If you have the desire to undertake or are already doing it and are looking for ways to further improve your business results, this post is certainly for you.
The objective is not to go into aspects related to the history or origin of the PDCA cycle, but to talk about its importance, each of its stages and how to apply it.
Why is the PDCA cycle important?
Management is the act of managing organizations or teams with the objective of achieving a result (goal). In other words, it is related to fundamental practices and knowledge to ensure the survival and growth of organizations, that is, to improve each bez.
There are several areas within a company, which deal with different challenges and which, consequently, may have different routines and tools in order to better manage their business, but there are management aspects that are standard for them, such as the way how they solve the problems. It may seem difficult at first to imagine a method that can be applied to different areas and companies to improve results, but it exists! We call this method PDCA.
The PDCA cycle helps us to have greater clarity about the company's problems and their causes, facilitating the elaboration and execution of actions that will really improve results. The method helps us to be more assertive, making better use of our time and that of our employees.
PDCA Cycle
It is the method of problem solving that aims to continuously improve results:
The PDCA, as its acronym indicates, is composed of four major stages:
1) Plan: The planning step is divided into four:
1.1) Problem definition: Before planning any type of improvement action, it is essential to first identify the real problem you want to solve. For this reason, it is important to have a very clear definition of the problem:
A problem is an unwanted result or the difference between the current level and what one wants to achieve.
Therefore, it is essential that this identification is defined based on the main result indicators. If the intention is to identify a company's main problem, metrics such as:
Financial Metrics: Revenue, Expense and EBITDA (Earnings Before Interests, Taxes, Depreciation and Amortization)
Customer Satisfaction Metrics: NPS (Net Promoter Score) and Churn;
Employee Satisfaction Metrics: eNPS (Employee Net Promoter Score) and Turnover.
To identify a problem we need to compare the results with some benchmarking, basically there are two ways:
Internal Benchmarking: Historical data from the company itself are used for comparison. The advantage of using this analysis is the ease of accessing information, but it has the disadvantage of companies with a small track record, either for having a short time of existence or not having correctly registered the metrics for a significant period.
External Benchmarking: Competitor data is used for comparison. It has the advantage that we are comparing the results with those we have a clear need to overcome, but the disadvantage is that it is not always simple to get certain information.
Ideally, we have both references, as it is possible that we have the best historical EBITDA result, but in comparison with our competitors, we are worse off, indicating that we have an opportunity for improvement. Or even the opposite, we are ahead of the competition but we have worsened our metrics compared to the previous year, signaling that we can have even more advantage over the competition.
The output of this step is the definition of the goal we want to reach. The difference between the current level and what we want to achieve is the problem, or opportunity, as we mentioned before. But we don't always have the time and resources necessary to "capture" every identified opportunity, for this reason it is very important to assess how much of the opportunity it is possible to reach in the expected time.
It is important to note that a goal is defined by an objective, a value and a deadline, as shown in the example:
Example: Increase EBITDA by 10% in 12 months.
Objective: Increase EBITDA
Value: in 10%
Term: in 12 months
1.2) Phenomenon Analysis: After defining the problem, we have the analysis of the phenomenon, which is nothing more than the unfolding of the problem identified in smaller problems. The breakdown in the image below shows how we could split the EBITDA in a simplified way:
Note that the problem has been broken down into smaller parts, which mathematically result in EBITDA. Having clarity on the values of each of these developments helps us to have even more clarity on which component metrics we should act, which will be the most representative and which had the greatest distance from the expected result.
If this step were not carried out, we would not be clear about whether we should focus on revenue or expenses, metrics that require completely different actions by the company to be improved. The breakdown of the problem helps us to use employees' time wisely.
At this stage, we can often identify several specific problems that significantly impact the result in the short or long term. For this reason, we must prioritize them and give due focus to the resolution of each.
1.3) Process Analysis: After the problem has been broken down and the specific problem has been identified, we need to understand the reasons for this to have occurred. It is in the analysis of the process that we seek to analyze this. The intent is to ask "Why?" for each specific problem until we identify the root cause. We can identify that we have reached the root cause when it no longer makes sense to ask the question.
Suggested steps for performing this step:
Brainstorming: Bring together people who can help identify the causes, it is essential to have the participation of people who work in all stages of the processes that impact that indicator, that is, we can have the participation of operators, supervisors and managers. Encourage people to suggest all possible causes for the specific problem they are looking at, and pay attention to the following points:
Write down all ideas;
Everyone must participate;
Don't criticize the ideas;
One idea at a time;
Stimulate lots of ideas;
Consider extravagant ideas.
Ishikawa diagram: From the possible causes raised in the brainstorming stage, start to assemble the Ishikawa diagram. This diagram helps us structure each of the causes and see more clearly which are primary causes, secondary causes, tertiary causes... until we reach the root causes.
In order to facilitate the execution of this step, we can use a framework of types of possible causes to organize them:
Method: Procedures, manuals and work instructions
Raw Material: Specifications, suppliers and toxicity
Machine: Maintenance, protections, unsafe conditions
Measure: Verification and instruments
Environment: Interpersonal relationships, climate and dirt
Workforce: Training, Motivation and Skills
Virtually whenever a cause is suggested, it will fit into one of these six possibilities. The framework is very industry-oriented, but it can be adapted for other segments.
1.4) Action Plan: Having clear what problem is to be solved, the specific problems and the respective root causes, we already have the knowledge to propose efficient actions to improve the results. The action plan stage as the name implies is where we consolidate the plan that will solve the problem. The action plan must be sufficient to reach the goal, so it is essential that the actions are well structured and linked to an expected result. To prepare the action plan, we can use the 5W2H matrix as a basis:
Whenever possible, it is better to indicate a single person responsible for each action instead of the area, because, as the saying goes: "Dogs of two owners die of hunger".
Some actions, depending on the level at which the plan is deployed, will not have a direct relationship with a result, for example: "Raise product benchmarking in the market". This may be a necessary action, but by itself it will not bring any results, so it is important to make clear which are auxiliary actions and which others directly impact the reduction of the problem.
2) Do
It is at this stage that we carry out the prepared action plan. During execution, it is essential that we have tools and meeting routines that enable monitoring and identifying whether deadlines are being met. Bearing in mind that the entire planning stage has the function of consolidating actions to reach the goal, if the company does not comply with it correctly, it is almost impossible to improve its results.
3) Check
After carrying out some actions, it is essential to check if we are achieving the expected result and if we are complying with the prepared action plan. This step should occur routinely as well as the "Act" step, usually on a monthly basis.
To check the results we can use simple tools like Excel itself, which may already contain pre-established and dynamic graphs, and frequently fed with more recent data. For more mature companies, the ideal is to use more robust tools such as Power BI or Data Studio.
There are several tools that can help in monitoring the actions, we can use both simple Excel spreadsheets and software such as Asana, Microsoft Teams and Trello. These programs have several functions, but follow the Kanban model, which is a visual way of representing a team's workflow.
4) Act
4.1) Analysis of deviations and implementation of countermeasures: It is very important that we identify both the indicators that we did not reach the target and those that we did not reach and understand the reasons why.
It can sometimes happen that we execute the action plan correctly and we don't achieve the results, showing either that there were external factors that impacted or that the plan was insufficient. Or the completely opposite situation may occur, we did not carry out the planned actions and even so we achieved the result, due to assumptions not considered in the definition of goals and action plan. The most important thing is to always reflect on the reasons for achieving or not the result.
The acting stage is where we propose countermeasures to achieve results in the following periods. These actions feed our action plan, but it is important that the others are discerned in order to assess which results were achieved through the initial plan established and which ones came from countermeasures.
For the analysis of these deviations we can use the 3 Generation Report framework, which evaluates:
Past: What was planned? What was done? What results did we achieve?
Present: What are the problems identified?
Futures: What countermeasure actions will we take?
4.2) Standardization: If we achieve the expected results and identify good practices, we must standardize these actions so that they are continuously practiced by the organization.
Recommended Reading
Written by Vicente Falconi, True Power reports through cases and examples in which the author was directly involved, all the important issues for a company or project to develop and grow. It covers from what are the critical success factors for any organization to details of the method used for continuous improvement of results, the PDCA.