Quality-Cost Analysis

Benefits and Risks Cem Kaner

Definitions

Quality: The total composite product and service characteristics of marketing,

engineering, manufacture and maintenance through which the product and service in use will meet the expectations of the customer.

The characteristics of the product that come together to form the composite of the product are: reliability, serviceability, maintainability, safety, attractability…

Quality of a product requires the balancing-off of these requirements It is a customer’s determination; it’s a measure of the customer’s

experience with the product or service against customer’s requirements.

Nowadays, businesses consider quality as one of the primary strategies, since it is a huge factor in determining their success/failure.

In terms of software engineering, quality is defined as the extent to which a particular software product meets its specifications

Within every single development organization there is a group who has the primary responsibility to ensure the delivered product is what the client requested (to ensure quality); it is called SQA group.

Definitions

Control A process for delegating responsibility and authority for a management

activity while retaining the means of assuring satisfactory results. This definition is based on industry terminology.

Quality Control The process of meeting the industrial quality goal; analogy to “production

control”. Made up of 4 steps: Setting standards

Determining the required quality standards for the product Appraising conformance

Comparing the conformance of the developed product Acting when necessary

Correcting problems and their causes Planning for improvement

A continuing effort to improve the standards Total Quality Control

The process of achieving full effectiveness in meeting the industrial goal. It has to start with the identification of customer requirements and ends only when the product is given to the customer who remains satisfied.

Why is the scope so wide? Because the quality of a product is affected at many stages:

Marketing, engineering, manufacturing

Definitions

Quality Cost:- It is represented by the costs encountered in:

- preventing - finding - correcting the defective work

- It represents the basis through which investment in quality projects can be actually evaluated in terms of cost improvement, profit enhancement….

- Quality Costs have an impact through the entire life cycle of the product, it does not stop at the shipping phase

- They represent in general a significant amount- It is affected (reduced) by Total Quality Control.

- A little bit of History:- “Gold in the Mine” concept - This concept triggered a better understanding of:

- 1. The company’s accounting system- 2. The identification of all the quality related costs- 3. The idea of an ‘optimum’ for quality costs.

Definitions Quality Cost Analysis:

The process that consists in comparing and examining the individual quality cost item to each other and to the total so that appropriate action could be taken. Generally, it is more meaningful to talk about time intervals and about absolute dollar amounts.

History: One of its first advocates was quality theorist: Joseph Juran.

The objective of quality cost analysis is to minimize the total cost of quality across the life of a product (therefore, to reduce the quality costs)

Quality cost analysis is a standard part of traditional quality control

Definitions

Total Quality Management (TQM) Represents the total quality control’s

organization wide impact. Covers the full scope of the product and

service life cycle (conception->production->customer service)

The goal is to minimize quality costs Quality Engineer:

A person who is in charge of analyzing and reducing the quality costs associated with a product.

Software Engineering Context

Quality Costs (sometimes overlap) Prevention Costs (Pc):

Costs associated with preventing poor quality. examples: design errors, coding errors

Appraisal Costs (Ac): Costs associated with revealing the poor quality Testing Design reviews are somewhere in the middle

Failure Costs (Fc): Internal Failure Costs

Costs encountered before the product was shipped to the customer

Example: fixing bugs External Failure Costs

Costs encountered after product was shipped to the customer Example: patching a released product and distributing the patch

Total Cost of Quality = Pc + Ac + Fc

Prevention Costs

The costs encountered in the activities preventing poor quality.

Examples: Staff training Early Prototyping/Requirements analysis Clear Specification/unambiguous documentation Evaluation of the development tools that will be

used Interesting features:

The costs are distributed to almost all the groups involved in the product development. Any group that might not be affected?

Defensive programming?

Defensive Programming

Defensive programming is the practice of anticipating where failures can occur and then creating an infrastructure that tests for errors, notifies you when anticipated failures occur, and performs damage-control actions you have specified-- such as stopping program execution, redirecting users to a backup server, enabling debugging information you can use to diagnose the problem.

This way: problems that might otherwise go unnoticed are

detected small errors that might turn into disasters are caught a lot of debugging and maintenance could be saved.

Appraisal Costs:

The Costs encountered in the activities aimed at revealing quality problems.

Examples: Glass box testing Black box testing Code inspections Test automation

Interesting issues: What about design review?

Part appraisal, part prevention

Internal Failure

The Costs encountered before the product distribution to the customers.

Examples Fixing bugs Regression testing

Interesting issues: What about cost of delays and of lost opportunity? Like: Direct and Opportunity cost of late shipment and

Wasted advertisements These are costs borne by the groups outside the

product development Might give birth to controversy, so it is recommended

not to be used especially the first times the organization is try to implement the quality-cost analysis.

External Failure

Costs encountered after the product has already been shipped to the customers.

Examples: Investigation of customer complaints Refunds and recalls Lost sales Coding/testing/shipping of updated product

Can this always be done? All costs imposed by law

Interesting issues: What about cost of high turnover or cost of lost

pride? Hard to estimate

Benefits

The goal is to reach minimum quality costs at the desired outgoing quality level.

It’s a feed-back mechanism: quality costs data is used by the management to make decisions that will impact the quality costs.

Applications of Quality Costs Measurement Tool:

Quality costs provide comparative measurements for evaluating quality programs versus the value of the results achieved

Process-Quality Analysis Tool Quality costs can serve effectively as an analysis tool and point out

where the problems are Programming Tool

Quality costs determine how the available resources to be divided Predictive Tool

Quality costs can also be used to evaluate and assure performance in relation to the goals and objectives of the organization.

Benefits

Benefits by examples: This approach gives insights in how

companies that don’t use the TQM might be helped.

Example in the paper. An individual does a quality-cost analysis and makes his point.=>next slide

It raises other questions that can be approached by individuals in an organization

Class Exercise! Real life example. Do you know any

example?

Benefits (example)

Get Cost Estimates for: 1. ask the writers 2. ask the training staff 3. ask Technical Support 4. ask The programmers 5. ask The sale staff 6. what about magazine reviews

A different story 1. it’s not just your opinion anymore 2. business argument … money, money,

money 3. valid data

Risks

Implementation Risks Not being realistic and trying to achieve too

much too soon. Controversial costs should be left aside,

especially the first few times the company is trying to implement the quality-costs analysis

Other risks: Looking only from the point of view of the

company, not looking at the customer’s costs (example)

Might result in other types of risk: Customer Dissatisfaction Litigation

Ford Pinto litigationBenefits and Costs Relating to Fuel Leakage Associated with the Static Rollover Test Portion of FMVSS 208

BenefitsSavings — 180 burn deaths, 180 serious burn injuries, 2100 burned vehiclesUnit Cost -- $200,000 per death, $67,000 per injury, $700 per vehicleTotal Benefit — 180 x ($200,000) + 180 x ($67,000) + 2100 x ($700) = $49.5 million.

CostsSales — 11 million cars, 1.5 million light trucks.Unit Cost -- $11 per car, $11 per truckTotal Cost — 11,000,000 x ($11) + 1,500,000 x ($11) = $137 million.

Ford Pinto

Quality-cost analysis looks at the costs from only the companies’ perspective.

However, these costs might not be easily estimated It ends up costing Ford way more Motors Corp vs Johnston

When calculating the trade-off between several factors (costs one of them) it is important for the companies to realize and take into account the customer’s costs.

Another look at External Failure Costs

Borne by seller Given in the previous slide

Borne by buyer Death / Injury Embarrassment Might affect their customers Cost of tech support Cost of replacing product

Why are the companies reluctant to implement quality-costs analysis?

Skepticism ; some companies have tried and failed or they are aware of other companies that tried and failed

They don’t know whom to trust; there are many advocates and agendas.

They believe in “Our business is different.” Mediocre quality is still saleable. The confusion in language—the belief that “higher quality costs

more.” Certification to the ISO 9000 will solve all their issues related to

quality performance. ISO 9000: The quality management system standards, which are

based on the eight quality management principles: Principle 1 Customer focus Principle 2 Leadership Principle 3 Involvement of people Principle 4 Process approach Principle 5 System approach to management Principle 6 Continual improvement Principle 7 Factual approach to decision making Principle 8 Mutually beneficial supplier relationships

References

“Quality Control Handbook”, J.M. Juran, Third Edition 1979

“Total quality control”, A.V. Feigenbaum, Third Edition 1991

“Quality Management: Implementing the best ideas of the masters”, Bruce and Suzzane Brocka, 1992

“Why TQM fails and what to do about it”, Mark Graham Brown, Darcy E. Hitchcock, Marsha L. Willard, 1994

http://www.iso.ch/iso/en/ http://www.parasoft.com/