Not considering cost of quality is dangerous

In projects, teams often have a difficult time quantifying tangible benefits. This is tragic, since tangible benefits are an important way that teams communicate their achievements to the larger organisation. Moreover, tangible benefits help secure buy-in, especially from the organisation’s senior executives. Amongst the most enduring tangible benefits that are articulated are:

  • Labours Costs– a process that initially occupied 10 employees now occupies 4 employees. The savings are derived from the total estimated wage of the 6 employees that have been removed.
  • Material Costs– a process that initially required 20,000 sheets of paper to be printed now requires none. The savings are derived from the total retail cost of the 20,000 sheets of paper. Associated with this is also the cost of printing, which includes toners, staplers etc.
  • Cost Avoidance– a department resists a vendor’s attempt to raise prices by 5 percent, allowing the department to avoid spending an additional $200,000 that year. This usually involves avoiding a future cost increase by delaying, reducing or even eliminating a proposed price increase.
  • Cost Recovery– a department reclaims money that was previously spent on items that are now considered obsolete. Usually, this entails selling equipment back to a supplier, or to any other interested parties.

A tangible benefit that is frequently ignored is Cost of Quality, or rather, actions taken to ensure that a particular product or service meets expectations. These quantifiable activities may include:

  • Verification– costs of labour and materials that are needed to check incoming service, product or process setup.
  • Supplier rating– costs of labour and materials that are needed to assess and approve suppliers.
  • Waste– costs of labour and materials dedicated to performing unnecessary work as a result of errors, poor organisation or communication.
  • Scrap– Defective product or material that cannot be repaired, re-used or sold. Rework or rectification– costs of labour and materials needed to correct defective materials, services or errors.
  • Failure analysis– costs of labour and materials associated with activity to establish the causes of internal product or service failure.

Just about a month ago, my friend Mark submitted a request to his company’s IT department to set up a web server. The first person to receive the request was a Service Representative, who collected all the necessary information. The request was then passed to the Infrastructure team, who promptly asked Mark the same information that the Service Representative had earlier collected. Mark did not know better, and gamely repeated the same step he had done with the Service Representative. Then, Mark’s request was passed over the the User Accounts team, who, to Mark’s utter amazement, began to ask the same questions that the previous two parties had asked. Mark began to feel frustrated and wrote a complaint email to the the IT department. The IT department was apologetic, and promised to retrieve the information from the Service Representative.

Now, if the IT department had had a proper process in place, Mark would not have had to restart his application at every point in the request process. This would have saved a lot in terms of lead and cycle time. Waste is one of the most destructive Cost of Quality. Frequently, business units that are not organised properly cannot see waste, but waste is extremely visible to the customer.

Four Tips About Benchmark Design You Should Know

I often get annoyed when people talk about benchmarking. It’s not that I dislike the whole idea of benchmarking, but that a lot of discussion on the topic is plain wrong.

For example, benchmarking programmes should not be implemented in the absence of a management framework that already tracks performance measurements. Good performance measurements reflect the most critical operating aspects of business processes, systems, governance and function.

In almost all instances, benchmarking benefits from an environment where business excellence frameworks like the Singapore Quality Class (SQC) or the European Foundation for Quality Management Excellence Model are actively applied. Instead of being an orphaned afterthought, benchmarking becomes a natural extension of business, and a core component of knowledge management.

A comprehensive benchmarking programme internalises 4 guiding principles: the four guiding principles 1 are Measurement Focus, Measurement Perspective, Measurement Control and Collection of Data.

Measurement Focus

Organisations are fond of cluttering their dashboards with performance metrics that measure almost every aspect of their operations. After all, common wisdom is that what cannot be measured cannot be improved. However, a lot of times, organisations are measuring things that just not that important. Worse, things get measured and reported, but lead to no real change. How useful is soliciting the customer satisfaction rating of every phone-call if the scores are simply parked in a database, and only dragged out in quarterly meetings?

Performance measurements must be actionable, and for them to actionable, organisations need to:

  • establish where value to a customer is created in either a work area or business process.
  • determine where value is lost, either through process wastes like errors, rework, duplication, or high costs and workplace accidents.
  • focus on business functions whose performance clearly deviates from standards, service levels or regulations.

Measurement Perspective

Like performance measurements, benchmarks arrive in two forms: leading and lagging indicators. While leading indicators are predictive, lagging indicators are reactive. Most leading indicators do not measure actual performance, but predict them instead. Thus, a high turnover rate in the Engineering department- the leading indicator– may forecast a future dip in customer satisfaction, presumably because of a decline in product quality.

Lagging indicators describe, often posthumously, the actual performance of processes over a given duration. Financial metrics like sales, profits and expenditures are traditional examples of lagging indicators that organisations use to compare the impact of actual outcomes versus targeted outcomes.

A comprehensive benchmarking effort enlists both leading and lagging indicators.

Management Control

Although benchmarks can be set at almost every level of the organisation- cascading from the enterprise level right down to the individual employee– benchmarking is essentially people-centric. From the outset, the benchmarking effort must establish clear ownership over who owns what performance metric, based on the individual level of authority, scope of responsibility, and skill sets. It is unfair to assign employees responsibility over benchmarks that they may not have direct control over.

Gathering of Data

While it’s true that performance metrics must be quantifiable to be effective, some organisations rush headlong into creating as many as they can, without evaluating if the data is easy to collect in the first place. The problem is made worse by the fact that most entrenched organisations still lack a robust data-driven culture. Again, business excellence adopters possess a clear advantage, since business excellence frameworks emphasise the importance of collecting and acting on the results of key business enablers like processes, products and services.

The best performance benchmarks are collected without investing heavily in either time, systems, manpower or budget.

Show 1 footnote

  1. Adapted from Christopher E Bogan and Michael J English, Benchmarking for Best Practices- Winning Through Innovative Adaptation (McGraw-Hill), pg 47

Making Process Improvement a Green Affair

It’s easy to underestimate the impact that process improvements has on the environment, but it’s real. Whichever tool a team uses to examine and improve their work, one of the first targets is usually muda. Muda is a Japanese word that means waste. Wastes appear in all processes, even in processes that have been improved. As a result, employees engage in continuous improvement activities like standardisation, 5S housekeeping campaigns, work improvement projects and staff suggestions to make sure that waste is kept at bay.

In almost all processes, 7 types of wastes frequently occur.

  • Overproducing– which refers to purchasing or providing a service, information package or product before it is needed. Overproducing also happens if a particular space- with its air-conditioning and lighting- is made available when there is little or no need for it.
  • Inventory– which refers to work piling up in inboxes, partially completed tasks or documents, files, online or electronic storage. Excess inventory also occurs when files and records are kept without regularly purging old items. This makes searching for records complex, and demands a huge investment in storage facilities.
  • Waiting– which refers to delays caused by pending reviews or approval. Even difficulty in accessing, retrieving and manipulating information cause delays.
  • Extra Processing– which refers to time spent doing unnecessary steps. An employee who has to spend time re-keying or reformatting data, printing extra copies of unneeded reports, multiple versions of drafts etc, is likely to be caught in a loop which triggers other kinds of wastes like Waiting.
  • Rework– which is one of the most common kind of wastes caused by defects in either a service, product or document. A form that contains unclear instructions, for example, may cause the customer to provide wrong information. The person who receives the form is forced to either amend the defective form, or request the customer to resubmit a fresh form. Both are considered rework.
  • Excess Motion– which means that when a worker wants to retrieve anything that is essential to a task, he or she finds that it is out-of-reach. These items may include data, information, files, centralised inboxes, stationary, printers, fax and copy machines.
  • Transportation– which refers to the excessive movement of work between locations. E-mail attachments, documents or files routed for multiple layers of approvals or evaluation, even expertise that is located too far away from where it is really needed can cause this waste.

Wastes are non-value-adding activities that do not directly benefit either an internal or external customer. A service is not enhanced by Extra Processing, for example. Neither does a product take on a better shape or quality by Rework. It does, however, make customers unhappy about the organisation.

In a knowledge-intensive environment, for example, wastes appear in many ways, but are increasingly caused by excessive and unnecessary use of smart devices like mobile phones, laptops, desktop computers and smart watches.

While portability exacts an environmental price in the creation, maintenance and disposal of batteries, all modern devices exact a price in computing power, which is neither cheap nor evenly distributed across societies.

Computing power needs physical spaces to host servers, as well as precious electricity to feed an ever-growing demand for speed, storage and intelligence. Almost all wastes will trigger unproductive use of computing power in the form of extra emails that are sent to chase for late submissions, or a customer staying that much longer in a chat session to finally obtain the information he or she needs.

For organisations that still use traditional paper documents, wastes like Rework are liable to create tons of paperwork, cycling between customer and organisation in a deadly but entirely avoidable loop. Imagine the number of trees that are chopped down to support such horrifying practices.

There is no doubt that that process improvements can play a significant part in helping organisations achieve energy and environmental conservation.