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Continuous Improvement, Problem Solving, Process Improvement

Cost of Quality – old concept; still relevant

I was running a workshop recently and somehow we got talking about how much time and effort the organisation was wasting firefighting and solving problems.  That prompted me to draw the Cost of Quality picture (below) on a flipchart and we then had a conversation about how challenging line managers find it to take time out to invest in “Prevention”.

Back in the early days of Total Quality Management, the the Cost of Quality was a key tool to help identify opportunities for improvement.  It was also known as the Price of Non-conformance (PONC).  Every activity can be categorised as one of:

Prevention – those things done to ensure work is carried out Right First Time (e.g. training, developing systems standards and specifications)
Appraisal – those things done to check if work has been done Right First Time (e.g. auditing, checking, inspecting, supervising).  Some of these can add value – e.g. audits; but most simply add cost.
Failure – everything that has to be done because something wasn’t Right First Time (e.g. re-work, corrections, answering complaints, dealing with enquiries about problems, problem solving)
Core Work – everything else, done Right First Time to meet a customer’s needs

Cost of Quality

The sum of Prevention, Appraisal and Failure is the Cost of Quality.  In service businesses, it often amounts to 40% of operating costs, with Failure and Appraisal accounting for most of that.  In production organisations, CoQ is typically 25% of Sales Revenues, again with Failure and Appraisal being the biggest part.

A simple way of using the technique is to list all the activities you see going on, categorise them according to the four types and then measure (or estimate) the amount of time spent on each.  Add it up and calculate total time (and cost) spent on Failure and Appraisal.  It’s usually a big enough number to motivate management to want to take some improvement action!

The real value of CoQ, of course, is to apply some of the continuous improvement tools to identify the root causes of Failure, implement suitable Prevention activities and then spend less time checking everything is OK.

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