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Quality-Cost Analysis Benefits and Risks Cem Kaner.

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Presentation on theme: "Quality-Cost Analysis Benefits and Risks Cem Kaner."— Presentation transcript:

1 Quality-Cost Analysis Benefits and Risks Cem Kaner

2 Definitions Quality: The total composite product and service characteristics of marketing, engineering, manufacture and maintenance through which the product and service in use will meet the expectations of the customer. The characteristics of the product that come together to form the composite of the product are: reliability, serviceability, maintainability, safety, attractability… Quality of a product requires the balancing-off of these requirements It is a customers determination; its a measure of the customers experience with the product or service against customers requirements. Nowadays, businesses consider quality as one of the primary strategies, since it is a huge factor in determining their success/failure. In terms of software engineering, quality is defined as the extent to which a particular software product meets its specifications Within every single development organization there is a group who has the primary responsibility to ensure the delivered product is what the client requested (to ensure quality); it is called SQA group.

3 Definitions Control A process for delegating responsibility and authority for a management activity while retaining the means of assuring satisfactory results. This definition is based on industry terminology. Quality Control The process of meeting the industrial quality goal; analogy to production control. Made up of 4 steps: Setting standards Determining the required quality standards for the product Appraising conformance Comparing the conformance of the developed product Acting when necessary Correcting problems and their causes Planning for improvement A continuing effort to improve the standards Total Quality Control The process of achieving full effectiveness in meeting the industrial goal. It has to start with the identification of customer requirements and ends only when the product is given to the customer who remains satisfied. Why is the scope so wide? Because the quality of a product is affected at many stages: Marketing, engineering, manufacturing

4 Definitions Quality Cost: - It is represented by the costs encountered in: - preventing - finding - correcting the defective work - It represents the basis through which investment in quality projects can be actually evaluated in terms of cost improvement, profit enhancement…. - Quality Costs have an impact through the entire life cycle of the product, it does not stop at the shipping phase - They represent in general a significant amount - It is affected (reduced) by Total Quality Control. - A little bit of History: - Gold in the Mine concept - This concept triggered a better understanding of: - 1. The companys accounting system - 2. The identification of all the quality related costs - 3. The idea of an optimum for quality costs.

5 Definitions Quality Cost Analysis: The process that consists in comparing and examining the individual quality cost item to each other and to the total so that appropriate action could be taken. Generally, it is more meaningful to talk about time intervals and about absolute dollar amounts. History: One of its first advocates was quality theorist: Joseph Juran. The objective of quality cost analysis is to minimize the total cost of quality across the life of a product (therefore, to reduce the quality costs) Quality cost analysis is a standard part of traditional quality control

6 Definitions Total Quality Management (TQM) Represents the total quality controls organization wide impact. Covers the full scope of the product and service life cycle (conception->production- >customer service) The goal is to minimize quality costs Quality Engineer: A person who is in charge of analyzing and reducing the quality costs associated with a product.

7 Software Engineering Context Quality Costs (sometimes overlap) Prevention Costs (Pc): Costs associated with preventing poor quality. examples: design errors, coding errors Appraisal Costs (Ac): Costs associated with revealing the poor quality Testing Design reviews are somewhere in the middle Failure Costs (Fc): Internal Failure Costs Costs encountered before the product was shipped to the customer Example: fixing bugs External Failure Costs Costs encountered after product was shipped to the customer Example: patching a released product and distributing the patch Total Cost of Quality = Pc + Ac + Fc

8 Prevention Costs The costs encountered in the activities preventing poor quality. Examples: Staff training Early Prototyping/Requirements analysis Clear Specification/unambiguous documentation Evaluation of the development tools that will be used Interesting features: The costs are distributed to almost all the groups involved in the product development. Any group that might not be affected? Defensive programming?

9 Defensive Programming Defensive programming is the practice of anticipating where failures can occur and then creating an infrastructure that tests for errors, notifies you when anticipated failures occur, and performs damage-control actions you have specified-- such as stopping program execution, redirecting users to a backup server, enabling debugging information you can use to diagnose the problem. This way: problems that might otherwise go unnoticed are detected small errors that might turn into disasters are caught a lot of debugging and maintenance could be saved.

10 Appraisal Costs: The Costs encountered in the activities aimed at revealing quality problems. Examples: Glass box testing Black box testing Code inspections Test automation Interesting issues: What about design review? Part appraisal, part prevention

11 Internal Failure The Costs encountered before the product distribution to the customers. Examples Fixing bugs Regression testing Interesting issues: What about cost of delays and of lost opportunity? Like: Direct and Opportunity cost of late shipment and Wasted advertisements These are costs borne by the groups outside the product development Might give birth to controversy, so it is recommended not to be used especially the first times the organization is try to implement the quality-cost analysis.

12 External Failure Costs encountered after the product has already been shipped to the customers. Examples: Investigation of customer complaints Refunds and recalls Lost sales Coding/testing/shipping of updated product Can this always be done? All costs imposed by law Interesting issues: What about cost of high turnover or cost of lost pride? Hard to estimate

13 Benefits The goal is to reach minimum quality costs at the desired outgoing quality level. Its a feed-back mechanism: quality costs data is used by the management to make decisions that will impact the quality costs. Applications of Quality Costs Measurement Tool: Quality costs provide comparative measurements for evaluating quality programs versus the value of the results achieved Process-Quality Analysis Tool Quality costs can serve effectively as an analysis tool and point out where the problems are Programming Tool Quality costs determine how the available resources to be divided Predictive Tool Quality costs can also be used to evaluate and assure performance in relation to the goals and objectives of the organization.

14 Benefits Benefits by examples: This approach gives insights in how companies that dont use the TQM might be helped. Example in the paper. An individual does a quality-cost analysis and makes his point.=>next slide It raises other questions that can be approached by individuals in an organization Class Exercise! Real life example. Do you know any example?

15 Benefits (example) Get Cost Estimates for: 1. ask the writers 2. ask the training staff 3. ask Technical Support 4. ask The programmers 5. ask The sale staff 6. what about magazine reviews A different story 1. its not just your opinion anymore 2. business argument … money, money, money 3. valid data

16 Risks Implementation Risks Not being realistic and trying to achieve too much too soon. Controversial costs should be left aside, especially the first few times the company is trying to implement the quality-costs analysis Other risks: Looking only from the point of view of the company, not looking at the customers costs (example) Might result in other types of risk: Customer Dissatisfaction Litigation

17 Ford Pinto litigation Benefits and Costs Relating to Fuel Leakage Associated with the Static Rollover Test Portion of FMVSS 208 Benefits Savings 180 burn deaths, 180 serious burn injuries, 2100 burned vehicles Unit Cost -- $200,000 per death, $67,000 per injury, $700 per vehicle Total Benefit 180 x ($200,000) x ($67,000) x ($700) = $49.5 million. Costs Sales 11 million cars, 1.5 million light trucks. Unit Cost -- $11 per car, $11 per truck Total Cost 11,000,000 x ($11) + 1,500,000 x ($11) = $137 million.

18 Ford Pinto Quality-cost analysis looks at the costs from only the companies perspective. However, these costs might not be easily estimated It ends up costing Ford way more Motors Corp vs Johnston When calculating the trade-off between several factors (costs one of them) it is important for the companies to realize and take into account the customers costs.

19 Another look at External Failure Costs Borne by seller Given in the previous slide Borne by buyer Death / Injury Embarrassment Might affect their customers Cost of tech support Cost of replacing product

20 Why are the companies reluctant to implement quality-costs analysis? Skepticism ; some companies have tried and failed or they are aware of other companies that tried and failed They dont know whom to trust; there are many advocates and agendas. They believe in Our business is different. Mediocre quality is still saleable. The confusion in languagethe belief that higher quality costs more. Certification to the ISO 9000 will solve all their issues related to quality performance. ISO 9000: The quality management system standards, which are based on the eight quality management principles: Principle 1 Customer focus Principle 2 Leadership Principle 3 Involvement of people Principle 4 Process approach Principle 5 System approach to management Principle 6 Continual improvement Principle 7 Factual approach to decision making Principle 8 Mutually beneficial supplier relationships

21 References Quality Control Handbook, J.M. Juran, Third Edition 1979 Total quality control, A.V. Feigenbaum, Third Edition 1991 Quality Management: Implementing the best ideas of the masters, Bruce and Suzzane Brocka, 1992 Why TQM fails and what to do about it, Mark Graham Brown, Darcy E. Hitchcock, Marsha L. Willard,

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