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.

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