Fast Initial Response Control Charts For Accounting Activities

Abstract

Although Six Sigma was developed to improve processes in a manufacturing environment, its use has expanded to many other areas including accounting and finance.  We propose that control charts, originally used as tools for monitoring short-run manufacturing processes, can be effectively used in the Control Stage of Six Sigma projects designed to improve accounting processes with sparse data.  We describe four of these control charts: (1) pre-control charts; (2) Shewhart control charts with dramatically reduced average run lengths (ARLs); (3) Cumulative Sum (CUSUM) control charts with fast initial response (FIR) enhancements; and (4) Exponentially Weighted Moving Averages (EWMA) control charts with FIR enhancements.  We provide examples of FIR enhancements to CUSUM and EWMA control charts that can result in quicker detection of small shifts in the mean of accounting data.