Introduction To: Cost of Uality

Introduction to
Cost of
uality
presented by L. Daniel Crowley, CCP, CSTE QA Manager, IDX Seattle
SASQAG
Copyright DENAB Quality Sys. 1998
1 July 16, 1998
Cost of

uality
Schedule
Introduction Principles of CQI (TQA) and Cost of Quality Strategy for COQ COQ Categories Implementation of COQ
Total Quality Assurance

Scope of Influence on Product Quality
Touch Labor
Non-Touch Labor Supervisor & Managers
CEO, VP, & Directors
Owners & Public

LDC, 9/86
Qualitys Mission
Total Quality Management is

Comprised of 3 Activities
1. Quality Control (QC) or Audit
Reacting to Past Events
2. Quality Assurance (QA)

Planning for Future Events
3. Quality Engineering (QE)

Implementing QA Plans
Copyright DENAB Quality Sys. 1998 5
TOTAL QUALITY ASSURANCE

Elements for Success
Quality planning
Process Quality Control
Cost of Quality
Problem Solving

LDC 10/88
Cost of
uality
Running a company by profit alone is like driving a car by looking in the rearview mirror.
It tells you where youve been, not where you are going!
Dr. Edward. Deming
Cost of
The
uality
Goal
goal of a Cost of Quality system is to:
Facilitate Quality Improvements that leads

to operating cost reduction Opportunities.
Copyright DENAB Quality Sys. 1998 ASQC, "Principles of Quality Costs", 1986
Cost of
uality
Definition
The cost difference between present operation and the possible operation of a business with all systems and employees at 100% performance. or
The difference between actual revenues and what
revenues could be if all customers were always satisfied, that is , No Unhappy Customers.
LDC 10/88
Cost of
Cost of Quality is Not:
uality
An Exact Cost.
A Performance Measurement.
10
Industry Cost Of Quality

Percent Of Sales
Software COQ
Service COQ
Mfg COQ
0 10 20 30 40 50 60 70 80
11
Cost of
uality
Measurement of a Companys Health

Financial Data
Sales Operation Costs Material Costs Overhead Costs Gen. & Admin. Costs
%
50 40 30 20 10
Percentage of Sales Dollar
Factory Data
Defect Reports Labor Hours Recode/Redesign Customer Complaints
12
Similar to a Tachometer
35 50 35 75 0 5000 1000 2000 1 5000 1000 2000 5
1
Cost of
uality
50
MPH
0
MPH
75
RPM
3000 3 O
4000
RPM
3000 3
5
4000
4 O
FUEL
E.....F
FUEL
E.....F
.
Similar to a Tachometer
$50K $100K $50K $100K
Cost of
uality
Sales
0
$150K
0 25%
Sales
$150K
25% 5%
5%
COQ
10%
1 15% 3 O 5
20%
COQ
10%
1
20%
15% 3
5
4 O
RESORCES E.....F .
RESORCES E.....F . Copyright DENAB Quality Sys. 1998 14
COQ LDC 11/88
Cost of Quality
Iceberg
Bugs Returned Goods Re-code Qual. Dept.
15
12/88 LDC
Cost of Quality
Iceberg
Bugs Returned Goods Re-code Qual. Dept. Warranty Costs Product Liability Missed Deadlines Complaint Handling Bad Market Reviews Process Slowdown Poor Documentation Software Patches Lost Market Share Help Desk Training Field Service Interface Errors Quotation Errors Configuration Errors
Red = Requirement based
16
12/88 LDC
Cost of
Is Cost related to Prevention of NonConformance ?
uality
PREVENTION
Element Decision Flow

YES
NO
Is Cost related to Evaluating the Conformance ?
YES
APPRAISAL
NO
Is Cost related to Non-conformance ?
INTERNAL FAILURE
YES
Is Non-Conformance found prior to Shipment ?
YES
NO
Not a Quality Cost
NO EXTERNAL FAILURE
Cost of
uality
APPRAISAL Unit Testing Regression Testing Automated Test Tools User Interface Reviews EXTERNAL FAILURE Returned Goods Liability Costs Help Desk Lost Sales/Market Share
18
Examples of Elements
PREVENTION Design Quality Progress Reviews Requirements Documentation SQA Training Cleanroom Software Engineering
INTERNAL FAILURE Recode/Repair Labor Defect Tracking & Reports Requirement Changes Down Hardware

LDC 10/88
Corrective Action vs Failure
Cost of
uality
Corrective Action is paid for Once,
Whereas Failure to take corrective action may be paid for over and over again.
19
Cost of
Strategy Premise
uality
The Strategy is based on the premise that:
For each failure there is a root cause.

Causes are preventable. Prevention is always cheaper.
Copyright DENAB Quality Sys. 1998 ACQC, Principles of Quality Costs, 1986
20
Cost of
uality
Strategy for using Quality Costs

Take direct attack on FAILURE costs, try to drive to zero $. Invest in the "right" PREVENTION activities to bring about improvements. Reduce APPRAISAL costs according to results achieved. Continuously evaluate and redirect PREVENTION efforts to gain further improvement.
Copyright DENAB Quality Sys. 1998 ASQC, Principles of Quality Costs, 1986
21
Cost of
uality
Recipe for Success

1. Educate & Develop: Management & Employee Support 2. Collect, Analysis and Report Cost of Quality Data 3. Involve & Support Corrective Action Teams (CAT) 4. Implement Changes recommended by CAT 5. Go to Step #2 (expand data items collected)
1.
2.
3.
4.
22
5.
Cost of
uality
Appraisal Prevention
NORMAL DISTRIBUTION
Total Sales
Cost of Quality%
TOTAL SALES
Internal Failures External Failures
C O Q $$$
Cost of
uality
Appraisal
2%
Example based on 14% COQ

$.04 Mil
Sales = $127 Million
Prevention
20% $3.6 Mil
SALES
COQ @ 14% COQ $17.8 Mil.
Internal Failures
45% $8.0 Mil
External Failures
33%
$5.9 Mil
Copyright DENAB Quality Sys. 1998 1/20/89 LDC
24
Evolutionary Phases
Implementation (Selling) Phase
Cost of
uality
C O Q
Project (Pilot) Phase
Expand & Ongoing Phase

LDC 10/88
25
Cost of Quality History

Prevention & Appraisal Costs
Start COQ
25
%
o 20
f
15
Prev.
Appr.
S a l e s
0 1/98 3/98 1/99 3/99 1/00 3/00 5 10
COQ
Quarters
26

Failure Cost
Start COQ
25
%
o 20
f
15
S a l e s
0 1/98 3/98 1/99 3/99 1/00 3/00
27
10
In. Fail. Ex. Fail. COQ
Quarters

COQ as a Percentage of Sales
Start COQ
25
%
o 20
f
15
Sales
Prev. Appr.
S a l e s
0 1/98 3/98 1/99 3/99 1/00 3/00 5 10
In. Fail. Ex. Fail. COQ
Quarters
28
Cost of
uality
C s o Qa o t f u lity OPTIMUM DISTRIBUTION
Appraisal
Cost of Quality%
TOTAL SALES
Prevention Internal Failures C O Q $$$ External Failures

29
Cost of
$1,500.00 $1,000.00 $500.00 $0.00
uality
Est. Cost to Fix a Bug at Various Stages
50% of Testing Complete
Requirments
Analysis
Design
Testing
Install
Code
$10
LDC 10/88
$20
$30
$50
$200 $800 $1500
End Use
30
Cost of
Item #
1 2 3 4 5 6 7 8 9 10 11 12
$0 $500
uality - PARETO
Accumulated Cost per Item Type
80%
$1000
$1500
$2000
$2500
$3000
X 1000 $
COST OF QUALITY
Benefits of Improved Quality

Quality is a Profit Center
Decreases
Defects Overall Costs Returned Goods Employee Turnover Customer Complaints Owner & Mgmt. Stress Decrease Legal Costs Decreased Time to Market
Increases
Sales Profit Capacity Employee Satisfaction Customer Satisfaction Market Share Competitive Edge Personal Time Away
32
QUALITY is KEY
CHAIN of ELEMENTS
Culture
Mgmt. Commitment
Skills Training Recognition
Quality Improvement Teams

Quality Concept Training
Corrective Action Teams Defined Requirements Measurement
Cost of Quality
Awareness/ communication
33
12/88 LDC
Total Quality Assurance

Required Attitudes for Success
The Customer is the Next Operation Plan & Design in Quality Make Quality Decisions
ONE WAY
Touch Labor
Non-Touch Labor Supervisor & Managers
Select Quality Before Schedule & Profits

Demand & Buy Only Quality
LDC, 12/89
CEO, VP & Directors
Owners & Public

34
How Do We Achieve Quality?

By designing products with features reflecting customer needs By making the life-cycle more efficient and effective By following standards, best practices, tools, philosophies, methodologies, techniques and measures developed to help organizations meet Quality goals
The Learning Curve

process improvement begins
Performance
initial state
Get excited here comes the next plateau!

improved future state
X
learning curve
dont quit here!
Source Karl Wiegers ProcessImpact.com
Time
Thank You for Listening

References:
Principles of Quality Costs (ASQ) Guide for Reducing Quality Costs (ASQ) Quality without Tears, Crosby Quality Cost Analysis: Benefits & Risks, Kaner Quality Control Handbook, Juran Right the First Time, British Productive Council film
To Contact Daniel Crowley 206-689-1352 Email Daniel_Crowley@IDX.com

L.D.Crowley@kp.org (2005)
37

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Introduction to

presented by L. Daniel Crowley, CCP, CSTE QA Manager, IDX Seattle

Copyright DENAB Quality Sys. 1998

1 July 16, 1998

Copyright DENAB Quality Sys. 1998

Total Quality Assurance

Non-Touch Labor Supervisor & Managers

CEO, VP, & Directors

Owners & Public

Copyright DENAB Quality Sys. 1998

Total Quality Management is

2. Quality Assurance (QA)

3. Quality Engineering (QE)

TOTAL QUALITY ASSURANCE

Process Quality Control

Copyright DENAB Quality Sys. 1998

Facilitate Quality Improvements that leads

The difference between actual revenues and what

Copyright DENAB Quality Sys. 1998

Industry Cost Of Quality

Copyright DENAB Quality Sys. 1998

Measurement of a Companys Health

Percentage of Sales Dollar

Copyright DENAB Quality Sys. 1998

RESORCES E.....F . Copyright DENAB Quality Sys. 1998 14

COQ LDC 11/88

Copyright DENAB Quality Sys. 1998

Red = Requirement based

Copyright DENAB Quality Sys. 1998

Element Decision Flow

Copyright DENAB Quality Sys. 1998

Corrective Action vs Failure

Corrective Action is paid for Once,

Copyright DENAB Quality Sys. 1998

The Strategy is based on the premise that:

For each failure there is a root cause.

Strategy for using Quality Costs

Recipe for Success

Copyright DENAB Quality Sys. 1998

Internal Failures External Failures

Example based on 14% COQ

Sales = $127 Million

20% $3.6 Mil

COQ @ 14% COQ $17.8 Mil.

45% $8.0 Mil

Copyright DENAB Quality Sys. 1998 1/20/89 LDC

Expand & Ongoing Phase

Copyright DENAB Quality Sys. 1998

Cost of Quality History

Copyright DENAB Quality Sys. 1998

Cost of Quality History

In. Fail. Ex. Fail. COQ

Copyright DENAB Quality Sys. 1998

Cost of Quality History

In. Fail. Ex. Fail. COQ

Copyright DENAB Quality Sys. 1998

C s o Qa o t f u lity OPTIMUM DISTRIBUTION

Prevention Internal Failures C O Q $$$ External Failures