Cost of Quality - Part III

Handling and reducing the quality costs

Cost of Quality

Now, there are two different types of quality costs, one is the necessary costs to run an efficient management system (which can be reduced significantly if we work more efficiently) and the other is when we make mistakes.

We work (in) efficiently and (in) effective

"Efficiency is doing the thing right. Effectiveness is doing the right thing." Peter F. Drucker (1909-2005)

Someone said (and I’ve had this confirmed by our controllers) that each person in my company costs on average $4 per minute (mind – the price of employees being high in Norway). It means that each minute we waste in not working efficiently or effectively cost the company $4. Let’s make a thought experiment – let’s assume that each person waste 10 minutes per day by not finding the quickest and most efficient way of doing a task. We do things laboriously, making the wrong assumptions, on incorrect decision basis or with lack of relevant information (that should be readily available). Or, we waste time perfecting something that is of no use or value to the company goals or objectives. 

Approximately 25000 people works in my company, which makes the following calculation:

10 min/day * $4/min/pers * 25000 persons = $ 1.000.000 per day!

And I’m not talking about people having a cup of coffee or taking a break to browse the internet or looking out the window (which of course comes with the same price tag, but we must allow people to take a break, otherwise we’re really not efficient, no-one can be 100% concentrated for 8 hours without a break. You need one break every hour/90 minutes to be efficient, they say. And there is a lot of value creation in a nice, productive coffee break!), I’m talking about time wasted in fumbling around and not being able to work efficiently.

To be really efficient, you need knowledge and competence. What you are good at, you do quick, correct and precise (i.e. efficient). It also helps with a good network of colleagues and good tools, as well as an opportunity to seek out information that gives precise and correct guidance. It must be room for systematic organizational learning, experience transfer and culture, as well as the information on how to perform tasks you don’t do every day and are not so good at are readily available. As they say - "triple your learning to double your income". (Robin Sharma)

A management system contributes in facilitating for efficient work. It means that all specifications and work processes must be plain and simple, at the same time as they are precise and clear in their purpose (e.g. risk mitigated or output from the process). They must be repeatable and recognizable, to the degree that a highly knowledgeable expert about a work process can acknowledge that this is in fact “the way we do it”. In addition, it is a big advantage if they are measurable and/or monitorable in a way that gives us predictability. (Repeatable processes that are repeated give predictable and consistent results).

Controlling the necessary quality costs

So how do you ensure simplification and thus control your necessary quality costs?

Firstly, you need that culture to be in place. And how do you create a culture for quality? One example is the so called “Toyota culture”. I’ll talk a bit more extensively about this culture in the next blog-post, but for now, just know that they have been able to create a culture that goes through their whole organization and it is based on some very few simple principles. There are many ways of creating a culture for quality and you’ll need all your leadership skills in doing it.

My second priority would be to always focus and expedite any and all simplification of the management system. Have an active role in suggesting improvements to the work processes and abstain from writing or accepting or approving too many and too heavy documents in the management system. Keep it simple.

Have a focus on Quality assurance, as third priority, making sure you measure and monitor your processes as you go along, involve people and ask for feedback on your work, regardless of level. And do risk based monitoring. Don’t conduct an audit or an examination if it is not founded in something that can divert us from our goals; a risk, with other words.

And my fourth priority would be to ensure that we are able to learn, systematically and documented, from other peoples successes and failures. Listen, talk, ask, check and double check. One of my executive leaders said that we should all make at least 3 phone calls to ask for experience and “Steal with pride” (I know this is a term some don’t like, you can also use “Copy and adapt”, it that makes you more comfortable.) But the main thing is - Learn from others and freely share your experiences with others.

Now, to the other side of Quality costs.

The unwanted quality costs

The unwanted quality costs are the expenses of doing things the wrong way. This could be accidents or incidents that occur, it could be non-compliance to requirements or the fact that we sometimes takes shortcuts and bypass necessary steps in our planned progress.

Who hasn’t experienced losing work because we have forgotten to save and the system fails – or we experience some kind of time-out? We can curse and spit, but all the precious work is irrevocably gone! We have to start over, do it all again. Rework!

We make mistakes all the time, it’s human to fail. But if it only was losing some work we have to redo, it wouldn’t be such a big deal. Problem is, in reality it is much worse! We breach safety barriers, we take shortcuts, we deviate from the management system and we fail to see the consequences of our decisions, accidents happen, people are hurt and/or the environment is damaged and ugly things are said about your company in the news. Projects fail, takes more time and cost more than planned, we lose control and everything end out in chaos. This is expensive. Very expensive.

These are the unwanted quality costs coming from not utilizing the management system which is there to ensure that we do our job right the first time, but also from not following more simple work processes that isn’t necessarily in the management system (as saving regularly when you are writing a document). But we don’t only have to do the job right; we also have to do the right job! Do you see the difference? To do it right the first time is about achieving quality and working efficiently, but to do the right job is to prioritize, manage risk and achieving precision, thus working effectively.

If we put this together it is “do the right things right the first time (and every time, I might even add)”. And by doing this, we can avoid a lot of these large, unwanted quality costs that comes from making mistakes.

Handling unwanted quality costs

So, how do you handle and reduce the unwanted quality costs?? They are a huge and unnecessary element that can, if managed properly, be reduced substantially and really give a boost to our cost consciousness.

Point 1 – we need to be proactive and try to the best of our ability to look ahead, see what can go wrong, learn from other peoples failures and successes and through that ensure that we do everything correctly, plan, cooperate, discuss, learn from each other. This is risk management!

Point 2 – we need to be active when we are performing a task, agile and mentally present and be willing to change if needed, but with due considerations of any consequences to the change we introduce. This is active and agile change management!

Point 3 – we have to be ready to clean up if something goes wrong. It might be reactive, but it has to be done and we need to ensure that it doesn’t happen again, through well-defined non-conformity management. 

Learn from our mistakes and don’t repeat them. Remove the root cause.  We need to take experience from all of the above, make corrective and preventive actions to prevent recurrence, report this so we can see trends and make analysis and thus learn on an organizational level (not just individual) and LEARN. 

This is the only way to handle the unwanted quality costs. Always and continually improve! "The biggest room in the world is the room for improvement" Helge Lund.

Next and last part will be about Quality culture. Stay tuned!