product.  To have a competitive edge over others, you should effectively combine both Lean and Six Sigma tools and principles.  Their combination holds the perfect toolkit for addressing almost all types of process problems.

There are two important risks associated with Lean Six Sigma analysis. They are:

1.  Alpha Risk -  Alpha risk is defined as the risk of rejecting the null hypothesis when in fact, it is true.  This is the risk of stating that a difference exists, while actually there is no difference at all.  Alpha risk is also known as Type 1 error or Producers Risk.  It is expressed as a probability (for e.g., 0.05 or 5%).  The value 1-alpha indicates the confidence level of a given statistical test.  Thus if alpha level is 0.05, it means there is a 95% confidence level.

2.  Beta Risk -  Beta risk is defined as the risk of accepting the null hypothesis when in fact, the alternate hypothesis is true.  This is stating that no difference exists, while there is an actual difference.  Beta risk is also known as Type II Risk or Consumer Risk.  A statistical test should be able to detect differences which are important in your perspective.  Actually, beta risk is expressed as a probability (for e.g., 0.10 or 10%) that it will not detect differences.  An individual or organization can determine beta risk, which depends upon the nature of decision made.  In other words, it depends on magnitude of difference between the sample means, and it is managed by increasing the test sample size.  It is normal and acceptable to get a beta risk of 10% while making decisions.  The value 1-beta is called the “power” of a given statistical test.  This power is the probability of rejecting the null hypothesis, when it is indeed false.

These are the two major risks that need to be scrutinized while performing a Lean Six Sigma analysis.