04/09/2023 1

Lean Six Sigma Black BeltProject Certification

Financial Repositioning forRetirement

Paul Kovatch 9/13/2011(714) 488-4350

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Index

• Executive Summary • 1 Define Phase page 3• 2 Measurement Phase page 5• 3 Analyze Phase page• 4 Implementation Phase page• 5 Control Phase page• Appendix page

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Learn six sigma Black Belt Project

Operational Definitions• Lifestyle- Current day to day spending habits based on

available income• Budget- Spending limits based on reduced income• Habits- Normal routines of living, both good and bad• Assessment- Separating true (real) needs versus wants• Routine- Establishing “new” goals and a focus on a

long range purpose • Temporary Condition- Un-planned expenses and time

commitments, i.e., house fire, illness, car repairs, family problems, etc.

• Normal- Lower living conditions “permanently”

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Executive Summary• Project Wins!• Improved <primary metric> from

$6K/mo to $2K/mo • Reduced stress, less worry• Less time to focus on more

important opportunity to share with others lessons learned

• Context• Potential loss of control resulting

in possible foreclosure/ eviction and homelessness

• Project Timing • Start Date: 5/13/11• End Date: 9/13/11

• Graphs• A)Primary metric before

$6k/mo VS. after ($2k/mo)• B) Root cause analysis: fish

bone• Control chart- split before

vs. after

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1)Define Phase

• Voice of customerOperational definitions

• Baseline data and performance to customer expectations• Problem and goal statement• Project impact pro/con• Project and communication plan timeline (creditor/settlements)• Tools• VOC data analysis• Project charter • Timeline

High Level summary

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Project CharterProblem statement: Total expenses exceed income by over $4,000/ moRetirement requires establishing a budget reduction of income from over $6,000.00 per month to within $2,000.00 per month.

Goal Statement:Reduce all expenses to $2,000.00/moIdentify all subcategories of expenses and brainstorm various possibilities for reduction

ScopeOut:Excludes other incomeAny rental incomeSupplemental incomeDiscretionary income In:All variable expensesAll fixed expenses evaluatedFixed income sources (recurring only)

Business Case & Benefits:ExpectationsLess stress and more enjoyment of life with a minimal amount of financial obligations

Timeline: Competition 10/8/11Includes tax records from past three years and to be completed within six months)

Voice of Customer:Think “outside” of the box with a view of ZERO BASED BUDGETING i.e., no income and No expenses (starting point)

Team Members:

Paul Kovatch, selfRick Ames, CPAKayvan Mozaffari, Partner

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Timeline: Estimated vs. ActualProjected Activities

Define PhaseOp DefinitionEx SummaryDMAIC ApproachRoot cruseBefore /AfterPie chartBar chart5/27/11

Measurement Phase

Measure

Analyze Phase

Implementation Phase

Control Phase

Deliver to instructor

Month May 11 June 11 July 11 Aug 11 Sep 11 15 Oct 11

Actual Activities & Comments

Control ChartVOCSEPOCSWIM

Plot

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VOC: Voice of Customer

• Who? Me• What? Monthly financial obligations “must”

be reduced to new levels of expected income• How? Income driven• Old data to new process to new data• When? Six month • Where? Smaller Home Living Conditions• Why? Necessary Life Style Changes

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High Level SummaryMisc -Credit Cards-Entertainment-Licenses-Gifts

Insurance-Health-Life

Transportation-Car Payments-Insurance-Gasoline-Repairs

Food-In-Out

Housing-Utilities-Mortgage-Taxes-Insurance-Utilities

N/A-Tithe-Income Taxes

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Cause and Effect(Fish Bone)

• Location Ownership Square Footage• City Tax #parking• Condo? Insurance #Garage• Apt? Rent #Bath

#Bedrooms

• Gas RV? (non op) Housing • Electric No insurance Livings Room Requirements• Water Kitchen• Trash Dinning room• Sewer Bedroom• Cable Den• Internet Patio/BBQ• Satellite Storage Amount of Furniture•

• Utility consumption

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• Insurance Tolls Repairs• Tow• Comprehensive Teaching• Thief• Fire Age?• Liability Service

• Lease 4 cylinder Truck Local Transformation

• Finance 6 cyl Car Long distance

• Cash 8 cyl Hybrid

• Car Payment RV

Gas BusinessTravel (Vacation)

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• Part time Furniture Credit cards Clothing• Business Laundry

• Advertize Used Cash Replacement

• Cell Phone New Payments Seamstress

Misc

License Birthdays Bookscoins Self

Shots Karaoke Others

Food

Pet Gifts Hobbies Entertainment

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• Life Heath Home Insurance Fire

• Term Eye Liability • Accident Dental Earth Quake• AD + D Long Term care• Disability ADA• Mal Practice Search Car Rental Insurance• Mail Tow• Business Phone Comprehensive Copies Collision

Umbrella Loss of Job LiabilityAuto Insurance

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• Others In

• Business Prepared

• Family cook

• Friends Fast Food Food

• Diet Buffets

• Exercise Casual

• Medicine

• Diabetes OUT

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Insert Process Map Here

• Swim Housing– Food Flow Chart

– Transportation Value Stream Map

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SIPOC TemplateSupplier Inputs Outputs Customer/

StakeholdersRequirements

Procces Step 1

Process Step 2

Process Step 3

Process Step 4

Process Step 5

Process Step 6

Process Step 7

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Swim Lane Process Map

•Paul Kovatch (Self)

Customer

Dept. 1

Dept .2

Dept. 3

Dept. 4

Dept 5

Housings

Food

Transportation

Insurance

Miscellaneous

Lean six sigma Black Belt /Kovatch

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Process Level Map

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Value Stream Map (VSM)

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Measure (Phase)

• Approach to data collection (Tax returns from 2008-2009-2010 36 months current sample period May 2011-Aug 2011 (weekly)

• Approach taken to validate that data was accurate (snapshot) 4 months

• Data collection sheet sample (All credit cards and cash receipts )

• Baseline Measure 2008• Comparison of baseline measure to the goal

• Past (2008) Future (2012)

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Exercise: Baseline Data Capture

Since 2008 Tax Records• All- Cash Receipts

Checking AccountsCredit CardsBarter (Excluded)

To difficult to quantifyActual/Not projected

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Sample Measure Chart

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3)Analyze (Phase)

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Exercise: Hypothesis Statements

Potential X

• Mortgage/ Housing Expense

• Utility consumption• Food In/Out• Cooking for self• Transportation• Job search only• Insurance • Minimum Required

by Law.• Miscellaneous

Hypothesis Statement

• Need 2,000 Operate Capital

• Luxuries

Graph to Display or Result (True or False)

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Exercise: Hypothesis Statement

• Null: • Income and Expenses are Equal• Alternate: • Income and Expenses are “Not” Equal

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Sample Analyze Chart

• State Conclusions HereDifference of $4,000/mo is Mostly;-Housing-Utilities-Credit Cards-Food out-Gasoline-Excess Insurance

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4) Improve (phase)

• Likely topics are• Approach to prioritizing and selecting

solutions that eliminated root causes (By needs only (Amount) not revelant)

• Forced lifestyle changes (new habits)• Best (Only) way to avoid spending=keep out of

store• Avoid dollar stores and Thrift stores

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Root Cause and Solutions MatrixSolution 1:Housing

Solution 2:Food

Solution 3:Transportation

Solution 4:Insurance

Solution 5:Miscellaneous

SolutionOwner(s)Root Cause 1:

Root Cause 2

Root Cause 3

Root Cause 4

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Insert Baseline and Improvement data comparison

• Baseline Data – 8K/mo

• Improvement Data – Goal ($2K/mo)

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5) Control (phase)

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Next Steps

-Continue New spending plan-Pay bills first when income arrives-Use shopping lists, coupons, save news paper-Rotate food, especially frig/freezer and

boxed/processed items-Keep busy/exercise-Less TV/Less snacks

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Appendix

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Lesson Learned

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Project Team• A Project team was formed to help in the entire project to follow each

phase of the project.• The Project team took part in defining the goals, determining hypothesis,

brainstorming, cause/effect and possible solutions• Spare Down

Position Name % AllocatedLead Paul Kovatch 80Core Team Kayvan Mozaffari 5Core Team Rosy Lorenzo 10CPA/ Advisor Rick Ames 5

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Threat vs Opportunity Matrix

If we “Don’t” Threats Do something-Accumulation of short term debts.-Increased stress-Loss of Financial Control

If we Opportunities ‘Do’ Take Action-Balance Budget-Reduced Stress

-Unable to Help others-Forced change of Lifestyle-Foreclosure-Possible Bankrupcy-Eviction-Home lessness

-Improved Lifestyle-Financial Liberty-Potential Residual discressionary money

Short Term(Less Than 6 Months)

Long Term (More than 6 months

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Business CaseScenario

• While retirement is inevitable; the date was a moving target and seemed to continually be moving farther into the future.

• A Series of events starting with being outsourced (Laid Off)• -Cancer• -Totaling a New Car• Divorce And finanlly• House Fire.This Prompted the decision to take retirement at age 62.

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Problem/Goal Statement

• Problem Statement:Over the past 3 years my income has been constantly going

down throught NO fault of my own. My constant efforts to reverse the trend have, at best, slowed down the inevitable. The current expenses are over $6,000 /mo.

• Goal Statement:The Future income is only expected to be approximately

$2,000/mo. Therefore, the budget must be reduced by more than 66%

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Project Scope100%

Inscope-All Variable Expenses-All Fixed Expenses-Recurring Income-Credit Cards

Out of Scope-External Income-Rental Income-Discressionary Income-Tithe/Taxes-Unexpected Expenses

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Measure Phase• -All Records were collected:

-Credit Card Statements-Bank Statements-Cash Receipts

• -Data for baseline is 2008 taxes• -Data collection is three (3)months (June-July-August 2011)• -Five major categories were identified totaling over 90% of the total budget.

1.Housing2.Food3.Transportation4.Insurance5.Miscellaneous

• -Monthly expenses vary approximately 8% of annual budget.

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Baseline Data Chart

2008 2009 2010

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Root cause and solution matrixSolutions

Need (necessity) Reduce Demand Shop Around Status Quo Want (Luxury) Eliminate

Housing * * * *

Food* * *

Transportation* * * *

Insurance* * * *

Miscellaneous* * *

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Impact vs Effort

Low-Reduce Driving

-Change Eating Habits-Reduce Petty Cash spending

High-Reduce Insurance coverages

-Renegotiate Home Loans-Negotiate Credit Card Settlements

LOW

HIG

HEF

FORT

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Improvement Process

• Choices:1. Eliminate Expenses2. Reduce Expense

-Reduce consuption/demand-Negotiate Alternatives-Change Provider/source-Reduce Expectations

3. Status Quo -Acceptance as Necessity only

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Improvement Data(Before and After)

Housing Transportation Food Insurance Miscellaneous

BeforeAfter

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Control Plan

• Monitor plan:-Daily Cash Register-Weekly Bank Reconciliation-Monthly Credit Card Statement

• Response Plan:-Emergency recovery requires funds transfer from other categories-Reserves Only as a last resort, ie; IRA, Savings, Credit Cards and Loans

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Lessons Learned

• -A Real Desire must be present whether self-imposed or driven by circumstance

• -Extreme goals limits must be set and effort and determination cannot wait

• “Zero-Based” budgeting is very helpful starting with No expected income

• -Do Not use current monthly payment contracts as a reference point (while they are commitments they are a negative goal)

• -”True” success brings residual cash along with peace of mind and true financial fredom

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Summary Statistics

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DAMAGE CONTROL

• UNPLANNED EXPENSES

-Hospital Illness-Major appliance breakdown

-Natural disaster-Loss of Income

• CONTINGENCY PLAN

-VA-Alternate Transportation-Landlord-Government assistance -Family support-(prayer for wisdom)

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Pie Chart total (Before-After)Percentages

>$6,000/mo

HousingN/AMiscInsuranceFoodTransporta-tion

<$2,000/mo

HousingTransporta-tionFoodN/AMiscInsurance

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Pareto Chart

Housing Transportation Food Insurance Misc N/A0

10

20

30

40

50

60

70

80

90

100

60002000

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Data Collection

• -While most expenses occur annually ie. (Insurance, taxes, etc) the expenses are averaged monthly.

• -Major decisions/changes were required in order to implement drastic cost reductions(i.e, renegotiation mortgages , settle credit card accounts and/or cancel contracts,etc.

• The most difficult financial decisions required assessing lifestyle habits and truly separating needs from wants.

• -Ownership of only object brings additional related expenses (i.e, automobile, home, pet, etc.)

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Summary

• The elimination and/or reduction of debt obligations brings much more than financial satisfaction. The budget burden relieves stress and anxiety and may, in fact lead to a longer, more healthy life. Priceless!!

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Major Milestones page 1

• -Housing-2008 1st TD from $3,900/mo to $2400/mo Foreberrance

2nd TD from $450/mo to $230/mo-2009 -Default on 2nd TD (Equity Neg 25%)

-Loan wrote off but not released -1st TD refinanced (Neg 200%) $1879/mo 35yr fixed 2.2% APR Rewrite

-2010-Major House fire/Insurance limited -2nd TD accepted $14K payoff (reconveyance received) Sep 2011

-Rented unfurnished room $350/mo plus $200/mo

-Purchased large motor home From IRA

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Major mile stones (cont’d) page 2

• Transportation• 2008- Totaled new car-insurance paid

(stopped car payments) - Purchased used truck from IRA

• Food - Reduced restaurant meals out

(limited to coupons once per week)

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Major Milestones Page 3• Insurance 2008- Canceled umbrella insurance

-Canceled health insurance for VA-Intensive care (8days)

2009-Reduced auto insurance to liability only.-Cancel term life (hold whole life paid)

2010-Fire Insurance is paying house insuranceMiscellaneous

2008-Cat missing -Canceled extra phone and satellite TV -Lost Job2009-Dog Missing -Reduced Internet -Divorced2010- Reduced Cell phone bill (50%)

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Major Milestones (cont’d) page 4

• N/A Items (no change)• -Tithe 10%• -Taxes 10%• -Personal Items

• -Entertainment• -Gifts• -Clothing• -Furniture• -Education• -Savings• -Membership/Subscriptions

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Contingency Plan

• If the fire insurance funds are enough to cover the rebuilding and all permit upgrades the rental income ($500x6) $3000/mo should more than cover the mortgage payment and extra utilities.

• Added bonus=free housing for my self and 90% tax write off.

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Before

• Housing $4400• Food $600• Transportation $450• Insurance $150• Misc $400• Credit cards $500• Other N/A $1000

>$6,000 Employed (over budget)

After %Decrease

• $400 90• $300 50• $100 80• $80 40• 200 50• $40 95• $800 20<$2,000 Retired (under budget)

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Expenses

Fixed

Controllable

Un-Controllable

-Satellite/Cable-Inernet

-Mortgage-Taxes-Insurance-Trash

Variable

-Phone-Food Out-Water/Gas/Electric

-Food In