A Decision Analysis View of Six Sigma

We present a decision analytic model for the decision to incorporate a Six Sigma quality process. We investigate the effects of some key elements on the Six Sigma decision. These elements include implementation cost; attitude towards risk; defect costs, and firm size (number of production or service stages). The optimal solution reveals several managerial insights regarding the impact of the various factors related to the Six Sigma decision. Naturally, implementation cost makes Six Sigma less attractive while attitude towards risk plays a role in determining the optimal sigma (quality) level. In addition, the best decision alternative for small and middle sized firms is not necessarily to have the highest quality standard or highest sigma level. In some instances, as we shall see, it may be more important to consider other profit generating alternatives before taking the Six Sigma route.