Google Analystics

Monday, 14 July 2014

Cost of Quality or Return on Investment (ROI)?

Is there a cost to establishing and maintaining a Quality Management System?

In answering this question many people will readily recognize that we have to spend money on preventing 'bad' things from happening, such as defective parts in manufacturing or an avoidable critical incident in a nursing home. We also have to lay out money in what are known as 'appraisal costs' such as quality control on the production line or double-checking that the correct medication was given to the correct patient/resident at the correct time or covering the costs of auditors or accreditation surveyors.

But to be fair and accurate, whenever we have to calculate and report the cost of quality we should also identify and add in the Cost Of Poor Quality (COPQ) also called PONC - Price of Non-Compliance or Non-Conformance.

For example: time spent 'fixing' problems, retooling, speaking to unhappy family members in a Long-Term Care Home, covering staff absences because of stress and demotivation and, of course, time spent with inspectors for reported complaints or critical incidents should all be seen as “waste” and added to the cost of poor quality.

Of course, there is also the cost of lost reputation when our failures become public knowledge, which also adds to staff stress and demotivation. Inspection reports are really dirty laundry hanging on a very public clothes line.

To the extent that our preventive and appraisal efforts are reducing the incidence of poor quality and non-conformance and the associated costs, we are receiving a return on investment in our Quality Management System.

 There is a tax benefit to reporting money spent on quality as a cost of doing business, but in our minds and hearts we would do better to see that money as a capital investment that produces a return. Then we are more inclined to ask, How can we get the best ROI, Return On Investment? This question is not limited to for-profit organizations.

An efficient and effective QMS is really an asset, not a cost:

  • Ask: How can we get a return on investment? (Note. This question applies equally to NFPs as For-Profits)
  • It’s a shame and a waste to use accreditation or certification mainly for ‘window dressing’
  • Time and resource spent on preventable complaints and inspections for reportable events should be cost out as ‘waste’ (COPQ, PONC). Any reduction is ROI.
  • Other ROI: reduced staff turnover; reduced absenteeism; prevention of recurring non-compliance or defects; fewer follow-up and other inspections
  • Intangible ROI includes: fewer preventable critical incidents and reportable events; increased satisfaction both for residents or patients and their families; happier Government regulators; Improved, reality based, public recognition and reputation

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