Transcript Cost of Quality Iceberg - QA Tips

Introduction to
Cost of
uality
presented by
L. Daniel Crowley, CCP, CSTE
QA Manager, IDX Seattle
SASQAG
Copyright DENAB Quality Sys. 1998
July 16, 19981
Cost of
uality
Schedule

Introduction

Principles of CQI (TQA) and Cost of Quality

Strategy for COQ

COQ Categories

Implementation of COQ
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Total Quality Assurance
Scope of Influence on Product Quality
Touch
Labor
Non-Touch Labor
Supervisor &
Managers
CEO, VP, & Directors
Owners & Public
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LDC, 9/86
3
Quality’s Mission
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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
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5
TOTAL QUALITY ASSURANCE
Elements for Success
Quality planning
Process Quality
Control
Cost of Quality
Problem Solving
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LDC 10/88
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Cost of
uality
Running a company by profit alone
is like driving a car by looking in
the rearview mirror.
It tells you where you’ve been, not
where you are going!
Dr. Edward. Deming
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Cost of
uality
Goal
 The
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
8
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.
Copyright DENAB Quality Sys. 1998
LDC 10/88
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Cost of
uality
Cost of Quality is Not:
An Exact Cost.
A Performance Measurement.
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Industry Cost Of Quality
Percent Of Sales
Software COQ
Service COQ
Mfg COQ
0
10
20
30
40
Copyright DENAB Quality Sys. 1998
50
60
70
80
11
Cost of
uality
Measurement of a Company’s Health
Financial Data
%
Sales
Operation Costs
Material Costs
Overhead Costs
Gen. & Admin. Costs
50
40
30
Percentage of
Sales Dollar
20
10
5
Factory Data
Defect Reports
Labor Hours
Recode/Redesign
Customer Complaints
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Cost of
uality
Similar to a Tachometer
50
35
50
35
MPH
MPH
75
0
75
0
5000
1000
RPM
2000
4000
5000
1000
RPM
2000
3000
4000
3000
1
3
O
5
1
3
5
2
4
R
2
O4
R
FUEL
FUEL
E.....F
E.....F
.
.
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Cost of
uality
Similar to a Tachometer
$100K
$50K
Sales
$100K
$50K
Sales
$150K
0
$150K
0
25%
5%
COQ
10%
20%
25%
5%
COQ
10%
15%
15%
1
3
O
5
1
3
5
2
4
R
2
O4
R
RESORCES
RESORCES
E.....F
E.....F
.
.
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COQ LDC 11/88
20%
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Cost of Quality
Iceberg
Bugs
Returned Goods
Re-code
Qual. Dept.
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15
12/88 LDC
Cost of Quality
Iceberg
Bugs
Returned Goods
Re-code
Qual. Dept.
Warranty
Costs
Product Liability
Missed Deadlines
Interface
Errors
Red = Requirement based
Quotation Errors
Configuration Errors
Complaint Handling
Help Desk
Training
Field Service
Bad Market Reviews
Process Slowdown
Poor Documentation Software Patches Lost Market Share
Copyright DENAB Quality Sys. 1998
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12/88 LDC
Cost of
uality
Element Decision Flow
Is Cost related to
Prevention of NonConformance ?
YES
PREVENTION
YES
APPRAISAL
NO
Is Cost related to
Evaluating the
Conformance ?
NO
Is Cost related to
Non-conformance ?
INTERNAL FAILURE
YES
Is Non-Conformance
found prior to
Shipment ?
NO
YES
NO
Not a Quality Cost
EXTERNAL FAILURE
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Cost of
uality
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
APPRAISAL
Unit Testing
Regression Testing
Automated Test Tools
User Interface Reviews
EXTERNAL FAILURE
Returned Goods
Liability Costs
Help Desk
Lost Sales/Market Share
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LDC 10/88
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Cost of
uality
Corrective Action vs Failure

Corrective Action is paid for Once,

Whereas Failure to take corrective action may
be paid for over and over again.
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Cost of
uality
Strategy Premise
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.
Copyright DENAB Quality Sys. 1998
5.
4.
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Cost of
uality
NORMAL DISTRIBUTION
Appraisal
Prevention
Total Sales
Internal
Failures
Cost of
Quality%
External
Failures
TOTAL SALES
C O Q $$$
Copyright DENAB Quality Sys. 1998
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Cost of
uality
Example based on 14% COQ
Appraisal
Sales = $127 Million
SALES
COQ @ 14%
COQ
$17.8 Mil.
Prevention
Internal
Failures
External
Failures
Copyright DENAB Quality Sys. 1998
1/20/89 LDC
2%
$.04 Mil
20% $3.6 Mil
45% $8.0 Mil
33%
$5.9 Mil
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Cost of
uality
Evolutionary Phases
Implementation (Selling) Phase
C
O
Q
Project (Pilot) Phase
Expand & Ongoing Phase
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LDC 10/88
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Cost of Quality History
Prevention & Appraisal Costs
Start COQ
25
%
o 20
f
Prev.
15
S
a
Appr.
10
l
e
5
s
COQ
0
1/98
3/98
1/99
3/99
Quarters
1/00
3/00
Copyright DENAB Quality Sys. 1998
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Cost of Quality History
Failure Cost
Start COQ
25
%
o 20
f
15
S
a
10
In. Fail.
l
e
Ex. Fail.
5
s
COQ
0
1/98
3/98
1/99
3/99
Quarters
1/00
3/00
Copyright DENAB Quality Sys. 1998
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Cost of Quality History
COQ as a Percentage of Sales
Start COQ
25
%
o 20
f
Sales
15
S
a
Appr.
10
In. Fail.
l
e
Prev.
Ex. Fail.
5
s
COQ
0
1/98
3/98
1/99
3/99
Quarters
1/00
3/00
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Cost of
uality
Cost of Quality
OPTIMUM DISTRIBUTION
Appraisal
Cost of
Quality%
Prevention
Internal
Failures
TOTAL SALES
C O Q $$$
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External
Failures
29
Cost of
uality
Est. Cost to Fix a Bug at Various Stages
$1,500.00
$1,000.00
LDC 10/88
$30
$50
End Use
Code
$20
Install
Design
$10
Analysis
Requirments
$0.00
Testing
50% of
Testing Complete
$500.00
$200 $800 $1500
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Cost of
uality - PARETO
Accumulated Cost per Item Type
Item #
1
2
3
4
5
6
7
8
9
10
11
12
80%
$0
$500
$1000
$1500
$2000
$2500
$3000
X 1000 $
COST OF QUALITY
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Benefits of Improved Quality
Quality is a Profit Center
Decreases
Increases
Defects
Overall Costs
Returned Goods
Employee Turnover
Customer Complaints
Owner & Mgmt. Stress
Decrease Legal Costs
Decreased Time to Market
Sales
Profit
Capacity
Employee Satisfaction
Customer Satisfaction
Market Share
Competitive Edge
Personal Time Away
Copyright DENAB Quality Sys. 1998
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QUALITY is KEY
CHAIN of ELEMENTS
Q
Skills
Training
Culture
Recognition
Mgmt. Commitment
Corrective
Action
Teams
Quality Improvement
Teams
Quality Concept
Training
Defined
Requirements
Measurement
Cost of
Quality
Awareness/
communication
Copyright DENAB Quality Sys. 1998
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12/88 LDC
Total Quality Assurance
Required Attitudes for Success
The Customer is
the Next Operation
ONE WAY
Plan & Design in Quality
Make Quality Decisions
Select Quality Before
Schedule & Profits
Non-Touch Labor
Supervisor &
Managers
CEO, VP & Directors
Demand & Buy Only Quality
Copyright DENAB Quality Sys. 1998
LDC, 12/89
Touch Labor
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
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The Learning Curve
Performance
process improvement begins
Get excited…
here comes the next plateau!
initial state
improved future state
X
don’t quit here!
learning curve
Source Karl Wiegers
ProcessImpact.com
Time
Copyright DENAB Quality Sys. 1998
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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 [email protected]
•
[email protected] (2005)
Copyright DENAB Quality Sys. 1998
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