What Are Your Opportunity Costs of Quality?

Improvement Insights Blog

What Are Your Opportunity Costs of Quality?

Ever wondered how much poor quality is affecting your bottom line? It’s often a third or more of total revenue. What are you doing to recover it?

“I’m Jay Arthur, author of “Lean Six Sigma Demystified” and QI Macros [software].

“Let me ask you: Your company… what’s your gross revenue? If it’s a million dollars or 10 million or 100 million or a billion or whatever it is, I want you to take 35% of that. So one third of a million dollars would be 333,000 and some odd dollars, right? According to Joseph Juran if you’re not doing Quality Improvement, that’s how much money you’re losing every year. You’re wasting it.

“This is what I call “the opportunity cost of Quality.” Everybody [says] “Well, it costs a lot of money to send people to classes and buy some software to do the analytics.” No, it costs you nothing! You’re losing out on all this opportunity cost that you could be saving by doing a little Quality Improvement. One third [of your gross revenue].

“Shigeo Shingo said your business is like a banana: it’s 46% waste. Dude, that’s tons of money! Tons of money which you could gather back if you just did a little bit of analysis and focused on the few key things that are really broken. Everything ain’t broken. 4% [of your company’s steps] are causing over half that waste. I’m telling you what, you add another penny to the bottom line and stock prices go up. It’s funny that way. It doesn’t take much movement to make stock prices go up, or for you to get a bonus or promoted or raises, right?

“What boss doesn’t want your subordinate to come in and [say] “Hey, I found a way to save $50,000, and all we had to do is tweak this thing that way instead of that way” or something, you know? Or smooth out how this is done or remove this step in this process.

“Most of this stuff is that simple, it doesn’t require a gazillion-dollar investment in new technology. Anytime anybody starts talking about gazillion-dollar investments in new technology, I just laugh. Because when I was at the phone company they said, “Wait times were too long in the call centers.” 9,000 service reps, 30-minute wait [times] really made customers unhappy. They said, “We’re going to spend $12 million and buy this new call routing system that will solve all of that.” They spent the 12 million and implemented it and nothing changed… nothing changed. So anytime anybody tells you that you need a ton of money to make things suddenly better… no.

“With QI Macros, for 400 bucks you can get tools that’ll really kick some butt and take some names and get things going. So remember, it’s not the cost of what you’re doing, it’s the opportunity cost of what you’re not doing. By not doing, you’re losing a third of your total revenues every single day, every single week, month, year… Man, I tell you what: There’s money out there to be had and found and recovered, and you’re going to look like a superstar.

“That’s my Improvement Insight for this week. Think about the costs of not getting rid of all of that waste and rework. Let’s go out and improve something this week. Let’s save a ton of money.”