Measure What Matters

I was recently reading an update on the 2009 Baldrige National Quality Award recipients and in the right margin an article title caught my eye. Get the article here. The article was about a North Carolina school district that received the award in 2008 but the subject of the article was really about developing meaningful measurements. The author discusses how this is a key concept in the baldrige criteria and I pondered that for a minute......Really, that's a key concept of business. Every business, regardless of their intentions towards national quality awards, or not, should measure what matters most to their business. In last weeks' post I discussed a business situation in which the measurement did not drive action. Go here for a refresher. This is a key component of measuring what matters, does it draw in resources? Perhaps a better question might be, should it draw in resources? Should a measurement cause a leader to make a decision to dedicate some resources to its improvement? If it matters, the answer would be: Yes. So obviously the decisions about what to measure are very important. The first question should be; Does this matter to our customers? If the answer is yes, then it matters to you too. It should be measured and improved if not meeting needs. The second question should be; if this measurement does not meet the need, are we committed to improving it? If the answer to the first question is yes, then this one should be an easy yes. Sometimes its not though, hence my story from last week.

So how do we determine what to measure? What matters most? The short answer is: Get to know your customer. What matters most to them about the product or service you provide? Go ask them. Conduct surveys, solicit feedback, analyze complaints, talk to ex-customers about why they are ex-customers, and potential customers about their needs and expectations.

Lets be honest. Sometimes its hard to achieve a balanced perspective on whats important. Every business is concerned about costs, and quality, and customer satisfaction, and employee satisfaction to some degree. But how do you balance these sometimes competing concerns to make sure that cost does not outweigh quality or customer satisfaction does not drain the company cofers. Enter the Balanced Scorecard.

The balanced scorecard approach suggests that we view the organization from four different perspectives, establish objectives, measures, targets, and initiatives for each perspective. The four perspectives are: Financial, Customer, Learning & Growth, and Internal Business Processes. These four areas surround the central theme of the business; the vision and strategy. As you can see from the model above, each area interacts with the areas adjacent to it, so improvement in learning and growth has a positive impact on internal business process performance and customer satsifaction. The better we are at our internal business processes, the better we are able to meet our customers needs and improve our financial situation.

Of course, the balanced scorecard is only one approach to measuring what matters. There really is not right or wrong way to do it, just do it. Determining what matters most to the success of the business, developing measures, monitoring performance, and committing resources to improve when necessary are really the keys to success no matter what format you chose.

Total Cost of Quality for the Total Picture

Happy New Year! Here's wishing everyone a healthy, happy 2010. Now on to business.

What is the financial impact of quality on our organization? Is it money well spent? What should we be spending our money on in regards to quality? Is inspection the right place to spend our precious capital or should we invest in automation? To what degree should we inspect for conformance. If any or all of these questions sound familiar to you, read on for the answers.

Enter Total Cost of Quality. Total Cost of Quality (CoQ) is a finanicial model of the costs incurred to operate and maintain the function of quality in a business. The CoQ model takes into account all of the activities that any typical company would perform in the name of providing good products or services to customers. The CoQ model, also known as The Economic Conformance Model, shows us the rising costs associated with proactive management of quality as compared to the decreasing costs associated with improving quality. The graphic below gives a visual representation of the CoQ model.

Before we get into that too much though, lets define the four components of the Cost of Quality model.

The first two categories of cost are associated with putting systems and processes in place to reduce the likelihood of a failure. First is prevention. Prevention is the category for those costs associated with preventing a quality problem from occuring in the first place. Typical costs that are included in this category are; training, procedure writing, ISO related costs, and process or equipment automation.

Appraisal is the next category. Appraisal is where we capture our inspection costs. Any activity we do that inspects the quality of the product or service falls in this category. Typical costs included here are; Calibration, instrumentation, and inspection and test personnel.

Internal Failure is the first of two categories associated with poor quality. Internal Failure are those costs associated with recognizing a poor quality characteristic exists BEFORE the product leaves the factory. The most common cost in this category is scrap, followed closely by rework costs.

External Failure is the worst of all possible situations. External failure is failure of a product or service at the delivery point or usage point of the customer. I say that this is the worst of all possible situations for two reasons. One, the product is fully burdened with cost, including transportation and storage costs. Second, reputation in impacted here. The customer experienced the failure, damaging the company reputation and hindering future sales.

Ok, now that we have that out of the way, lets talk about what this means to us. In the model above the total cost of quality is represented by a bowl shaped curve. The low point of the bowl shaped curve is called the economic conformance point. This point represents the lowest possible cost of quality that a company can expect to see. This point is the balance between the costs associated with preventing a problem from occuring and the costs of dealing with the problems that do occur. So, we might look at that graph and say, great, this is easy, all we have to do is balance costs in the four categories to achieve the economic conformance point, then we're done. Easy! Not quite. The thing to remember is that the economic conformance point can be moved lower and to the right through effort. The graph below shows the traditional view of Cost of Quality in the top left section, and in the lower right section shows the effect of applying an improvement methodology such as Lean or Six Sigma.

In the traditional view, there is a fixed minimum cost associated with the quality function. In a Lean or Six Sigma company, we can lower the costs associated with prevention and appraisal by building higher quality products. Higher quality products with less variation allow us to reduce our inspection routines to ever decreasing sampling strategies. Higher quality products also reduce the need for expensive automation systems and complicated work routines to ensure a mistake is not made. With higher quality comes higher confidence, and higher confidence brings lower costs.

Graphics excerpted from:

Cost of Quality: Not Only Failure Costs

by: Arne Buthman

isixsigma.com

Measurement-Context is Important

Fellow blogger and Leadership Change Agent Brad Kolar posted last week on something that has got me thinking. Brad shared an experience he had with a team in which the team had some data about an improvement that showed a tremendous productivity gain. However, Brad got the team to look at the data a different way, which showed that the improvement was not nearly as dramatic and that more work needed to be done on adoption of the improvement. Read Brads full post here.


I have had all kinds of similar experiences to Brad's story. The most recent one occurred this week. I was doing some coaching with one of my friends who is also a Six Sigma Green Belt. He was asking me to review his data and help him present a graphic and set of statistics that would show the improvement in performance of a process that he has been working on for several months. He had done some of his work ahead of time so there was very little for me to add but one thing struck me during our discussion. He was comparing process performance in September with process performance in October since they represented his before and after improvement conditions. On the surface, this seemed a valid comparison until you consider that the process interacts with outside weather conditions. So I asked the question, was September and October different or the same in terms of outside weather? Turns out, September was warmer and drier than October, making the comparison suspect. So what to do? We looked for a comparable period of outside weather conditions in the before period and ran the analysis on that month. Turns out March was very similar to October so that was our before comparison month.

Completing the analysis showed us that indeed the process had improved in terms of variation and centeredness. My friend was on solid ground to make his claim of improved performance. Just goes to show, you have to think about your data and ask yourself hard questions about the validity of assumptions that are made to be able to stand up to scrutiny and convince others that your improvement is real.