1 Project Quality Management Lec#13 Project Quality Processes Ghazala Amin

2 Not just doing it well but learning to do it better Exceeding customer expectations Employee Empowerment Creating Customer Value Quality as an organizational goal Courtesy: Ali Sajid-Cost of Quality in projects

3 Role of Management and Leadership

4 Leadership As Joseph M. Juran said in 1945, “It is most important that top management be quality-minded. In the absence of sincere manifestation of interest at the top, little will happen below.” A large percentage of quality problems are associated with management, not technical issues. *American Society for Quality (ASQ), (

5 Cost Of Quality

6 What is Cost of Quality? Courtesy: Ali Sajid-Cost of Quality in projects “Quality is measured by the cost of quality which is the expense of non conformance– the cost of doing things wrong.”

7 Costs of poor quality “are huge, but the amounts are not known with precision. In most companies, the accounting system provides only a minority of the information needed to quantify this cost of poor quality Juran on Quality by Design, The Free Press (1992), p. 119 The Cost of Quality

8 Media Snapshot* A 2004 study by Nucleus Research Inc. estimates that spam will cost large companies nearly $2,000 per employee in lost productivity in 2004 alone, despite investments in software to block spam. Spam currently accounts for more than 70 percent of total volume worldwide. In just one month (August 2003), at least 50 new Internet viruses surfaced, and losses related to computer viruses cost North American companies about $3.5 billion. Businesses have suffered at least $65 billion in lost productivity because of computer viruses since *McGuire, David, “Report: Spam Costs Are Rising at Work,” Washington Post (June 7, 2004).

9 Poor 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. called Q-100 Report During following months, report- expanded to cover many other IBM systems.

10 “Quality is Free” For average company, the cost of quality is about 25% of total sales cost of prevention is a fraction of cost of fixing mistakes after they made

11 The cost of Quality Investments in prevention can drastically reduce total cost of quality

12 Cost of Quality-Wikipedia In process improvement efforts, quality costs or cost of quality is a means to quantify the total cost of quality-related efforts and deficiencies. It was first described by Armand V. Feigenbaum in a 1956 Harvard Business Review article. Prior to its introduction, the general perception was that higher quality requires higher costs, either by buying better materials or machines or by hiring more labor. Furthermore, while cost accounting had evolved to categorize financial transactions into revenues, expenses, and changes in shareholder equity, it had not attempted to categorize costs relevant to quality, which is especially important given that most people involved in manufacturing never set hands on the product. By classifying quality-related entries from a company's general ledger, management and quality practitioners can evaluate investments in quality based on cost improvement and profit enhancement.

13 Feigenbaum’s quality cost areas Cost of Conformance- Wikipedia Cost AreasDescriptionExamples Prevention CostsArise from efforts to keep defects from occurring at all Quality Planning Investment in quality-related information Quality training and workforce Systems development and management Product design verification Appraisal CostArise from detecting defects via inspection, test, audit Test and inspection of purchased materials Acceptance testing Inspection Testing Checking labor Setup for test or inspection Test and inspection equipment Quality audits Field testing

14 Feigenbaum’s quality cost areas Cost of Non-Conformance-Wikipedia Cost AreasDescriptionExamples Internal failure costsArise from defects caught internally and dealt with by discarding or repairing the defective items Scrap Rework Material procurement costs External failure costsArise from defects that actually reach customers Complaints in warranty Complaints out of warranty Product service Product liability Product recall Loss of reputation

15 The Cost of Quality »Cost of quality is the total price of all efforts to achieve product or service quality. »It includes work that conforms to the requirements as well as the work resulting from nonconformance to the requirements. »Quality programs also have costs which includes »Training programs »SPC (Statistical Process Control) Costs »Cost to build it right the first time etc.

16 The Cost of Quality »Types of Quality Costs: › Internal Failure – cost incurred to correct an identified defect prior to shipment to the customer › External Failure - cost incurred due to errors detected by the customer. › Appraisal - cost incurred to determine the condition of the product › Prevention - costs incurred to reduce failure and appraisal cost › Measurement and Test Equipment – capital cost of equipment used to perform prevention and appraisal activities.

17 The Cost of Non Quality »Cost of non-quality is estimated to be 12-20% of sales versus the “should cost” of 3-5% of sales for a quality program. › Waste of time and material › Rework of poor quality products and additional material for rework › Delays in schedule › Product and service image › Corporate image

18 Conformance Vs. Non-Conformance »Planning »Training and indoctrination »Product Design/Validation »Process Validation »Test and Evaluation »Quality Audits »Maint./Calibration »Field Testing Conformance (Quality) »Scrap »Rework »Material cost (additional) »Warranty repairs »Complaint handling »Liability Judgments »Product recall »Field Service »Expediting Non-Conformance

19 These Two Main Areas Can Be Split Further As Shown Below:

20 Types of Quality Costs Cost of Compliance –Preventive costs - prevent product defects –Appraisal costs - monitor & compensate when prevention fails Cost of Non-compliance –Failure costs Internal losses - scrap, rework External losses - warranty work, customer complaint departments, litigation, product recalls

21 Total Failure Cost Profit lost by selling units as defects Rework cost Cost of processing customer returns Cost of warranty work Cost of product recalls Cost of litigation related to products Opportunity cost of lost customers

22 Three Areas to Improve Quality Quality of design –meet the customer’s needs –design for manufacturability –build quality in Quality of conformance –minimize and control process variation to satisfy the design specifications every time Quality of service –The customer must come first