At Juran, we have over 60 years of experience helping businesses reach their goals, and we were shocked to find that there is one single factor that can cost an organization 20%-30% of its total annual revenue.
This nasty little revenue thief flies under the radars of most finance managers and thrives right within your organization.
Meet the Cost of Poor Quality.
What is the cost of poor quality?
Cost of Poor Quality is the difference between those costs that would disappear if everything at your organization was done perfectly, the first time and every time, versus the actual costs that come from errors and inefficiencies in your processes.
Think of it as all the expenses flying out of your budget because of flawed work. Are you paying overtime to have your team correct errors? Processing returns from angry customers? That’s the cost of poor quality eating into your budget.
To make everyone aware of how the cost of poor quality can damage your organization and teach you a few ways to spot it, we knew we had to bring in the experts.
We’re turning to everyone’s favorite middle manager, Michael Scott, from The Office. We’ve compiled a list of moments when Michael’s office escapades cost his company big time.
You’ll notice we’ve identified when Michael’s action was an internal or an external failure cost, as this is a staple of the theory behind the Cost of Poor Quality. You can use these examples to help you spot internal and external failure costs in your own office, and work to minimize your cost of poor quality.
- When he wasted an entire day of work so the staff could take diversity training because of his terrible jokes.
This is an internal failure cost, because although it is not a major error that a client would see, it still cost a whole day of work, robbing Dunder Mifflin of precious paper sales time.
- Michael begins a “Golden Ticket” program in which clients get huge discounts by finding golden tickets in their paper shipments.
It turned out that there was a golden ticket in almost every paper shipment, which wound up costing the company a significant chunk of their revenues. This is a classic example of an external failure cost.
- The basketball tournament with the shipping workers downstairs.
Again, this is an internal failure cost, as both the shipping workers and sales staff lost half a day of work to play basketball. And let’s be honest, Michael’s bruised ego probably took a few days to recover to full management capacity too.
- When Michael uses negotiation tips he found on Wikipedia, like “whisper” and “walk out of the room unexpectedly”.
This is an external failure cost, as it was horribly creepy to the point of costing him a relationship with a major client.
We hope Michael’s blunders have helped frame the potential pitfalls of the Cost of Poor Quality. To find out the Cost of Poor Quality in your organization and establish a plan to minimize them, fill out the form below to consult with the Juran team about Juran’s Cost of Poor Quality Assessment.
Because really, if Michael Scott can do it, anyone can.