Understanding the true cost of quality in an enterprise-wide GIS adds value to an organization's understanding of business processes.The traditional model of calculating the process lifecycle costs and striving to increase efficiency is a valuable approach; however, it does not provide the complete story.
In every organization, rework is waste.Across vertical and horizontal business functions, the true cost of quality is often lost.A cost of quality approach looks at processes and events in both a preventive and corrective environment and derives a cost that can be analyzed in the context of the business cycle.The objective of a cost of quality process is to capture the total value of poor quality in the organization and provide a vehicle that justifies the elimination of poor quality.The enterprise GIS is particularly well suited for this analysis because of the nature of spatial-temporal data.It provides answers to the question, "Who did what, when and where?"
This paper provides the necessary framework to discuss methods of calculating the true costs of quality across an organization using an enterprise GIS.Suggestions for eliminating those costs, elevating quality, and decreasing process lifecycle will also be identified.
A traditional approach to quantifying the cost of a process lifecycle is to develop what is called a process map.A process map is simply a graphical model of a business process as it occurs logically and chronologically. Many would consider this to be just a robust flowchart, but a flowchart does not illustrate the key people involved in the process.Figure 1.0 illustrates a portion of a simplified process map, and is not a completed example since the process quantification metrics are not yet assigned to the process steps.The reader is encouraged to research the many resources available for more detailed discussions on process mapping tools, techniques and applications.
Click to enlarge
Figure 1.0 Process Map
Rationale for the Cost of Quality (COQ)
Many organizations implement an enterprise GIS to allow more efficient, cost-effective operations at multiple physical facilities and across departmental boundaries.Others want the capability to plan, design, track and maintain assets in real-time while eliminating waste and providing a higher return on investment.All of these reasons support analysis of the cost of quality, or more precisely, the cost of poor quality.
First, we must start by identifying what is meant by "quality".It is an ever-elusive term to define, and means something different to each one of us.Without debating the infinite and relative definitions of quality, this paper takes the simplified approach to state that quality is fitness for success.Each organization and industry views quality in a variety of ways, and each one can leverage the cost of quality approach to its own unique advantage without absolutely defining quality in this paper.This leaves the definition of "success" entirely up to the organization, and the responsibility of measuring "fitness" for success up to the marketplace. Next, the term "Cost of Quality" is defined not so much in itself, but more accurately by identifying the cost of poor quality, or the lack of fitness for success.In other words, COQ attempts to measure the costs associated with poor quality.
Also, it is imperative to recognize in any process improvement exercise that while people are a major factor in the process flow, any inefficiencies or poor quality indicators resulting from the process are most likely the result of the process itself, and not the individual people involved.This is an essential point that should not be lost in the drive to eliminate poor quality, because people will still be part of the process, and alienating them with blame will ensure that the entire effort will ultimately fail. Remember, it's the process not the people.
Ideally, the cost of quality process should be deployed to everyone in the organization in order to fully leverage the collective intelligence of the enterprise.Each individual is enabled and empowered to proactively look for poor quality, and to take action to eliminate it from the business processes.
One tool that has proven useful is a simple series of spreadsheets that allow the user to define the activities involved in producing poor quality, quantify those activities financially, and demonstrate the return on investment by eliminating those activities.A more powerful version of this same tool can reside in any relational database management system, so that over time, any patterns or trends in cost of quality analyses can be readily available from the "bucket" that maintains the COQ data.Figure 2.0 illustrates the introduction page when the user initiates the COQ tool:
Click to enlarge
Figure 2.0 Cost of Quality Worksheet
As you can see, the simplicity of the tool allows for a low-cost of training and implementation and documentation, as well as overall ownership.The user simply inputs the observations and activities that result in poor quality, and the selections are driven from pull-down menus and pick-lists. This is where the enterprise GIS is leveraged; by identifying the activity and the people involved, the enterprise GIS pulls all relevant and appropriate data for those activities to generate the true cost of the activity, (ie.double-loop accounting).
In Figure 3.0, the second stage of the COQ process is to quantify the requirements for eliminating the cause(s) of poor quality, ie.capital expenditures, skills set training, etc.This preventive action plan will help demonstrate to key decision makers that the benefit outweighs the cost, and that continuing to ignore the cost of poor quality is truly costly!
Click to enlarge
Figure 3.0 Cost of Quality Investment Plan
Once this stage of the process is completed, the last stage in documenting the cost of poor quality is automatically generated with this tool.The failure reduction analysis page, illustrated in Figure 4.0 below, collects the data and presents it in report format for dissemination.At this stage of the process, the user is done, and the responsibility is now in the hands of the key decision-makers within the organization.
Click to enlarge
Figure 4.0 Cost of Quality Failure Reduction Analysis
COQ Case Study
Presented below is one case study that may help illustrate the practical application of a COQ process in an organization.Although the case study may seem rather simplistic in nature, the methods and applications of the COQ tools in a much larger organization that can leverage the information in the enterprise GIS can realized similarly powerful results.
An organization involved in GIS data conversion had over thirty people in a production office.The conversion software was configured for "fat client" operation, that is, the software was operating off of the desktop hard drive.The data however was stored on the server, and every few minutes, the "client" software would send packets of data back to the server for storage and access.Since the data conversion industry is very cost-competitive, literally every minute counts toward the bottom-line.
This company however did not have an uninterruptable power supply (UPS) for its server or its production machines.The costs associated with implementing enterprise UPS protection was deemed unnecessary, and too costly since there was no immediate need to justify the expenditures."If it isn't broke, why fix it?"
During one month however, power failures and "hiccups" were being reported in the local news, and in adjacent commercial centers.Still no sense of urgency by the organization.The first power outage at the company was relatively minor, lasting for less than a minute.A few calls identified the cause of the power failure to the local telephone company placing new underground cables, and frequently cutting the electric cables in the process.As the frequency of the power outages increased, so too the duration of each outage.
The production group began to feel the impacts of the power failures in terms of lost productivity, delayed schedule, and corrupted data.It was decided that something must be done, but in order to demonstrate the long term benefits of "doing something", the "cost" of not doing anything had to be spelled-out.
Several people were enrolled to identify the process that occurred each time the power failed, and what was involved in order to bring the production group back online.To the groups astonishment, a significant amount of collective time was consumed each time, regardless of the duration of the power failure.First, a process map was created, and each step in the process was given a time estimate.Based on standard operating procedures, the people involved in each step of the process had a certain hourly wage associated with their labor.This was calculated for the entire process. Next, the opportunity cost of not gaining any additional revenue (from work that could have been done) was calculated across the enterprise.Then, the cost of lost production work, in terms of re-doing work and searching for corrupted data, was calculated across the enterprise.Another component to the cost of quality analysis was in quantifying the cost of production schedule delays and customer satisfaction due to the frequency of power failures.
All of this data was collected, compiled and collated for a single occurrence of a power failure.Then the team estimated, based on historical evidence, the annualized number of power failures that the production group would be forced to endure.Once the annual impact was estimated, then the annual costs were calculated, and the team was shocked; power failures alone were causing the company $137,280 per year.
The COQ team then prepared an action plan intent on preventing, or alleviating the costs of power failures in the future.This plan included the purchase of a robust network backup system, UPS's for every workstation and server, and the revision of operating procedures with risk avoidance as a central theme.The entire preventive action plan was estimated to cost approximately $11,200, and take two months to implement.The ROI on that preventive action investment would yield 919% in just 40 days in order to reduce the costs by 75% over a one year period.
This COQ analysis was presented to executive management, and a check was cut for $11,200 the very same day.
Many managers will no doubt see the enormous potential for applying COQ in their organization, but in the competing world of organizational initiatives and executive sponsorship, how does a COQ get approval for implementation?
The answer lies in two words: bottom-line.If the data can unequivocally demonstrate that there is a real financial benefit to investing funds, then the responsibility is on the executive and no longer the manager.It truly must be an investment, not just an expenditure, especially in the realm of spatial information because of it's temporal nature.Smart management will see that the cost of quality ROI will have a cascading effect on forward-looking business opportunities, both in competitive advantage, higher profit margins and quicker time to market.
The substantial benefit of COQ in an enterprise GIS organization is that all of the necessary information is immediately available to the user and can be integrated with the COQ tools.This provides a low-cost of implementation, ownership and use cycle, while providing an instant, actionable document for timely review and decision-support.
Executive support aside, a truly effective cost of quality process requires the complete organizational support and application in order to fully reap the benefits.This is because those that know the business processes, or lack thereof, are those people who use them every day.Gleaning staff input and perspective is an important component to arriving at a complete COQ analysis, and one that will get widespread support after implementation.As many quality champions can attest, if the people are not won over, the initiative is "DOA".
Selling the rationale for COQ can be a trying undertaking if not fully prepared to see it through from cradle-to-grave.Nothing puts a damper on future initiatives more than a half-hearted, mildly effective costly program geared toward continuous improvement.However, positioned correctly, a well-documented COQ plan, replete with relevant pilot or case study data, will most likely sell itself.
A Cost of Quality process is an indispensable tool in an enterprise GIS organization striving to decrease costs, increase efficiency and operate at optimal levels.The inherent nature of enterprise GIS data lends itself to COQ analyses more so than other business, or non-enterprise data.
The COQ tool is simple, yet highly effective in providing management with a clearer picture of where the organization can improve, avoid risks, capitalize sooner on opportunities and reduce poor quality throughout the business.
This paper was completed while Anthony Quartararo was the GIS & Public Sector Manager for AGRA Baymont, Inc.His co-author, Lynn Krohn is the current Quality System Administrator for AGRA Baymont.Mr.Quartararo has since moved to the Tampa office of Dames & Moore in the capacity of GIS Section Manager.He continues to drive GIS quality issues in his new capacity, and looks forward to continuing to contribute to Directions.He would also like to thank AGRA Baymont for providing him the resources to complete this paper, and for allowing his recognition as a co-author.