Measuring Improvement and Failure Costs
Generally, it is accepted that you need to measure current performance to promote improvement. Because poor performance is often difficult to measure and exists between internal silos of the business, it is necessary to focus attention on performance failures. This is relatively easy in a manufacturing business where defects stick out like a sore thumb - but as you move into the service sector, failure becomes less easy to identify and acknowledge.
We believe it is essential to measure wasted effort because it is a lost opportunity which has been resourced at some time in the business. We refer to this as having to rework a job and call this the 'cost of errors.' In the service industry, over 40% of salary can be wasted in fixing things after they have gone wrong.
A major theme in a customer-focused business is measuring problems that arise and equating a cost to these. Some people refer to this as the Cost of Quality, a central theme in most improvement programmes. Here are some of the problems associated with poor implementation.
Pre-occupation with measuring only the tangible activities leading to customer service failure
The only measures generated are often in the challenging, tangible manufacturing areas. Rework and failure costs must also be measured in the frequently neglected service and administrative areas. In one insurance business, we helped managers identify over 300 work activities that were classed as rework. These activities consumed time but added little value to the company because they should have been performed right the first time.
Communicating the impact of failure on the performance of the business
If staff are having trouble recording figures reflecting failure, it makes sense to display these to let others know 'how you are doing.' All too often, information on rework is hidden away in filing cabinets and computer discs. The phrase, 'what gets measured and is communicated, gets done' is a vital guide here.
Expect instant results
In work, we expend time on four key activities:
Firefighting
The firefighting culture completely distorts the ratio of costs in the poor quality business with a heavy emphasis on rework.
When changing the culture, we focus on devoting substantial resources to prevention. This investment in prevention will reduce the need to check things and thus will reduce rework costs. But change does not always happen overnight.
Investing in Prevention to reduce Rework Costs
Initially, the organisation has to over-invest in prevention to eliminate the Rework culture. This is best represented by the formula 10P = 1R, meaning initially, to kick in real change requires ten units of prevention to eliminate 1 unit of rework. We demand such an investment because the power of the firefighting culture is so strong that there is a need for initial momentum and a solid drive to launch the change in culture.
If you would like to find out more about this approach to reduce Rework with Prevention contact Philip
Generally, it is accepted that you need to measure current performance to promote improvement. Because poor performance is often difficult to measure and exists between internal silos of the business, it is necessary to focus attention on performance failures. This is relatively easy in a manufacturing business where defects stick out like a sore thumb - but as you move into the service sector, failure becomes less easy to identify and acknowledge.
We believe it is essential to measure wasted effort because it is a lost opportunity which has been resourced at some time in the business. We refer to this as having to rework a job and call this the 'cost of errors.' In the service industry, over 40% of salary can be wasted in fixing things after they have gone wrong.
A major theme in a customer-focused business is measuring problems that arise and equating a cost to these. Some people refer to this as the Cost of Quality, a central theme in most improvement programmes. Here are some of the problems associated with poor implementation.
Pre-occupation with measuring only the tangible activities leading to customer service failure
The only measures generated are often in the challenging, tangible manufacturing areas. Rework and failure costs must also be measured in the frequently neglected service and administrative areas. In one insurance business, we helped managers identify over 300 work activities that were classed as rework. These activities consumed time but added little value to the company because they should have been performed right the first time.
Communicating the impact of failure on the performance of the business
If staff are having trouble recording figures reflecting failure, it makes sense to display these to let others know 'how you are doing.' All too often, information on rework is hidden away in filing cabinets and computer discs. The phrase, 'what gets measured and is communicated, gets done' is a vital guide here.
Expect instant results
In work, we expend time on four key activities:
- We add value
- Rework things when they go wrong
- Inspect for accuracy, and
- Prevent problems from arising
Firefighting
The firefighting culture completely distorts the ratio of costs in the poor quality business with a heavy emphasis on rework.
When changing the culture, we focus on devoting substantial resources to prevention. This investment in prevention will reduce the need to check things and thus will reduce rework costs. But change does not always happen overnight.
Investing in Prevention to reduce Rework Costs
Initially, the organisation has to over-invest in prevention to eliminate the Rework culture. This is best represented by the formula 10P = 1R, meaning initially, to kick in real change requires ten units of prevention to eliminate 1 unit of rework. We demand such an investment because the power of the firefighting culture is so strong that there is a need for initial momentum and a solid drive to launch the change in culture.
If you would like to find out more about this approach to reduce Rework with Prevention contact Philip
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