Cost of Quality - part IV (last)

Building a culture for quality

As I said in the previous blog posts, the culture for quality is strongly tied to the implementation of the management system. The implementation of a management system is really about awareness, motivation and involvement for use. “Tough boys don’t read the instructions”, simply said. Hard core project managers snort and fret about processes and procedures and NO-ONE shall come and tell them how to manage and lead their project to success. This type of attitude exist is full degree in many companies and we come up short with our management system when we meet this type of attitude. How can we turn it around?

Well, the management system has to be communicated and sold as an efficient helping tool. Something that each day ensures that you work 10 minutes more efficiently than what you would have done without it. That the idea of “repeatable processes that are repeated gives predictable and consistent results” is within the spinal cord of the organization. That the management system contributes to factual decision making, together with a clear understanding of the risk picture around any assumptions.

When we are building a culture that takes the management system actively in use, and through that creates quality/precision in their deliveries, we need to acknowledge that we are facing a major and heavy change process.

Firstly, this is about communication and leadership. ISO 9000:2000, chapter 2.6 really says it all when it comes to leadership (my comments in italic):

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2.6 Role of top management within the quality management system

Through leadership and actions, top management can create an environment (culture) where people are fully involved and in which a quality management system can operate effectively. The quality management principles can be used by top management as the basis of its role, which is as follows:

a) To establish and maintain the quality policy and quality objectives of the organization;
b) To promote the quality policy and quality objectives throughout the organization to increase awareness, motivation and involvement; (these three are equal to implementation, right?)
c) To ensure focus on customer requirements (read “customer” as stakeholder) throughout the organization;
d) To ensure that appropriate processes are implemented to enable requirements of customer and other interested parties to be fulfilled and quality objectives to be achieved;
e) To ensure that an effective and efficient quality management system is established, implemented and maintained to achieve these quality objectives;
f) To ensure the availability of necessary resources;
g) To review the quality management system periodically;
h) To decide on actions regarding the quality policy and quality objectives;
i) To decide on actions for improvement of the quality management system.
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Can we get our leaders, the ladies and gentlemen in our Corporate Executive Committees, to take this into their hearts, not just nod and smile, but deeply, truly within the bottom of their consciousness be as engaged, involved, committed to this as me, who am a true “quality aficionado”?

Well, it is actually possible and there are examples out there throughout history about those who have gotten it right. One well known and much published example is, as previously mentioned, Toyota, which is known for their commitment to quality and where this were their number one priority for many years. The culture for quality in Toyota has spread throughout large part of the car manufacturing industry and many books have been written about the subject. It is simple and builds upon healthy principles and fosters a structure and culture for quality. It is a heartfelt wish to deliver with precision every time. Toyota has experienced quality issues in the later years, but that happened after they turned their priority from quality to growth.

Boeing, the airplane maker, implemented Total Quality Management during the big fad in the 90’s. They used the Lean-management principles to systematically avoid waste, as well as streamlining the processes for effect and cost efficiency. The lead concept also contributes by putting into action quality improvement initiatives and reduced costs. Sounds familiar? Isn’t this where we are aiming? I’m not saying we should implement TQM or Lean, but we have to learn from external orientation towards those with success.

To continue with Boeing (this applies to Toyota as well); they have managed to get their people on board. They say it straight; their success is due to “the Boeing people”. But of course, their top management is totally committed – to the degree that their bonus scheme is linked to the criteria from the Malcom Baldridge National Quality Award, which they have won twice! Ask their CEO to talk about quality, or look up their success on the C-17 project, a catastrophe in the making, but successfully turned around using quality- and risk management. 

Their project manager David E. Spong has gotten the credit, and if you want to learn more, ask me to borrow the book “The Making of a World-Class Organization”. I also have a book on the Toyota Way. It is credible that the methodology actually works, isn’t it?

8 principles of (quality) leadership

I’d like to end by using a well-known set of principles to tell you how I’ve enabled the creation of a quality culture. I cannot say it too often – top management commitment and leadership is essential for success. ISO has formulated 8 principles that the top management can use to lead their organization towards improved performance. I, personally, am using these as my leadership philosophy, which is for all intent and purposes quality based, it you can remove the word “quality” using just “management” or “leadership” and it is still just as valid. (You can actually do that to most of the ISO9000 series, get good meaning and a forceful set of instrument for any top leader who is not too much fan of “quality management” and “ISO”).

The 8 principles of quality leadership can be used as a means to create a culture for quality. I did this in the latest large investment project I took part in where we ended up with “6 commitments”, who all people in the project relate to as follow-on to the company values.

Then, what are these 8 principles and what do they mean? I do recommend – strongly and if you mean anything about learning more about management systems – to read ISO 9000:2006, just the first small chapters. And when you are at it, read ISO9004:2009 – there is a lot of great learning in it. 

But I’ll go through the 8 principles and say something about what I’m thinking.

Customer focus

The first principle is customer focus. The organization is dependent upon their customers and has to understand current and future needs, meet the needs and strive to exceed their expectations. I’m expanding the term, as do ISO9004, the term customer to be about interested parties, or Stakeholders. We have to be aligned with our stakeholder’s expectations. When we expand the term customer to be stakeholders, it is much clearer on why this is so important. Who are the customers of an oil and gas company? Well, it’s the people and enterprises that buy our energy products. They are important, of course, but far from the only ones who cares about the company or have an opinion about what we do. The stakeholders are individuals and organizations who are actively involved or indirectly affected by the company. Do a small exercise and jot down the stakeholders you can think of from the top of your head. It is a long list, right?

Leadership

The second principle is leadership. Leaders establish a unity of purpose and direction of the organization. They create and maintain the internal culture by setting objectives, create policy, ensure infrastructure and resources and make decisions based on data and factual information, empower people with commitment, influence and motivation to improve processes and products as well as plan for avoiding unwanted quality costs.

 Leaders create a culture for quality and are proactive in establishing teams with healthy attitudes regarding HSE, sustainability, risk, commercial mindset and with a focus for solutions. As a leader, you are also a stakeholder, and you are essential in giving room and frames to achieve quality and precision in deliveries and success for your team.

Involvement of people

The third principle is about the involvement of people. People at all levels are the essence of an organization and their full involvement enables their abilities to be used for the organization's benefit. The organizations that truly have succeeded in turning from a bad trend to a successful result, as Toyota and Boeing, have succeeded because they have been able to speak “the language of things” with the workers in driving the company forward towards success.

As a leader, you need to ensure that best practice is available, known and used. It means that each person must have a well-defined responsibility and authority described for their role and that all improvement happens by use of existing tools, techniques and methods. The multi-cultural aspect also has to be taken into account, if relevant.

Process approach

A desired result is achieved more efficiently when activities and related resources are managed as a process. This is the fourth principle. In essence, this means that we establish and relate to a management system by identifying, understand and manage processes that are related to each other. It is about understanding and creating the work processes we want inside and outside of the established process areas. It can be useful to map out a work process for singular tasks (i.e.a plan), but the best is to ensure that we create work processes that are repeatable and can be re-used by others to get similar and consistent results.

The process approach is proving to be best when we are planning tasks to be performed. Who does what when? Use the Plan-do-check-act model in understanding the tasks and identify the correct work process(es) for the task(s) that are to be resolved:

• What is your input, what is the desired output/outcome and what is the purpose of the process
• Who owns it, who has responsibility and authority
• Think life cycle perspective when designing the process
• Think interfaces and relationships/interrelationships throughout the process
• What resources/roles have to be involved in creating the desired outcome
• Make it simple!

At this point, it is also the right time to create measurements for the process, making it possible to evaluate the effect and efficiency of the process at a later stage.

System approach to management

Principle number 5 can be a bit tricky to understand, but the point is that all work processes has to be seen in context as one system. We need to identify, understand and manage interrelated processes as a system to be able to contribute to the organization’s effectiveness and efficiency in achieving its objectives. You need to build a common system in a common structure – because it will give the best effect on achieving your company’s strategy and objectives.

A task is best performed as a set of planned, related and dependent processes that the organization controls through the management system. This means that we speak a common language and has recognizability throughout the system. (Note - ISO9001:2015 propose to take this principle out).

Continual improvement

Principle number 6, but central to any management system - Continual improvement of the organization’s overall performance should be a permanent objective of the organization.

Continual improvement means that we use relevant, available, recommended best practice and experiences, use self-assessments, independent reviews, management reviews and internal audits to identify areas for improvement. Continual improvement involves three specific tasks:

• Communication – in any and all teams it has to be effective communication within the team and with the task owner, stakeholders and relevant suppliers to identify problems and opportunities, solve the problems and explore the opportunities.
• Corrective actions – just fixing a problem is not enough. It is important to analyze deviations to be able to remove the root cause and through that ensure that we have improved, learned and will avoid similar deviations in the future.
• Identify and act on opportunities – where the well-known PDCA methodology can be applied (Plan-Do-Check-Act)

Risk management is also about opportunities, as much as threats. Risk management is part of the continual improvement, because we seek experiences, see opportunities and threats and act accordingly. This creates new insight and learning that is transferred back to the processes.

If we again look at PDCA, the last step is “Act” which can be seen as “evaluate results”, where “learning and improving” goes back in loop to “Plan” or to “identify requirements” and indicates through this an active attitude to continual improvement when and if we have found better ways of solving our tasks.

Factual approach to decision making

Effective decisions are based on the analysis of data and information, this seventh principle says. I tie this too up against risk management, out of the data we have available and visualizing what is missing and the assumptions made related to the agreed decision criteria. It is important to keep traceability to reports, logging of results and to register quality activities (=record = stating results achieved or providing evidence of activities performed) to see performance and progress. Recording of quality activities is to document all work processes executed, activities and products/deliveries based on requirements and expectations from task owner. In some contexts we’ll be able to use measurements from agreed quality controls, and have good quality assurances on the decision basis, but it is vital that the people executing the task ensures that the full, total and honest basis is in place to ensure good factual decisions.

Mutually beneficial supplier relationships

The eight and last principle says something about that the organization and its suppliers are inter-dependent and a mutually beneficial relationship enhances the ability of both to create value.

We shall and need to follow-up our suppliers to be able to be secure that they deliver in accordance with our requirements and needs and our ordered scope of work. The degree of follow-up has to depend on the risk level and the size of the procurement – an order of ball point pens have significantly less risk than an EPC contract on an investment project. Nevertheless, a mutuality in the cooperation between us and our suppliers leads to creating more value for both parties.

We stand for a responsible and adjusted risk based follow-up, using quality control activities such as audits and other examinations, we are open about risk and provide clear and open communication lines also to bring forward improvements for all parties.

Closing remarks

To wrap up, handling your quality cost is about creating a structure and culture for quality, ensuring simplification and really learn from where we go wrong. It is my belief that if we manage this, we will see it on the bottom line in our economical results. Good luck and thanks for reading.

Sources:

ISO 55000-series

ISO 9000-series

ISO 9004

Being the quality culture executive, leaflet by Philip B. Crosby

Toyota Culture, Liker Hoseus

Wikipedia

Effektive prosesser, presentation

OGP-IPIECA Guidance Document, OGP report 453, Operating Management System Framework and OMS in Practice

Organisatorisk læring, sluttrapport fra delprosjektet “Organisatorisk læring”, Delleveranse til prosjektet “Oppføling av Gullfaks C – 06”, Internal Statoil report

The Statoil book

ISO/TR 10013:2001 Guidelines for quality management system documentation

Project management success with CMMI, James Persse

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!

Cost of quality, part II

Structure for quality

To give you a better understanding of what we actually do when working with quality, I’ve developed a model. “The scope and deliveries within quality management”. 

Now there are some things I need to know before I start with providing a structure. I need to know something about the objectives and framing of the work to be done or the intent of the organisation - what do we want to achieve. 

The second thing is to have a grasp of the risk picture. What can go wrong and where do we have opportunities for better and simpler ways to our goals (as risk is considered a neutral aspect with both upsides and downsides)? The risk picture changes as the context changes, so this is not set in stone, and we always have to come back to the risks.

The third thing is the requirements put upon our venture.

From the definition of quality given in Cost of Quality, Part I, we can see that achieving quality really hangs together with compliance to requirements, and that can also be expectations and needs from our customers and stakeholders. To achieve quality, we MUST understand and comply with the requirements.

Now, the requirements can be divided into three

– WHY – talking about business requirements, such as policies, strategies, objectives, commercial issues and other critical success factors

- WHAT – talking about product requirements, such as technical requirements, International Standards, governmental requirements, production targets etc, everything that governs what we are making, or our product.

And lastly – HOW – taking about process requirements, such as Function requirements, work process descriptions, best practice and even ethics and values.

Now, when we have an idea of these things, we can create our structure. 

There are 6 elements – we start by creating or maintaining a management system. This is a huge task in any organization or project and we must rely on Quality Planning to be able to do this. Guidelines, rules and routines must be in place to create, manage, continually improve and update and implement governing elements in a management system effectively.

The second element is measuring or benchmarking, which can be linked to statistical analysis and data management, a huge part of the traditional quality management function, for instance looking at statistics for quality incidents as a way of cutting cost, as we will see later, but also external benchmarking like eg. ISO-certification or a Baldridge award.  I’ve read many places that we have to take the management system to the “next level”. But if we don’t know which level we are on today, how can we go to the “next level”? Measuring processes are not easy, but necessary to make sure that we keep focus and work effectively.

The third element is Monitoring, which is quite big. When I say monitoring, I mean all internal auditing and quality assurance done within the organization or project and all audits and examinations done towards our suppliers as well as any external audits from authorities and other third parties. All so called QA/QC activities goes into this box.

The forth element is Non-conformity and deviation handling. We need to understand what can go wrong and have a plan on to handle this. It is linked to risk management, change management and to requirements as non-conformities are deviations from requirements. Sometimes we know in advanced that we are unable to comply with a requirement and we need to seek a deviation permit, sometimes it is about cleaning up the mess after the fact and making sure we learn from it.

The fifth element is experience transfer, and I will elaborate more regarding experience transfer (it being the topic of my Master Thesis, after all). We need to learn from others in a systematic and documented way as well as share our own successes and failures so others can learn from them. Experience transfer is part of knowledge management, which is a huge endeavor that few companies have been able to manage properly.

I have identified an experience spiral (2008) that explains which arenas experiences are normally transferred.

The central arena is the people arena in our daily dealings and meetings with colleagues, mentors, friends, leaders and associates.

It moves outward to projects (groups, teams etc) where we before, during and after the work of a team/group/project gather, share and transfer experience.

The next step is portfolio. This could be asset portfolios, project portfolios or other natural entities that look at things across several similar areas. The portfolios can look into trends and do analysis for their areas to ensure learning and experience transfer.

Networking is sharing of experience between equally qualified persons within one knowledge or process area.

Formal training and courses is when experienced colleagues share their knowledge and experience with less experienced personnel, attending planned and structured courses.

Good examples and best practice are excellent arenas for sharing of experience. Examples of documents to be produced by projects for decision making and templates, work processes, and work descriptions on how to best fulfill the requirements in the governing system should be developed by line organization and process owners and shared.

Ultimately, our most important and critical experiences end up as governing elements in our management system as new requirements, either from continual improvement or as a corrective action to an unwanted incident.

And, of course, our experience shall also be a forming part of our strategies, turning our knowledge into action.

Going back to the main model for “The scope and deliveries within quality management”. 

The sixth and last element for the structure, we need to close the Plan-Do-Check-Act circle in using Performance management in deciding on our improvement agenda, and finding the activities and focus areas needed to become even better. We do this to continually improve which is of course a key element in quality leadership.

Now, having all this in place, we can achieve our quality goals or outcomes.

Firstly, Compliance – to requirements and expectations from stakeholders. If this is not in place, there is no quality. 

Secondly – Precision. I favor precision over perfection, making sure we hit our target related to specifications without gold plating. Ask yourself, what is good enough? 

And thirdly – Continual Improvement. We always have to strive to be better.

In the core of all this lies our Quality Culture. I’ll come back to the culture in a later blogpost.

Cost of Quality, part I

One important concept to work from when talking about quality is money. The renowned Quality legend, Dr. Juran, said that when you talk about quality to top management, you need to talk the “language of money”, as opposed to the “language of things” that you can use towards workers, engineers, operators and technicians. A skilled quality professional who wish to provide structure and culture for quality needs to be able to speak both languages fluently. But to get anything done – you need the top management support and that you can get through the language of money. In quality, this relates to Quality Costs.

Cost of quality is really a simple concept. We all know the «golden triangle» between time, cost and quality. There’s a saying:  «you can have your project cheap, fast and good, but you have to choose only two». 

The elements in the golden triangle are interlinked and if one fails, the others soon follow. But keeping track of quality or the cost of quality, both the things that go right (called Price of compliance), but also the things that go wrong (called Price of non-compliance) is crucial for both cost and time. The terms” Price of compliance/non-compliance” was first introduced by another quality legend, Philip B. Crosby.

I always like to start with definitions, to make sure we have the same understanding of what we are talking about. The Question “What does Quality mean?” is not easy to answer, but perhaps we can get closer by looking at some definitions. I like ISO, but their definition is a bit tricky.

Quality – ISO 9001 - Degree to which a set of inherent characteristics fulfils requirements

For my company – this has been translated into:

Quality - The ability to deliver in accordance with the requirements, needs and expectations that has been specified for the company – by our customers and stakeholders. Deliver with a high degree of compliance, precision and excellence.

Personally I prefer the excellent quote from Henry Ford “Quality means doing it right when no-one is looking”. It is simple, easy to understand and really says something about the culture in the organisation.

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 simply separate between the “Price of compliance” and the “Price of Non-compliance”. Having a good structure for quality in place is not something that comes by itself. It has to be driven. So the Price of compliance is basically the expense of doing things right or the cost of having an efficient structure for quality. You need people and systems to get it rolling. But you don’t have to overspend either. There is a limit to the Price of Compliance and a too bureaucratic system or way of doing things can work against your purpose. To limit your Price of Compliance, you need to improve and almost all improvement comes from simplification. To quote Tom Peters, who wrote the book “In Search of Excellence”,  “Almost all quality improvement comes via simplification of design, manufacturing... layout, processes, and procedures.”

In the next part, I will give a model for a good way of doing quality with an efficient structure, with low Price of Compliance, but we will also looking at how to limit the Price of Non-Compliance in a later post.