Presentation on theme: "COST of Poor Quality in Proj Mgmt"— Presentation transcript:
1COST of Poor Quality in Proj Mgmt Dr Ali SajidDirectorInst of Bus & MgmtUETLahore
2"It is only as we develop others that we permanently succeed." Building HR in Proj"It is only as we develop others that we permanently succeed."
3Start viewing the probable as possible Start viewing the probable as possible. You'll be surprised at what you can accomplish.
4The best & most beautiful things in the world cannot be seen or even touched. They must be feltwith the heart.
5Self-actualized people are independent of the good opinion of others Self-actualized people are independent of the good opinion of others. - Wayne Dyer
6The greatest Discovery of our generation is that a human being can alter his life by altering his attitudes. - William James
7Our own moods, whether gloomy or bright, radiate to those around us. Nature present us with an infinite variety of Attitudes - from gloomy mist to glorious sunshine.Our own moods, whether gloomy or bright, radiate to those around us.
8We may affirm absolutely that nothing great in the world has ever been accomplished without passion. - George Hegel
9Skill (tip of iceberg) & Attitude (mass of the iceberg). Two Parts of Empathy:Skill (tip of iceberg)& Attitude(mass of the iceberg).
10Eighty percent of success is related to ATTITUDE rather thancompetency.
12Pride is a personal commitment; it is an attitude which separates excellence from mediocrity.
13Attitude is a little thing that makes a big difference.
14Selflessness"The world is divided into people who do things, and people who get the credit. Try, if you can, to belong to the first class. There's far less competition."(Dwight Morrow, 1935.)
15The difference between a successful person and others is not a “Lack of Strength”, not a“Lack of Knowledge”,but rather in a“Lack of Will”.
16We tend to judge others by their behaviors and ourselves by our intentions. - Stephen Covey
17The mold of a man's fortune is in his own hands. - Francis Bacon
18PassionWe may affirm absolutely that nothing great in the world has been accomplished without passion. - Georg Wilhelm Friedrich Hegel
19You can have a positive attitude without talent and you can have talent without a positive attitude, but things really start happening when you have a positive attitude combined with talent.
20To be conscious that you are ignorant is a great step to knowledge To be conscious that you are ignorant is a great step to knowledge. - Benjamin Disraeli
21The difference between a mountain and a molehill is your perspective The difference between a mountain and a molehill is your perspective. - Al Neuharth
22Being broke is a temporary situation. Being poor is a state of mind. - Mike ToddHastey kay fareeb main mut aa jouyio asadAlam Tumam halqa dam I Khal haain
23"The best way to have a good idea is to have How to Get Best Ideas"The best way to have a good idea is to have“lots of ideas.“(Linus Pauling.)
24A tree A structure A journey that reaches past your embrace grows from one small seed.A structureover nine stories high begins with a handful of earth.A journeyof a thousand miles starts with a single step.
25There are no shortcuts to any place worth going.
26HR Development "Behind an able man there are always other able men.“ (Chinese Proverb.)"Understanding human needs is half the job of meeting them."(Adlai Stevenson, )
35Quality as an Organizational Goal ExceedingcustomerexpectationsCreatingCustomerValueNot just doingit well butlearning to doit betterEmployeeEmpowerment
36Quality Improvement Evolution Level III Quality System:Continuous improvementemphasisLevel II Quality System:Measures implemented totrack effectivenessEffectiveness of Quality SystemLevel I Quality System:Procedures establishedNS: Dan Is there an evolution in quality improvement?DO: Talks slidesNSLevel 0 Quality System:Ad hoc processesPhases/ Time
37Characteristics of Product Quality ObjectivePerformanceFeaturesReliabilityConformance DurabilityServiceabilityVarietySubjectiveAestheticsPerceived qualityQuality
38What is Quality Management It is the management of the processes of the performing organization that determine quality policies, objectives, and responsibilities so that project will satisfy the needs for which it is undertaken.
39“The purpose of quality management in projects is to ensure that the project outputs are delivered fit-for-purpose. If outputs are not fit-for-purpose, there is every likelihood that planned project outcomes will not be realized, or realized to a much lesser extent.
40It can be achieved by developing quality criteria for the outputs themselves and by ensuring that all project management processes are conducted in a quality manner.”
41Three Areas to Improve Quality Quality of design in Projmeet the customer’s needsdesign for manufacturabilitybuild quality inQuality of conformance inProjminimize and control process variation to satisfy the design specifications every timeQuality of service in ProjThe customer must come first
421. COPQ IntroductionNS: The Cost of Poor Quality
43Vs What is Cost of Quality?????? “Quality is measured by the cost of quality which is the expense of of non conformance– the cost ofdoing things wrong.”Vs
44COST OF QUALITY DEFINED “Quality Costs - Costs incurred because poor quality MAY or DOES NOT exist.”“Cost of not meeting customer’s requirements- cost of doing things wrong”“All activities carried out that are not needed directly to support departmental (quality) objectives - cost of quality.”
45or defects in their manufacture.” QUALITY COST CONCEPTSRepresent difference b/w actual cost of product/ service & what reduced cost would be if there were no possibility of substandard service,failure of products,or defects in their manufacture.”
46Why Cost of Poor Quality? Speaks in the language of management, Rupees Shows how profit is affected by qualityCan prioritize quality improvement actionsServes as impetus for actionsIn US about a third of what we do consists of redoing work previously “done”.(Juran)
47“Quality is Free”For average company, Cost of quality is about 20-25% of total salesCost of prevention is a fraction of“Cost of Fixing Mistakes” after they madeInvestments in prevention can“Drastically reduce Total Cost of Quality
48Proj Mgr Role in encouraging Investment in Preventive Actions can yield significant savings!
49Evolution Of Harrington's Poor-Quality Cost Model In 1950s, Feigenbaum, VP (GE), developed & implemented "Cost of Quality" concept throughout GE.divided Cost Of Quality into following 2 categories & 4 sub categories:Costs of ControlPrevention costsAppraisal costs Costs of failure of controlInternal defect costsExternal defect costs
50Role of IBMIn 1960s, IBM undertook an effort to study its own “Quality Costs” & tailored concept for its own use.While Feigenbaum's term “Quality costs" is technically accurate, it's easy for the uninitiated to jump to the conclusion that better quality products cost more to produce.
51Feigenbaum's concept later adopted by large American firms. In 1960s, Dr. Harrington assigned to implement Dr. Feigenbaum's Cost Of Quality concept at IBM. Found concept lackinga) Did not focus on “Support functions' Co Q” orb) “External customers' Quality Costs”.As a result, IBM expanded concept to fulfill its own needs.IBM used name "Poor-Quality Cost."
52Because IBM felt : “C O Q” an inappropriate title: “Good quality does not cost any addl money”.“Poor quality generates additional costs for org”.If we had perfect quality, we would not have a need for preventive cost or appraisal cost, & there would be nointernal error cost or external error cost.Unfortunately, we do not live in a perfect world.
53Poor Quality Cost 1964, IBM published its first report – included Poor-quality cost for internal component mfg, subassembly, final assembly, final machine test, system test, & first 12 months at customer location for 1620 system. calledQ-100 ReportDuring following months, report- expanded to cover many other IBM systems.
541980s, Philip Crosby implemented Feigenbaum's “Cost Of Quality” concept into his consulting practice.Crosby's approach closely followed Feigenbaum's teachings, although he changed names of some of Feigenbaum's terms1987, ASQ -Harrington's bookPoor-Quality Cost, - documented IBM's approach to reporting costs that result from poor quality.
55Early 1980s, while “Business Process Improvement” methodology Dr Early 1980s, while “Business Process Improvement” methodology Dr. Harrington found that:“Costs that resulted from:“Poorly-Designed Business Processes” also“Poor-Quality Cost Elements”.
56COPQ is refinement of concept of C of Q. Harrington adopted name:“Poor Quality Costs" to emphasize belief:“Investment in detection & prevention of product failures is more than offset by savings in reductions in product failures”.
57COST OF QUALITY Control Costs Failure Costs prevention appraisal internalexternal
59Poor Customer Satisfaction in Pakistan Mother of all “C o PQ”. This cost is compounded by loss:Customer suffers due to:“Defective Product first & Servicing Second”.
60Better management of Design, Engineering, Testing & Costs go down and productivity goes up as improvement of quality is accomplished by:Better management of Design,Engineering,Testing &by improvement of processes.-W. Edwards Deming
61Types of Quality Costs Cost of Compliance Cost of Non-compliance Preventive costs - prevent product defectsAppraisal costs - monitor & compensate when prevention failsCost of Non-complianceFailure costsInternal losses - scrap, reworkExternal losses - warranty work, customer complaint departments, litigation, product recalls
62Four segments of quality costs: A. PREVENTION. covers avoiding defectsPlanning, preparation, training, preventative maintenance & evaluation.B. APPRAISAL. area covers finding defects by inspection, audit, calibration, test & measurement.C. INTERNAL FAILURE. covers costs borne by org itself such as scrap, rework, redesign, modifications, corrective action, down time, concessions & overtime.D. EXTERNAL FAILURE. covers costs borne by customersuch as equipment failure, down time, warranty,administrative cost in dealing with failure & loss of goodwill.
63Two levels: Cost effect due to Poor Q from Mfr defined at Two levels. Straight from “Defective Production of Materials”Other is due to “Handling & Delivery”.These are very much under control of manufacturer.Due to Poor Proj Processes & Practices
64generally applicable consistent CoPQ: Wastage Or Under-Utilization:Referred to as spoilage in Six Sigma,arising out of raw material wasted due to:Inconsistent & Inefficient Processes.
65“Cost of repairing & replacing some parts”. Cost Of Reworking:Cost includes“Cost of repairing & replacing some parts”.This also includes “Cost labor to repair”.
66Cost of Additional Utilities: Overall cost of setting up“Extra infrastructure & utilities consumed To run recycling operationbe considered in COPQ.
67Lost Opportunities: Dissatisfaction triggered business loss Can not be just Loss of Margin.Your Org have to:“Invest capital to regaining lost revenue & offset” Cumulative Revenue Loss”.
68Lost Revenue Due To Poor Quality This cost refers to:Potential loss of new business due to: Defective Quality.
69COST OF POOR QUALITY (COPQ) Allows an org to determine extent to whichorgal resources used for activities:That exist only as the result of deficienciesthat occur in its processes.Such info allows an org to determine:“Potential savings to be gained byimplementing process improvements”.
70Cost of Quality Appraisal Prevention Test and inspection of incoming materiallab-based acceptance samplingin-line inspection & testingsetup for test and inspectiontest/inspection equipment and suppliesQuality auditsQuality endorsements (ISO, MBNQA)Field testingTest/inspection equipment maintenancePreventionQuality planningProcess controlData acquisition & AnalysisTraining and personnel developmentDesign verificationQuality system development and managementQuality reportingImprovement proj
71Cost of Quality External Internal customer complaints scrap warranty costsservice and repair expenseproduct liabilityrecall expense and managementreturned material processingcredit allowanceloss of goodwillInternalscrapreworkretestdowntownyield lossesDispositionEngineering analysistracking and reportingexpediting
72“those costs “associated with: COPQ includes“those costs “associated with:Definition, creation, & control of quality as well as “Evaluation & feedback of conformance with Quality, Reliability & Safety requirements,& those costs associated with consequences of failure to meet requirements both within factory & in the hands of customer.”
73QUALITY COST CONCEPTSRepresent difference b/w actual cost of product/ service & what reduced cost would be if there were no possibility of substandard Service, Failure of Products, or defects in their manufacture.”
74Anatomy of copqCoPQ comprises costs which have generated as by products of defective and inconsistent manufacturing process.Directly assigns a Rupee value to cost of poor quality, meaning that the CoPQ is measurable.Cost of Poor Quality originates at all places where product or a part thereof is being made.
75…continued a) Producing defective material. CoPQ originating from suppliersa) Producing defective material.b) Damaging material during delivery.CoPQ at the production points CoPQ at warehouseCoPQ at transportation and distribution
76We may includ“No-Real-Value-Added“ elements to his “Poor-Quality Cost Model” in 1990. In extensive work with“Sales & marketing functions”,“Concept of Lost-Opportunity”, cost also had a major impact on “Corporate Bottom-Line”.So “Lost-opportunity cost” added as a new element.
77COPQ Calculation allows an org to: Determine extent to which orgal resourcesused for activities that exist only as a result of deficiencies that occur in its processes.Such info allows an Your org to:“Determine potential savings to be gainedby implementing process improvements”.
78COPQ EquationCOPQ = Costs (external failures + internal failures + appraisal + preventive action)Many times white collar poor quality costs are not included in COPQ calculations (out of conformance purchases, excess inventory, ...) (Atkinson)
79COPQ Represents difference between met customer needs and The actual cost of production or serviceWhat the cost would be if the process were effective in manufacturing products thatmet customer needs andwere defect free.
80Related Quality Initiatives Six Sigma uses defect costs to quantify savingsLean Manufacturing focuses on reducing appraisal costsDesign Controls focuses on early review & test activities to find defects early
81Cost of External Failures Costs for defects found by the customer:Reports of corrections and removals,Field service corrections,Field service bulletins, andSoftware patches.
82Cost for Internal Failures Cost for defects found by R&D or MfgUnclear requirementsImproper design and implementationIncorrect test documentationIncoming inspection defectsIn-process testing defectsFinal acceptance testing defectsRework
83Fields of “copq”: CoPQ generally cover the followings: 1) Cost of labor to fix the problem.2) Cost of extra material used.3) Cost of extra utilities .4) Cost of lost opportunitya) Loss of sales/revenue (profit margin)b) Potential loss of market sharec) Lower service level to customers/consumers
84Defects are not free. Somebody makes them and gets paid for making them. -W. Edwards Deming
85If the cost of quality is high, looking through the the cost of poor quality is still higher. Companies bear a huge cost of about 9-16 percent of their revenues on problem solving.This is the cost of poor quality, or CoPQ, as it is known. Motorola discovered this in the late 1970s at a huge price.General Electric has put cost difference between 3 or 4 Sigma and Six Sigma at an astonishing $8-12 billion a year.
87Measuring cost of quality Like all things there is a price to pay for quality. total cost can be split into two fundamental areas:a. Non Conformance. Area covers price paid by not having quality systems or a quality product. Examples(1) Rework. Doing job over again because it wasn't right first time.(2) Scrap. Throwing away results of your work because it is not up to required standard.(3) Waiting. Time wasted whilst waiting for other people.(4) Down Time. Not being able to do your job because a machine is broken.
88Measuring cost of quality b. Conformance. Conformance is an aim of quality assurance. achieved at a price. Examples :(1) Documentation. Writing work instructions, technical instructions and producing paperwork.(2) Training. O the job training, quality training, etc.(3) Auditing. Internal, external & extrinsic.(4) Planning. Prevention, do right thing first time & poka yoke.(5) Inspection. Vehicles, equipment, buildings & people.
89Measuring Cost of Quality Determine where to spend Rupees on quality preventionPareto AnalysisTrack costs of qualitychange chart of accounts or coding systemDevelop a quality reporting system
93Total Failure Cost Profit lost by selling units as defects Rework cost Cost of processing customer returnsCost of warranty workCost of product recallsCost of litigation related to productsOpportunity cost of lost customers
94Calculating the Total Quality Cost PreventionCostAppraisalCostFailureCost=++T = K + A + F
96ELEMENTS OF COPQ CoPQ fester into the following elements: DIRECT POOR-QUALITY COSTSINDIRECT POOR-QUALITY COSTS
97Direct poor-quality cost- Controllable poor-quality cost (directly controllable costs to ensure that only acceptable products and services reach the customer)Prevention costAppraisal costResultant poor-quality cost (costs incurred because unacceptable products and services were delivered to the customer, resulting from earlier decisions about how much to invest in controllable COPQ)Internal error cost (Cost for defects found by the customer)External error cost (Cost for defects found by R&D or Manufacturing)Equipment poor-quality cost (costs to invest in equipment to measure, accept, or control a product or service. It is treated separately from controllable costs to accommodate the effects of depreciation)
98Prevention Cost: Cost for initiatives to improve processes: …continuedPrevention Cost: Cost for initiatives to improve processes:Use techniques to better understand requirementsEmploy programs to reduce design defectsImplement tools to reduce manufacturing defectsInstitute quality improvement programsAppraisal Cost: Costs for checking defects including:Review of system specifications (R&D),Review & inspection during manufacturing processes,Review of quality records, andAudits
99Internal Error Cost: Cost for defects found by R&D or Manufacturing: …continuedInternal Error Cost: Cost for defects found by R&D or Manufacturing:Unclear requirementsImproper design and implementationIncorrect test documentationIncoming inspection defectsIn-process testing defectsFinal acceptance testing defectsReworkExternal Error Cost: Costs for defects found by the customer:Reports of corrections and removals,Field service corrections,Field service bulletins, andSoftware patches.
100Cost for Appraisal Costs for checking defects including: Review of system specifications (R&D),Review & inspection during manufacturing processes,Review of quality records, andAudits
101Cost for Preventive Action Cost for initiatives to improve processes:Use techniques to better understand requirementsEmploy programs to reduce design defectsImplement tools to reduce manufacturing defectsInstitute quality improvement programs
102inDirect poor-quality cost- Indirect COPQ is difficult to measure because it is a delayed result of time, effort, and financial costs incurred by the customer. These customer costs add up to lost sales and therefore do not appear in the company's ledger.Customer-incurred costCustomer-dissatisfaction costLoss-of-reputation cost
103WHITE COLLAR C oPQ-Harrington noted that expanding cost analyses to management and clerical workers could also make a significant dent in waste. He defined the following costs by functional area:
104Functional area Controllable COPQ Resultant COPQ Controller COPQ Timecard reviewsCapital equipment reviewsInvoicing reviewsBilling errorsIncorrect accounting entriesPayroll errorsSoftware COPQDesign reviewsCode reviewsCrashesDeadlocksIncorrect outputsPlant administration COPQSecurityFacility inspection and testingMachine maintenance trainingDisclosure of trade secretsFacilities redesignOverstaffing/understaffingEquipment downtime/idle timePurchasing COPQVendor reviewsPeriodic vendor surveysFollow-up on delivery datesStrike built-in costsLine-down costExcessive inventory due to suppliersPremium freight cost
105White collar copq: Functional area Controllable COPQ Resultant COPQ Marketing COPQSales material reviewMarketing forecastCustomer surveysSales trainingOverstockLoss of market shareIncorrect order entryPersonnel COPQPrescreening applicationsAppraisal reviewsExit interviewsAttendance trackingAbsenteeismTurnoverGrievancesIndustrial engineering COPQPackaging evaluationsLayout reviewsOSHA reportsInspection of contract workOSHA finesShipping damageRedoing layoutPaying contractors for poor work
106CONCLUSIONCalculating the cost of poor quality allows an organization to determine the extent to which organizational resources are used for activities that exist only as the result of deficiencies that occur in its processes.Having such information allows an organization to determine the potential savings to be gained by implementing process improvements.Identify all activities that exist only because of poor quality.Identify where in the organization the cost of each activity is experienced.Determine the method you will use to calculate the cost of poor quality.Collect the data and estimate the costs.
108Poor quality mangoes- Poor quality of mangoes exported- A CONSTRAINTS ANALYSIS OF PAKISTAN MANGO SUPPLY CHAINS,16 May 2006, Dr Aman Ullah MalikUniversity of Agriculture Faisalabad, PakistanPoor quality of mangoes exported-The export market faces similar challenges. Pakistan mangoes have a reputation as being cheap and of poor quality, and exporters have a tendency to dump fruit in markets such as the UAE.The product subsystem: the poor quality of mangoes that reach the final consumer is a result of poor production systems coupled with inadequate handling, storage and transport systems.The Middle East, particularly Dubai, has become a dumping ground for Pakistan mangoes. The sheer volumes and poor quality, particularly from open container shipments, drives the whole market down to a point where it is very difficult for exporters with better quality product to achieve profitable margins.
109Poor quality of citrus export- CITRUS EXPORT SYSTEM IN PAKISTANM. Athar Mahmood (Scientific Officer), and A. D. Sheikh (Director, Technology Transfer Institute (PARC), Ayub Agricultural Research Institute, Faisalabad, PakistanLack of storage facilities:Very few factories have their own storage facility and their capacity is very limited. Generally, exporters and traders store their consignments in traditional cold stores available near fruit markets. When there is glut in the market, Kinnows are even thrown on the roads which indicate the fact of poor storage facilities. The other problems related to cold storage facilities are high rent and poor quality of storage.Non-availability of quality packing:Packing material available is of low quality with high prices. The cardboard boxes cannot sustain the pressure of weight in the containers, so the packing gets loose affecting the fruit quality. Poor quality packing fetches low price in international market.
110Poor Carrot Production in Toba Tek Singh- Effects of Poor Quality of Ground Water on Carrot Production: A Comparative Study, KHUDA BAKHSH, MUHAMMAD ASHFAQ AND MUHAMMAD WAQAS ALAMDepartment of Environmental and Resource Economics, and Agricultural Economics, Faculty of Agricultural Economics and Rural Sociology, University of Agriculture, Faisalabad–38040, PakistanPoor Carrot Production in Toba Tek Singh-Cross-sectional data were used to determine the effects of ground water on carrot production. Results of production function analysis indicated that poor quality of ground water in Toba Tek Singh was significantly decreasing the carrot production.The consistent use of poor quality water not only deteriorates chemical and physical properties of soil (World Bank, 1994) but also results in loss of agriculture production of the order of million rupees per annum (Pato, 1998)The result indicates that one percent increase in application of poor quality of the ground water could further decline carrot yield by 0.153%. Carrot crop is sensitive to poor quality of the ground water and application of this type of water results in substantial losses in carrot production.
111Poor quality of education- Education in Pakistan: The Key Issues, Problems and The New ChallengesGhulam Rasool Memon, Department of Education, University of KarachiThe Education Sector in Pakistan suffers from insufficient financial input, low levels of efficiency for implementation of programs, and poor quality of management, monitoring, supervision and teaching. As a result, Pakistan has one of the lowest rates of literacy in the world, and the lowest among countries of comparative resources and social/economic situations.With a per capita income of over $450 Pakistan has an adult literacy rate of 49%, while both Vietnam and India with less per capita income have literacy rates of 94% and 52%, respectively (Human Development Centre, 1998).An educational system of poor quality may be one of the most important reasons why poor countries do not grow.
112How to use it:Identify all activities that exist only because of poor quality.Call together a team that includes people with first hand knowledge of process.Conduct a brainstorming session to capture all component tasks that exist exclusively to remedy quality problems caused by process deficiencies.Identify where in org cost of each activity is experienced.These costs may appear in one area or in multiple areas.Determine method you will use to calculate CoQP.To use the total resources method, you must identifyTotal resources consumed in a categoryPercentage of those resources used for activities associated with remediating effects of poor quality.To use the unit cost method, you must identifythe number of times deficiencies occur andthe average cost for correcting that deficiency.Collect the data and estimate the costs.